ITEM 1. BUSINESS OVERVIEW
INTRODUCTION
PHI Group, Inc., ("PHI") through its wholly-owned and majority-owned subsidiaries engages in a number of diverse business activities including consulting, merger and acquisition advisory services, real estate development, mining, and independent energy and maintains minority interests in various companies operating in the areas of infrastructure, construction, natural resources, finance, manufacturing, services and retail. The Company provides financial consultancy and M&A advisory services to U.S. and foreign companies and invests in selective businesses that may create long-term shareholder value. No assurances can be made that management will be successful in achieving its plan.
BACKGROUND
PHI Group, Inc. ("PHI" ) was organized under the laws of the State of Nevada on June 8, 1982 under the name of JR Consulting, Inc. The Company changed its name to Providential Securities, Inc., a Nevada corporation, on January 12, 2000, and subsequently changed its name to Providential Holdings, Inc. on February 9, 2000. From its inception through September 7, 1995, the Company generated nominal revenues and did not actively engage in business. Prior to the corporate combination agreement with Providential Securities, Inc., JR Consulting had an operating subsidiary, Diva Entertainment, Inc ("Diva"), which operated two modeling agencies, one in New York and one in California.
Providential Securities, Inc., a California Corporation ("Providential Securities") was incorporated in the State of California on October 8, 1992. It operated a securities brokerage service in California, New York and Oregon. The principal markets for Providential Securities' services were individual investors who were located throughout the United States. Providential Securities bought and sold securities for its customers through a number of different markets, utilizing a brokerage clearinghouse to transact the trades. Due to the results of an NASD examination, Providential Securities withdrew its membership and ceased its securities brokerage business in October 2000.
The Company changed its name to PHI Group, Inc. on April 13, 2009.
BUSINESS STRATEGY
PHI Group Inc.'s strategy is to:
1. Identify, build, acquire, commit and deploy valuable resources with distinctive competitive advantages;
2. Identify, evaluate, participate and compete in attractive businesses that have large, growing market potential;
3. Design and implement best-of-breed management systems; and
4. Build an attractive investment that includes points of exit for investors through capital appreciation or spin-offs of business units.
BUSINESS RESTRUCTURING
Following the discontinuance of its securities brokerage operations in October 2000, the Company restructured its primary scope of business to engage in merger and acquisition advisory services, with particular emphasis on: (1) Consulting and Financial services (2) Real estate development, (3) Independent Energy and Resources, and (4) Special Situations. During the Fiscal Year ended June 30, 2009, the Company increased its focus on assisting Vietnamese companies to go pubic in the U.S. stock markets and investing in Vietnam. Events and developments relating to these areas are described in more detail below.
SUBSIDIARIES:
PROVIDENTIAL CAPITAL, INC.
In May 2003, the Company formed a wholly-owned subsidiary under the name of Providential Capital to provide financial products and services for the micro-small cap arenas and manage the Company's proprietary merger and acquisition activities. Providential Capital has mainly focused its attention on the underserved segment of smaller companies in the U.S. and abroad. Providential Capital began providing merger and acquisition advisory services to its clients since the fourth quarter of the fiscal year ended June 30, 2003. Providential Capital has successfully managed merger plans for several publicly-traded companies and is currently focusing on a number of target companies in the US and Vietnam and expects to generate additional business in the Pacific Rim in the next twelve months.
PROVIDENTIAL VIETNAM LTD.
Providential Vietnam is a Vietnamese corporation and wholly-owned subsidiary of PHI Group, Inc.. This subsidiary started operation in May 2008 to provide M&A advisory services, financial and management consulting, corporate restructuring, and investment banking services to companies in Vietnam.
PHILAND RANCH LIMITED and PHILAND CORPORATION
Philand Ranch Limited is a company registered under the laws of England and Wales. On June 5, 2009, Philand Ranch Limited acquired all the issued and outstanding common stock of PhiLand Corporation in exchange for the same amount of ordinary shares of Philand Ranch Limited. Philand Corporation is a Nevada corporation which was set up in July 2007 to manage the real estate development project in South Hoi An, Quang Nam Province, Vietnam. In July 2007, PHI Group, Inc. entered into a principle agreement with the People’s Committee of Quang Nam Province, which allows the Company to lease approximately 8,000 acres of land in South Hoi An, Quang Nam Province, Vietnam to develop an integrated tourism zone under a 70-year lease term. The total cost of the land lease once it is signed is $250,250,000, which can be paid over a period of time to be determined by both parties. As of the date of this report, the Company has not made any payment towards the lease. On December 14, 2007, PhiLand Corporation was granted Investment License No.333043000025 by the Authority of Chu Lai Open Economic Zone, Quang Nam Province, Vietnam and formed PhiLand Vietnam, Ltd., a wholly-owned subsidiary of PhiLand Corporation, to manage Pointe 91, its first development project of a 118-acre residential community and resort in Bien Rang, Nui Thanh District, Quang Nam Province, Vietnam. Philand Corporation has engaged Urban Arena to coordinate and provide survey, site plan and architectural designs for Pointe91, CB Richard Ellis Vietnam, Ltd. to provide marketing and selling of the residential units, and Mayer Brown JSM for legal representation in connection with our real estate development activities. During the year ended June 30, 2009, 3,500,000 shares of PhiLand Corporation were issued to employees and consultants of the Company. 244,286 shares which were owned by the Company were sold to individuals for $140,000 and 900,000 shares which were owned by the Company were exchanged with 23,285,714 shares of Jeantex Group, Inc and 29,000 shares which were owned by the Company were exchanged for the payment of note of $29,000. In addition, during the year ended June 30, 2009, 208,000 shares of PhiLand Corporation were newly issued for cash of $24,000 and 200,000 shares PhiLand Corporation were issued for consulting service. The total of 5,081,287 shares held by minority shareholders makes up approximately 21% of outstanding shares. As a result of the stock exchange between Philand Corporation and Philand Ranch Limited, the Company currently owns 18,734,753 shares of ordinary stock of Philand Ranch Limited, which is listed on the Open Market Segment of the Frankfurt Stock Exchange under the symbol 1P8.F, WKN A0RPEA.
PHI MINING GROUP, INC. (FORMERLY, DDC INDUSTRIES, INC.) and INDOCHINA MINING CORPORATION
In March 2007, the Company received 900,000 shares, valued at $675,000, of Bio-Warm, which subsequently acquired 100% of Vietnam-based Dai Dung Metallic Manufacture Construction and Trade Company (DDMMCT) and changed its name to DDC Industries, Inc. The Company received these shares for advisory services completed earlier in that month. In June 2007, the Company received 3,763,753 shares of DDC Industries for services performed in the merger of Bio-Warm Corp. and DDMMCT which was closed on March 30, 2007 and received the remaining 3,763,753 shares during the year ended June 30, 2008 per the agreement, which in total, is equivalent to 20% of all issued and outstanding shares of DDC Industries, Inc. The merger agreement with DDMMCT was rescinded on November 18, 2008 in entirety and shareholders of DDMMCT agreed to return 28,610,025 shares of 30,110,025 issued shares. On December 1, 2008, DDC Industries Inc. changed its name to PHI Mining Group, Inc. The common stock of PHI Mining Group, Inc. is currently trading on the Pink Sheets under the symbol “PHIG”. PHI Mining Group did not generate any revenues in the year ended June 30, 2009.
IndoChina Mining Corporation, a Nevada corporation., was incorporated on March 20, 2008 for exploitation and processing of diatomite mines. On April 14, 2008, IndoChina Mining Corporation (IMC), entered into a Cooperation agreement with Phu Yen Minerals Joint Stock Company (PYMICO). Under this agreement, PYMICO and IMC will cooperate to contribute capital for establishment of a joint venture specializing in exploitation and processing of diatomite in Phu Yen province and IMC will participate in PYMICO through purchasing a maximum of 30% shares of PYMICO when the latter issues additional shares in 2008. During the year ended June 30, 2009, IndoChina Mining also entered into an agreement with Mr. Chinnawat Chaikijjanuwat of Thailand to establish a joint venture company to exploit and process a black pearl granite mine in Nakhornrajchasima province, Thailand and an agreement with Truong Son Group to establish a joint venture company to survey, mine and process lead and zinc in Tuyen Quang province, Vietnam. As of the date of this report, IndoChina Mining Corp. has not perfected its interest in these joint venture companies.
On December 1, 2008, Indochina Mining Corporation entered into stock purchase agreement with PHI Mining Group (formerly DDC Industries, Inc.) to exchange all of its capital stock with the same number of newly issued shares of PHI Mining Group. As a result, the Company owns approximately 83% of PHI Mining Group.
PROVIMEX, INC.
Provimex, Inc. was originally formed on April 10, 2001 under the name "Providential Imex", to focus on trade commerce with Vietnam. This division changed its name to Provimex on July 5, 2001. Provimex began to generate revenues from its import and export activities in August 2002 through the fiscal year ended June 30, 2005 and incorporated as a Nevada corporation on September 23, 2004. The Company has declared a 15% stock dividend of Provimex, Inc. to shareholders of record as of September 15, 2004 and currently owns 85% of Provimex, Inc. For the fiscal years ended June 30, 2009 and 2008, this subsidiary did not generate any sales.
VIETNAM MEDIA GROUP, INC., formerly TOUCHLINK COMMUNICATIONS, INC.
Touchlink Communications was formed on July 7, 2003 as a division of the Company to provide point-of-sale (POS) terminals and prepaid calling cards to retailers, convenient stores and non-profit organizations across the US. Touchlink Communications signed an agreement with KAGRO (Korean American Grocer Association) to provide pre-paid services to its member stores in the US and Canada. This subsidiary was later incorporated as a Nevada corporation in February 2004 under the name of Touchlink Communications, Inc. as a wholly-owned subsidiary of the Company to provide long distance services to residential and business customers in the United States. The Company has declared a 15% stock dividend of Touchlink Communications, Inc. to shareholders of record as of September 15, 2004 and currently owns 85% of Touchlink Communications. On November 03, 2008, Touchlink Communications, Inc. changed its name to Vietnam Media Group, Inc. to focus on on multi-media business. This subsidiary did not have any activities during the Fiscal Years ended June 30, 2009 or 2008.
PROVIDENTIAL ENERGY CORPORATION
On May 9, 2005, the Company formed Providential Oil & Gas, Inc., a Nevada corporation and wholly-owned subsidiary of the Company, to begin investigating a number of lease properties in the US and abroad. On November 25, 2005, Providential Oil & Gas signed an agreement with Terra-Firma Gas & Oil, LLC, a Nevada corporation with headquarters in Midland, Texas, to co-develop up to twenty four gas wells in Crockett County, West Texas. As of the date of this report, this subsidiary has not begun drilling any of the gas wells in conjunction with Terra-Firma Gas & Oil under the agreement. Effective June 1, 2006, Providential Oil & Gas amended its Articles of Incorporation and changed its corporate name to Providential Energy Corporation with an intention to broaden its scope of business to include alternative energy. During the Fiscal Year ended June 30, 2007 Providential Energy Corporation entered into a Business Cooperation Agreement with Unitex Energy, LLC, a Texas Limited Liability Company, to establish PhiTex Energy Group, Inc., a Nevada corporation, in order to acquire and develop oil
and gas properties. Providential Energy Corporation currently owns 87.75% stock of PhiTex Energy Group.. In September 2007, Providential Energy Corp entered into an agreement to form a joint-venture company, WRCP PEC Mining Corporation (CPMC), with WRC Partners (WRCP), in order to acquire up to 2,700 acres of mineral, oil and gas rights near Bakersfield, California for development. According to the agreement, Providential Holdings will be responsible for taking CPMC public and will manage the public company related activities required to be in full compliance with regulatory and market demands and Providential Energy Corporation will own up to a maximum of 40% of the equity interest in CPMC. Providential Energy Corporation did not generate any revenue during the years ended June 30, 2009 and 2008.
MINORITY INTERESTS:
JEANTEX GROUP, INC. (formerly LEXOR HOLDINGS, INC.)
On May 13, 2005, Providential Capital, Inc., a wholly-owned subsidiary of the Company, entered into a business consulting agreement with Lexor Holdings, Inc. to provide merger and acquisition advisory services to Lexor Holdings, Inc. with regard to a proposed merger between Lexor Holdings, Inc. and SB Chemical Co., Ltd., a Republic of Korea corporation. According to this agreement, the Company would be entitled to an additional 14% equity interest in Lexor Holdings, Inc. following the consummation of a merger between Lexor Holdings, Inc. and SB Chemical Co, Ltd. or another established business entity.
On June 22, 2005, Lexor Holdings, Inc. entered into a Stock Purchase Agreement with Jeantex, Inc., a California corporation and Susan Shin, an individual who is the president and sole shareholder of Jeantex Pursuant to the terms of the Agreement, Lexor acquired 100% of the issued and outstanding equity interests of Jeantex in exchange for 56,350,000 shares of Lexor restricted common stock. The Stock Purchase Agreement was closed on June 29, 2005. PHI Group, Inc. received 7,300,000 shares of restricted common stock of Lexor for services rendered in connection with this transaction. Lexor Holdings, Inc. has changed its corporate name to Jeantex Group, Inc. following the merger with Jeantex, Inc. Jeantex Group’s common stock is trading on the OTCBB under the symbol “JNTX”.
During the year ended June 30, 2009, 23,285,714 shares of Jeantex Group, Inc. were exchanged with 900,000 shares of PhiLand Corporation which were owned by the Company. As a result, the Company owns 32, 977,831 shares Jeantex Group, Inc. common stock, or equivalent to 34.26%.
JOINT VENTURES:
PROVIMEX-HTV JOINT VENTURE COMPANY, LTD.
On October 18, 2004, the People's Committee of Ho Chi Minh City, Vietnam approved the joint venture application by the Company and HTV, Ltd., a Vietnam-based company, to form a Joint Venture company under the name of "Provimex-HTV Joint Venture Company, Ltd." This joint venture company primarily focused on providing equipment and liquid gas to high rise buildings and premium residential housings in Vietnam. The Company was to own 80% equity in the joint venture company. The investment in Provimex-HTV Joint Venture Company, Ltd. has been written off as an impairment of assets as of June 30, 2005. On May 13, 2007, the Company loaned $67,000 to Provimex-HTV Joint Venture Company with interest rate of 8.5% per year. This Note was written off as bad debt of as the date of this report.
CAVICO-PHI CEMENT JOINT STOCK COMPANY
On August 29, 2006, the Company entered into a Principle Business Cooperation Agreement with Cavico Vietnam Joint Stock Company, a Socialist Republic of Vietnam corporation, which is a business conglomerate engaged in various business activities including, but not limited to, infrastructure, construction, energy, mining, information technology, and real estate development. Pursuant to the terms of the Agreement, Providential and Cavico have agreed to cooperate in funding, building, owning and operating certain businesses in Vietnam and other regions of the world and share in the benefits of these business operations.
In September 2006 Cavico and the Company formed a joint-venture company, namely Cavico PHI Cement Joint Stock Company (“CPCC”), to jointly fund, build, own, and operate a cement plant in Phu Ly, Ha Nam province. It is anticipated that the Company will contribute 10% of the equity investment towards CPCC. During the fiscal year ended June 30, 2007, the Company has contributed $30,000 towards the joint venture project. This investment was impaired as of June 30, 2007.
ITEM 1A.
ITEM 1A. RISK FACTORS
RISK FACTORS
Investment in our securities is subject to various risks, including risks and uncertainties inherent in our business. The following sets forth factors related to our business, operations, financial position or future financial performance or cash flows which could cause an investment in our securities to decline and result in a loss.
General Risks Related to Our Business
Our success depends on our management team and other key personnel, the loss of any of whom could disrupt our business operations.
Our future success will depend in substantial part on the continued service of our senior management and founder. The loss of the services of one or more of our key personnel could impede implementation and execution of our business strategy and result in the failure to reach our goals. We do not carry key person life insurance for any of our officers or employees. Our future success will also depend on the continued ability to attract, retain and motivate highly qualified personnel in the diverse areas required for continuing our operations. We cannot assure that we will be able to retain our key personnel or that we will be able to attract, train or retain qualified personnel in the future.
Our service strategy in merger and acquisition involves a number of risks and we have a limited history of successful acquisitions. Even when an acquisition is completed, we may have to continue our service for integration that may not produce results as positive as management may have projected.
The Company is in the process of evaluating various opportunities and negotiating to acquire other companies and technologies. Acquisitions entail numerous risks, including difficulties in the assimilation of acquired operations and products, diversion of management's attention from other business concerns, amortization of acquired intangible assets and potential loss of key employees of acquired companies. We have limited experience in assimilating acquired organizations into our operations. Although potential synergy may be achieved by acquisitions of related technologies and businesses, no assurance can be given as to the Company's ability to integrate successfully any operations, personnel, services or products that have been acquired or might be acquired in the future. Failure to successfully assimilate acquired organizations could have a material adverse effect on the Company's business, financial condition and operating results.
Acquisitions involve a number of special risks, including:
failure of the acquired business to achieve expected results;
diversion of management’s attention;
failure to retain key personnel of the acquired business;
additional financing, if necessary and available, could increase leverage, dilute equity, or both;
the potential negative effect on our financial statements from the increase in goodwill and other intangibles; and
the high cost and expenses of completing acquisitions and risks associated with unanticipated events or liabilities.
These risks could have a material adverse effect on our business, results of operations and financial condition since the values of the securities received for the consulting service at the execution of the acquisition depend on the success of the company involved in acquisition. In addition, our ability to further expand our operations through acquisitions may be dependent on our ability to obtain sufficient working capital, either through cash flows generated through operations or financing activities or both. There can be no assurance that we will be able to obtain any additional financing on terms that are acceptable to us, or at all.
Our businesses are currently focused in Vietnam, and any adverse change to the economy or business environment in Vietnam could significantly affect our operations, which would lead to lower revenues and reduced profitability.
Our operations are currently concentrated in Vietnam. Because of this concentration in a specific geographic location, we are susceptible to fluctuations in our business caused by adverse economic or other conditions in this region, including stock market fluctuation. A stagnant or depressed economy in Vietnam generally, or in any of the other markets that we serve, could adversely affect our business, results of operations and financial condition.
Risks Related to our Securities
Insiders have substantial control over the company, and they could delay or prevent a change in our corporate control, even if our other stockholders wanted such a change to occur.
Our executive officers/directors and principal stockholders who hold 5% or more of the outstanding common stock owned as of June 30, 2009, in the aggregate, approximately 27% of our outstanding common stock. These stockholders will be able to exercise significant control over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This could delay or prevent an outside party from acquiring or merging with us even if our other stockholders wanted it to occur.
In addition, the stock market often experiences significant price fluctuations that are unrelated to the operating performance of the specific companies whose stock is traded. These market fluctuations could adversely affect the trading price of our shares.
The price at which investors purchase shares of our common stock may not be indicative of the price that will prevail in the trading market. Investors may be unable to sell their shares of common stock at or above their purchase price, which may result in substantial losses.
We do not meet the requirements for our stock to be quoted on NASDAQ, the American Stock Exchange or any other senior exchange, the tradability in our securities will be limited under the penny stock regulations.
Under the rules of the Securities and Exchange Commission, if the price of our securities on the OTC Bulletin Board is below $5.00 per share, our securities are within the definition of a "penny stock." As a result, it is possible that our securities may be subject to the "penny stock" rules and regulations. Broker-dealers who sell penny stocks to certain types of investors are required to comply with the Commission's regulations concerning the transfer of penny stock.
These regulations require broker-dealers to:
*Make a suitability determination prior to selling penny stock to the purchaser; *Receive the purchaser's written consent to the transaction; and *Provide certain written disclosures to the purchaser.
These requirements may restrict the ability of broker/dealers to sell our securities, and may affect the ability to resell our securities.
Our compliance with the Sarbanes-Oxley Act and SEC rules concerning internal controls may be time consuming, difficult and costly for us.
It may be time consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal controls and other finance staff in order to develop and implement appropriate internal controls and reporting procedures. If we are unable to comply with the internal controls requirements of the Sarbanes-Oxley Act, we may not be able to obtain the independent accountant certifications that the Sarbanes-Oxley Act requires publicly-traded companies to obtain.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2.
ITEM 2. DESCRIPTION OF PROPERTIES
In August 2004, the Company started its lease of current office space at 17011 Beach Blvd., Suite 1230, Huntington Beach, CA 92647 for $3,907 per month. The lease was expired on July 31, 2007 and the Company paid rent on a month-to month basis through April 30, 2008.
The Company signed on a 5 year lease agreement for the same office effective May 1, 2008. The monthly rental is $6,690.70 and will be increased by 3.5% per annum commencing in the thirteenth month of the initial lease term and continuing annually thereafter.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS AND ARBITRATIONS
Other than as set forth below, Company is not a party to any material pending legal proceedings and, to the best of its knowledge, no such action by or against Company has been threatened. The majority of the legal proceedings and arbitration cases are related to the discontinued operations of Providential Securities, Inc.
LEGAL PROCEEDING SETTLED AND UNPAID AS OF JUNE 30, 2009:
QUANG VAN CAO AND NHAN THI NGUYEN CAO VS. PROVIDENTIAL SECURITIES, INC. ET AL.
This case was originally submitted to Orange County Superior Court, CA on June 25, 1997, Case No. 781121, and subsequently moved to NASD Dispute resolution for arbitration. On or about August 24, 2000, the Company's legal counsel negotiated with the Claimant's counsel and unilaterally reached a settlement that had not been approved by the Company. While the Company was in the process of re-negotiating the terms of said settlement, the Claimants filed a request for arbitration hearing before the National Association of Securities Dealers on October 4, 2000, Case No. 99-03160. Thereafter, the Claimants filed a complaint with the Orange County Superior Court, CA on October 31, 2000, Case No. 00CC13067 for alleged breach of contract for damages in the sum of $75,000 plus pre-judgment interest, costs incurred in connection with the complaint, and other relief. Without admitting or denying any allegations, the Company reached a settlement agreement with the Claimants whereby the Company would pay the Claimants a total of $62,500 plus $4,500 in administrative costs. As the date of this report, the Company has paid $2,500 and is subject to an entry of judgment for $79,000. The settlement amount has been accrued in the accompanying consolidated financial statements.
CONSECO FINANCE VENDOR SERVICES CORPORATION FKA GREEN TREE VENDOR SERVICES CORPORATION VS. PROVIDENTIAL SECURITIES, INC., HENRY D. FAHMAN AND TINA T. PHAN
In September 1997 Providential Securities, Inc. entered into a written Lease Agreement to lease certain items of equipment from Green Tree Vendor Services, in return for which Providential Securities, Inc. agreed to pay thirty-six monthly installments, each in the amount of $1,552. On or about September 12, 2000, and subsequently, Providential Securities, Inc. was unable to make the monthly payments to Claimant due to the lack of revenues following the interruption and subsequent closure of its securities brokerage operations. (See Note 3) Claimant filed a complaint for money with the Superior Court of the State of California, County of Orange (Case No. 01CC02613) on February 23, 2001 seeking $39,102 plus interest thereon at the legal rate from September 12, 2000. The claimant entered a judgment against Providential Securities, Inc., Henry Fahman and Tina Phan for $48,933. The judgment amount has been accrued in the accompanying consolidated financial statements.
PENDING LITIGATION:
NGON VU VS. PROVIDENTIAL SECURITIES, INC.
Claimant was a former employee of Providential Securities, Inc. who was laid off in 2000 due to closure of business. The Claimant complained to the Department of Industrial Relations (DIR) for allegedly unpaid vacation and salaries. On June 13, 2001, the DIR filed a request to enter a judgment against Providential Securities, Inc. for $9,074 including wages and interest, penalty, post hearing and filing fee. The sought amount of $9,074 has been accrued in the accompanying consolidated financial statements.
VERIO VS. PROVIDENTIAL SECURITIES, INC.
On or about April 1, 2003, Verio, Inc. filed a judgment against Providential Securities, Inc., a wholly-owned subsidiary of the Company which was discontinued in October 2000, for a total of $9,141. This sum consists of $6,800 for services allegedly rendered by Verio, Inc. to Providential Securities, Inc. in 2000 and $2,341 for legal costs. Both amounts have been accrued in the accompanying consolidated financial statements.
DOW JONES & COMPANY, INC. VS. PROVIDENTIAL SECURITIES, INC. AND PHI GROUP, INC.
On March 19, 2002 Dow Jones & Company filed a complaint with the Superior Court of California, County of Orange, West Justice Center (Case No. 02WL1633), against Providential Securities, Inc., the discontinued operations of the Company, and PHI Group, Inc. for $9,973 plus prejudgment interest at the rate of ten (10%) per annum from November 1, 2000, reasonable attorneys’ fees and other and further relief. This claim is in connection with services allegedly rendered by the Plaintiff to Providential Securities, Inc. prior to November 2000. The Company intends to settle this case. The sought amount of $9,973 (excluding interest) has been accrued in Accrued Expenses in the accompanying consolidated financial statements.
KEY EQUIPMENT FINANCE, INC., VS. 49-6215601204 PROVIDENTIAL SECURITIES, INC.; HENRY D. FAHMAN; TINA T. PHAN, CASE NO 06WL00289
On January 18, 2006 Key equipment Finance filed a suit in the Superior Court of the State of California, County of Orange - West District claiming breach of the terms of lease agreement by failure to make the monthly installment due although demand therefore was made. The remaining balance due and owing to plaintiff under the lease is $14,439 plus interest from the date of default. The plaintiff also claiming for breach of guaranty, common counts, unjust enrichment and cost of law suit and any other relief the Court may deem just and proper. As of June 30, 2007, the Company has accrued $14,439.
NASD CASE:
After the completion of a routine audit of Providential Securities, Inc. in July and August 2000, the National Association of Securities Dealers, Inc. alleged that Providential violated certain provisions of the NASD's Conduct Rules. As a result, Providential Securities, Inc. withdrew its membership from the NASD in October 2000 and ceased its securities brokerage operation. $127,305, including $115,000 fine charged by NASD, is included in accrued expenses in the accompanying consolidated financial statements.
ARBITRATION CASES:
The Company had four arbitration cases from day-traders against Providential Securities, Inc., a discontinued stock brokerage operation of the Company. The total amount of damages for these cases, which were closed as of June 30, 2001, was $ 54,505. This amount has been accrued in the accompanying consolidated financial statements.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 10, 2009, the Company held its annual shareholders’ meeting and the following actions were taken place:
1. Election of directors; Tam Bui, Henry Fahman, Frank Hawkins, Lawrence Olson, and Paul Nguyen.
2. Ratifying the Board of Directors’ proposals to change the Company’s name to PHI Group, Inc. and the par value of the Company’s common stock from $0.04 to $0.001 per share.
3. Authorizing the Board of Directors to upgrade the listing of the Company’s common stock to the NASDAQ Stock Market or another senior exchange in the future.
PART II
ITEM 5.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On June 29, 1995 Company's Common Stock began trading on the Over the Counter Bulletin Board (OTCBB) under the symbol "JRCI" until December 12, 1999. Since December 12, 1999, the Common Stock was trading under the symbol "JRCIE." Following the corporate combination with Providential Securities, Inc. that was consummated on January 14, 2000, the Common Stock traded under the symbol "PRVH," until October 20, 2000 when it traded under the symbol "PRVHE" due to the delay in its filing of Form 10-KSB for the period ended June 30, 2000. It was trading under the symbol "PRVH" on the OTC Pink Sheets from November 21, 2000 until April 3, 2002 when it was relisted on the OTCBB. From October 20, 2004 to January 2, 2005, it was trading under the symbol "PRVHE" due to the delay in the filing of Form 10-KSB for the period ended June 30, 2004. From January 3, 2005 to February 27, 2005, it was trading under the symbol "PRVH". On February 28, 2005, it was trading under the symbol "PRVHE" and from March 1, 2005 to October 18, 2005, it was trading under "PRVH". From October 18, 2006 to December 20, 2006, it was trading under "PRVHE" due to the delay in the filing of the Company's Form 10-KSB for the Fiscal Year ended June 30, 2006. Starting December 21, 2006, the Company’s Common Stock resumed trading under "PRVH" until its trading symbol was changed to “PHIE” following the change of corporate name to PHI Group, Inc. and par value from $0.04 to $0.001 in April 2009.
The Company's common stock is also listed on the Berlin, Frankfurt, Munich Stock Exchanges, and Xetra in Germany under the symbol "PR7, WKN A0RNQV”.
The following sets forth the high and low prices of the Company's Common Stock in the US for the most recent month, most recent quarter and each quarter during the preceding two fiscal years.
Though there is a relatively wide following of the Company's stock in the US and in Europe, the prices for the Company's common stock quoted by brokers are not necessarily a reliable indication of the value of the Company's common stock.
Per Share Common Stock Prices by Quarter for the Most Recent Quarter:
Holders of Common Equity:
There are 1,256 shareholders of record of the Company's common stock.
Dividends:
The Company has not declared or paid a cash dividend to common stock shareholders since the Company's inception. The Board of Directors presently intends to retain any earnings to finance company operations and does not expect to authorize cash dividends to common shareholders in the foreseeable future. Any payment of cash dividends in the future will depend upon Company's earnings, capital requirements and other factors.
The Company has issued share dividends from ATC Technology Corp., E-Check Recovery, Inc., Irvine College of Medical Sciences, Inc., Provimex, Inc., and Touchlink Communications, Inc. to the Company's shareholders in the past.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for the audited historical information contained herein, this report specifies forward-looking statements of management of the Company within the meaning of Section 27a of the Securities Act of 1933 and Section 21e of the Securities Exchange Act of 1934 ("forward-looking statements") including, without limitation, forward-looking statements regarding the Company's expectations, beliefs, intentions and future strategies. Forward-looking statements are statements that estimate the happening of future events and are not based on historical facts. Forward- looking statements may be identified by the use of forward-looking terminology, such as "could", "may", "will", "expect", "shall", "estimate", "anticipate", "probable", "possible", "should", "continue", "intend" or similar terms, variations of those terms or the negative of those terms. The forward-looking statements specified in this report have been compiled by management of the Company on the basis of assumptions made by management and considered by management to be reasonable. Future operating results of the Company, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements. The assumptions used for purposes of the forward-looking statements specified in this report represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. In addition, those forward-looking statements have been compiled as of the date of this report and should be evaluated with consideration of any changes occurring after the date of this report. No assurance can be given that any of the assumptions relating to the forward-looking statements specified in this report are accurate and the Company assumes no obligation to update any such forward-looking statements.
RESULTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 2009 AND JUNE 30, 2008
Revenues:
The Company generated net revenue of $2,006,220 from consulting and advisory services for the year ended June 30, 2009, as compared to $3,609,318 for the year ended June 30, 2008, which represented a 44.41% decrease in consulting and advisory revenue. This decrease is mainly due to a decrease in the size and scope of the merger and acquisition activities during the current year.
Operating Expenses:
The Company incurred total operating expenses of $1,595,009 for the year ended June 30, 2009 as compared to $1,658,534 for the year ended June 30, 2008. This represents a 3.8% decrease in operating expenses from the prior year. The decrease was primarily due to the decrease in professional services and general and administrative expenses relative to a decrease in consulting and advisory services. The Company’s professional fees have decreased 23% to $599,804 for the year ended June 30, 2009 compared to $778,440 in the prior year. This is mainly due to a decrease in legal fees. Legal fees were decreased by 94% from $137,635 in the prior year to $7,951 in the current year. The Company incurred high legal fees in the prior year due to legal service related to fund raising activities and the legal fees payment as a part of consulting services for our clients.
Net income (loss) from operations:
The Company had net income from operations of $411,211 for the year ended June 30, 2009 as compared to $1,950,784 for the year ended June 30, 2008. This was mainly due to a 44% decrease in consulting and advisory revenue and a 3.8% decrease in operating expenses during the current fiscal year. The decrease in operating expenses was primarily due to the decrease in professional expenses and general and administrative expenses during the current fiscal year.
Net income:
The Company had net loss of $8,322,040 for the year ended June 30, 2009 as compared to a net income of $2,359,282 for the year ended June 30, 2008. Fiscal year ended June 30, 2009 included a loss on marketable securities of $4,018, 965 compared to a gain of $701,832 for the year ended June 30, 2008. The Company also recorded a gain on debt settlement of $187,794 for the year ended June 30, 2009 compared to $67,719 for the year ended June 30, 2008. The interest expenses increased to $586,468 for the year ended June 30, 2009 compared to $362,536 due to new notes payable added in the current period. The Company recorded an impairment of marketable securities in the amount of $4,061,715 and that of loan receivable in the amount of $282,148 for the year ended June 30, 2009, compared to no impairment recorded for the year ended June 30, 2008. The net loss based on the basic and diluted weighted average number of common shares outstanding for the year ended June 30, 2009 was ($0.04) as compared to net income of $0.01 for the year ended June 30, 2008.
LIQUIDITY AND CAPITAL RESOURCES
Our business plan was restructured in November 2000 and has been updated to its now-current form. We must continue to raise capital to fulfill our plan of acquiring other companies and assisting in the development of those internally. The Company expects that the working capital cash requirements over the next 12 months will be generated from operations and additional financing.
We had cash and cash equivalents of $37,813and $117,166 as of June 30, 2009 and June 30, 2008, respectively.
Our operating activities used $550,329 cash in the year ended June 30, 2009 compared to $1,782,930 in the year ended June 30, 2008. The largest items affecting cash from operations was the marketable securities received for services totaling $2,080,200 and the loss on sale of marketable securities of $ $4,018,965 in the year ended June 30, 2009, compared to a gain of $701,832 in the prior year. .
Cash used in investing activities was $ 575,127 compared to cash provided by $473,478 in the year ended June 30, 2009 and 2008, respectively. During the years ended June 30, 2009 and 2008, the Company received $268,840 and $642,094, respectively from the sale of marketable securities. The Company spent $25,292 and $35,388 to purchase marketable securities in the years ended June 30, 2009 and 2008, respectively. The Company used $125,421 in investments during the year ended June 30, 2009 and $106,000 in investments during the year ended June 30, 2008, respectively. The Company spent $35,792 and $27,228 to purchase of fixed assets in the fiscal year ended June 30, 2009 and 2008, respectively.
Cash provided by financing activities was $1,046,103 and $1,418,866 for the years ended June 30, 2009 and 2008, respectively. For the year ended June 30, 2009, this was primarily from proceeds on notes including borrowing from officers in the amount of $491,934 and from unrelated parties in the amount of 637,600, offset by total payments on notes amounting $214,198. For the year ended June 30, 2008, proceeds from notes totaled $1,322,600, borrowings from officer totaled $355,642, reduced by the payments on notes amounting $255,592 and purchase of treasury shares of $3,784.
SHORT TERM NOTES PAYABLE:
As of June 30, 2009 and 2008, the Company has short term notes payable amounting $2,310,085 and $1,816,255 with accrued interest of $466,387 and $340,753, respectively. These notes bear interest rates ranging from 6% to 36% per annum. $1,811,500 of these short term notes are past due and $315,535 are due on demand as of June 30, 2009. During the year ended June 30, 2009 and 2008, the Company paid $167,485 and $174,000 of principal and $200,135 and $196,188 of interest on short term notes. Some of the notes payable are secured by assets of the Company as summarized below:
DUE TO PREFERRED STOCKHOLDERS
The Company classified $215,000 of preferred stock subscribed as a current liability payable to holders of preferred stock due to non compliance of preferred shares subscription agreement. This amount was past due as of June 30, 2009. The Company made $5,000 interest payment during the year ended June 30, 2007.
The interest payable to holders of preferred stock of $232,655 has been included in accrued interest included in account payable and accrued expenses on the balance sheet as of June 30, 2009.
OTHER CURRENT LIABILITIES
During the year ended June 30, 2004, the Company received an overpayment of $89,691 from the exercise of stock options. This amount has not been paid by the Company as of June 30, 2009, and has been classified as other payable and is included in Other current liabilities.
COMPANY'S PLAN OF OPERATION FOR NEXT 12 MONTHS
After the divestiture of the Company’s Diva subsidiaries in June 2000 and the discontinuance of the securities brokerage operations in October 2000, we have restructured and updated our primary scope of business to focus on mergers and acquisitions, merger and acquisition advisory services, and investments in various businesses with potential for high growth. For the next twelve months, the Company intends to emphasize on M&A advisory services for small and mid-sized companies in the US and the Pacific Rim, to focus on the development of the real estate program in Chu Lai and South Hoi An, central Vietnam, through PhiLand Ranch Limited, to develop mining business in Southeast Asia through PHI Mining Group, Inc., to pursue oil and gas transactions through Providential Energy Corporation, and to engage in other special situations that may create value for the Company’s shareholders. There is no guaranty that the Company will be successful in any of its plans.
FINANCIAL PLANS
Management has taken action and is formulating additional plans to strengthen the Company's working capital position and generate sufficient cash to meet its operating needs through June 30, 2010 and beyond. Among the actions to be taken, the Company intends to raise additional capital from the US and international markets and is currently in the process of attaining additional financing. In addition, the Company also anticipates generating more revenue through its proposed mergers and acquisitions. No assurances can be made that management will be successful in achieving its plan.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about PHI Group Inc.’s market risk involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements.
Currency Fluctuations and Foreign Currency Risk
Some of our operations are conducted in Vietnam using Vietnamese Dong, which is the official currency of Vietnam. The effect of the fluctuations of exchange rates is considered minimal to our business operations.
Interest Rate Risk
We do not have significant interest rate risk, as most of our debt obligations are primarily short-term in nature to individuals, with fixed interest rates.
Valuation of Securities Risk
Since majority of our income is paid with the marketable securities, the value of our assets may fluctuate significantly depending on the market value of the securities we hold.
ITEM 8. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
PHI Group, Inc. (formerly, Providential Holdings, Inc.)
We have audited the accompanying consolidated balance sheets of PHI Group, Inc. (a Nevada corporation) and subsidiaries as of June 30, 2009, and 2008 and the related consolidated statements of operations, stockholders' equity, and cash flows for the years ended June 30, 2009 and 2008. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audit of these statements 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 made 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of PHI Group, Inc. and subsidiaries as of June 30, 2009, and the results of its consolidated operations and its cash flows for the years ended June 30, 2009 and 2008 in conformity with accounting principles generally accepted in the United States of America.
The Company's financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has accumulated deficit of $23,312,661 and negative cash flow from operations amounting $550,329 for the year ended June 30, 2009. These factors as discussed in Note 20 to the consolidated financial statements 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 20. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ KABANI & COMPANY, INC.
CERTIFIED PUBLIC ACCOUNTANTS
Los Angeles, California
October 13, 2009
PHI GROUP, INC. AND SUBSIDIARIES
(FORMERLY, PROVIDENTIAL HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS
PHI Group, Inc., ("PHI") is engaged in a number of business activities, the most important of which is merger and acquisition advisory services. The Company acquires and consolidates special opportunities in selective industries to create additional value, acts as an incubator for emerging companies and technologies, and provides financial consultancy and M&A advisory services to U.S. and foreign companies.
A wholly owned division of the Company, Provimex was formed on April 10, 2001 under the name "Providential Imex", to focus on trade commerce with Vietnam. This division changed its name to Provimex on July 5, 2001. This subsidiary was later incorporated as a Nevada corporation on September 23, 2004. The Company has declared a 15% stock dividend of Provimex, Inc. to shareholders of record as of September 15, 2004.
In May 2003, the Company formed a subsidiary under the name of Providential Capital to provide financial products and services for the micro-small cap arenas and to manage the Company's proprietary merger and acquisition activities. Providential Capital will focus its attention on the underserved segment of smaller companies in the United States and abroad. Providential Capital began providing merger and acquisition advisory services to its clients since the fiscal year ended June 30, 2003.
On July 7, 2003 a wholly-owned DBA of Providential Holdings, Inc, Touchlink Communications was formed to provide point-of-sale (POS) terminals and prepaid calling cards to retailers, convenient stores and non-profit organizations across the US. This POS system enables merchants and participating partners to offer prepaid products without purchasing or storing any inventory in advance. This company was later incorporated as a Nevada corporation in February 2004 under the name of Touchlink Communications, Inc. to provide long distance services to residential and business customers in the United States. The Company has declared a 15% stock dividend of Touchlink Communications, Inc. to shareholders of record as of September 15, 2004.
On November 1, 2003, the Company formed PHI Video Corp., which was later renamed PHI Digital Corp. ("PHI Digital"), a Nevada corporation, to provide the sale of consumer electronics, including flat-screen television sets and monitors. PHI Digital has been renamed "TULON INDUSTRIES, INC." to change its scope of business. This subsidiary did not generate any revenue during the fiscal years ended June 2005 and 2006.
On December 31, 2003, the Company formed Providential Oil & Gas, Inc., a Nevada corporation and wholly-owned subsidiary, to pursue independent oil and gas business. On November 24, 2005, Providential Oil & Gas, Inc. signed an agreement with Terra-Firma Gas & Oil, Inc., a Nevada corporation with headquarters in Midland, Texas, to co-develop up to twenty-four gas wells on Hudspeth Ranch, Crockett County, West Texas. A $20,000 investment has been made by the Company on this project in the fiscal year ended June 30, 2006. The Company wrote off this investment in the fiscal year ended June 30, 2007. On June 14, 2006, Providential Oil & Gas, Inc. changed its name to Providential Energy Corporation to expand its scope of business to potentially include alternative energy such as fuel cells and biodiesel. This entity did not have any operations during the year ended June 30, 2009 and 2008.
In July 2007, PhiLand Corporation, a Nevada corporation and wholly-owned subsidiary of the Company, was formed to manage the real estate development project in South Hoi An, Quang Nam Province, Vietnam. In July 2007, Providential Holdings entered into a principle agreement with the People’s Committee of Quang Nam Province, which allows the Company to lease approximately 8,000 acres of land in South Hoi An, Quang Nam Province, Vietnam to develop an integrated tourism zone under a 70-year lease term. PhiLand Corporation is currently involved in planning and developing this project. During the year ended June 30, 2009, 3,500,000 shares of PhiLand Corporation were issued to employees and consultants of the Company and 244,286 shares which were owned by the Company were sold to individuals for $140,000, 29,000 shares were exchanged for the payment of note amounting $29,000 and 900,000 shares which were owned by the Company were exchanged with 23,285,714 shares of Jeantex Group, Inc. In addition, during the year ended June 30, 2009, 408,000 shares of PhiLand Corporation were sold for $49,000. The total of 5,081,286 shares held by minority shareholders makes up approximately 21% of outstanding shares. On June 5, 2009, Philand Ranch Limited, a company registered under the laws of England and Wales, acquired all the issued and outstanding common stock of PhiLand Corporation in exchange for the same amount of ordinary shares of Philand Ranch Limited. As a result
of the stock exchange between Philand Corporation and Philand Ranch Limited, the Company currently owns 18,734,753 shares of ordinary stock of Philand Ranch Limited, which is listed on the Open Market Segment of the Frankfurt Stock Exchange under the symbol 1P8.F, WKN A0RPEA.
In March 2007, the Company received 900,000 shares, valued at $675,000, of Bio-Warm, which subsequently acquired 100% of Vietnam-based Dai Dung Metallic Manufacture Construction and Trade Company (DDMMCT) and changed its name to DDC Industries, Inc. The Company received these shares for advisory services completed earlier in that month. In June 2007, the Company received 3,763,753 shares of DDC Industries for services performed in the merger of Bio-Warm Corp. and DDMMCT which was closed on March 30, 2007 and received the remaining 3,763,753 shares during the year ended June 30, 2008 per the agreement, which in total, is equivalent to 20% of all issued and outstanding shares of DDC Industries, Inc. The merger agreement with DDMMCT was rescinded on November 18, 2008 in entirety and shareholders of DDMMCT agreed to return 28,610,025 shares of 30,110,025 issued shares. On December 1, 2008, DDC Industries Inc. changed its name to PHI Mining Group, Inc. The common stock of PHI Mining Group, Inc. is currently trading on the Pink Sheets under the symbol “PHIG”. PHI Mining Group did not generate any revenues in the year ended June 30, 2009.
IndoChina Mining Corporation, a Nevada corporation., was incorporated on March 20, 2008 for exploitation and processing of diatomite mines. On April 14, 2008, IndoChina Mining Corporation (IMC), entered into a Cooperation agreement with Phu Yen Minerals Joint Stock Company (PYMICO). Under this agreement, PYMICO and IMC will cooperate to contribute capital for establishment of a joint venture specializing in exploitation and processing of diatomite in Phu Yen providence and IMC will participate in PYMICO through purchasing a maximum of 30% shares of PYMICO when the latter issues additional shares in 2008. IndoChina Mining also entered into agreements
On December 1, 2008, Indochina Mining Corporation entered into stock purchase agreement with PHI Mining Group (formerly DDC Industries, Inc.) to exchange all of its capital stock with the same number of newly issued shares of PHI Mining Group. As a result, the Company owns approximately 83% of PHI Mining Group.
On May 20, 2008, Providential Vietnam, a Vietnamese corporation and wholly-owned subsidiary of the Company, was formed to provide M&A advisory services, management consulting, corporate restructuring, asset management, fund management, and investment banking, services in independent oil and gas, alternative energy, and mining, commercial and residential real estate, hotels and integrated hospitality and Investments in selective opportunities with potential for high growth.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of PHI Group, Inc., and its subsidiaries, Providential Securities, Inc., Providential Capital, PHI Digital Inc., (“PHI Digital”), Provimex, Providential Energy Corporation, Touchlink Communications, PHI Mining Group, Providential Vietnam and PhiLand Ranch, and its 100% owned subsidiary. PhiLand Corporation, Ltd., collectively referred to as the "Company". All significant inter-company transactions have been eliminated in consolidation. Providential Securities, Inc, PHI Digital, Provimex, Providential Energy Corporation, Touchlink Communications are inactive.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all liquid investments with a maturity of three months or less from the date of purchase that are readily convertible into cash to be cash equivalents.
MARKETABLE SECURITIES
The Company's securities are classified as available-for-sale and, as such, are carried at fair value. Securities classified as available-for-sale may be sold in response to changes in interest rates, liquidity needs, and for other purposes.
Each investment in marketable securities represents less than twenty percent (20%) of the outstanding common stock and stock equivalents of the investee, and each security is nationally quoted on the National Association of Securities Dealers OTC Bulletin Board ("OTC:BB") or Pink Sheets. As such, each investment is accounted for in accordance with the provisions of SFAS No. 115. Unrealized holding gains and losses for available-for-sale securities are excluded from earnings and reported as a separate component of stockholder's equity. Realized gains and losses for securities classified as available-for-sale are reported in earnings based upon the adjusted cost of the specific security sold. On June 30, 2009 and 2008, the marketable securities have been recorded at $1,750,000 and $4,435,938, respectively based upon the fair value of the marketable securities.
ACCOUNTS RECEIVABLE
The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis.
As of June 30, 2009 and 2008, the Company had balances of $67,500 and $3,044,520 as accounts receivable. The balance as of June 30, 2008 includes the securities receivable of $3,000,000 at the fair market value of shares at the date of the merger consummated on June 30, 2008.
IMPAIRMENT OF LONG-LIVED ASSETS
Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations for a Disposal of a Segment of a Business." The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with SFAS 144. SFAS 144 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Maintenance and repair costs are charged to expense as incurred; costs of major additions and betterments are capitalized. When property and equipment are sold or otherwise disposed of, the cost and related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is reflected in income. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, ranging from three to ten years.
DEPRECIATION AND AMORTIZATION
The cost of property and equipment is depreciated over the estimated useful lives of the related assets. Depreciation and amortization of fixed assets are computed on a straight-line basis.
NET EARNINGS PER SHARE
The Company adopted the provisions of Statement of Financial Accounting Standards No. 128, Earnings per Share ("SFAS No. 128"). SFAS No. 128 eliminates the presentation of primary and fully diluted earnings per share ("EPS") and requires presentation of basic and diluted EPS. Basic EPS is computed by dividing income (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is based on the weighted-average number of shares of common stock outstanding for the period and common stock equivalents outstanding at the end of the period.
The Company has the following dilutive stock warrants as of June 30, 2009- and 2008 .
STOCK-BASED COMPENSATION
Effective July 1, 2006, the Company adopted SFAS 123R and accordingly has adopted the modified prospective application method. Under this method, SFAS 123R is applied to new awards and to awards modified, repurchased, or cancelled after the effective date. Additionally, compensation cost for the portion of awards that are outstanding as of the date of adoption for which the requisite service has not been rendered (such as unvested options) is recognized over a period of time as the remaining requisite services are rendered.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Effective July 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157 (SFAS 157), Fair Value Measurements and adopted this Statement for the assets and liabilities shown in the table below. SFAS 157 clarifies the definition of fair value, prescribes methods for measuring fair value, establishes a fair value hierarchy based on the inputs used to measure fair value, and expands disclosures about the use of fair value measurements. The adoption of SFAS 157 did not have a material impact on our fair value measurements. Financial Accounting Standards Board (FASB) Staff Position SFAS No. 157-2, Effective Date of SFAS No. 157, permits the Company to defer the recognition and measurement of the nonfinancial assets and nonfinancial liabilities until January 1, 2009. At June 30, 2009, the Company did not have any nonfinancial assets or nonfinancial liabilities that are recognized or disclosed at fair value. SFAS No. 157 requires that financial assets and liabilities that are reported at fair value be categorized as one of the following types of investments based upon the methodology for determining fair value.
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The Company utilizes various approaches to measure fair value for available-for-sale securities.
Asets measured at fair value on a recurring basis are summarized below. The Company has no financial liabilities measured at fair value on a recurring basis.
REVENUE RECOGNITION
The Company's revenue recognition policies are in compliance with Staff accounting bulletin (SAB) 104. The Company recognizes consulting and advisory fee revenues when the transaction is completed and the service fees are earned. Expenses are recognized in the period in which the corresponding liability is incurred. Payments received before all of the relevant criteria for revenue recognition are recorded as unearned revenue.
ADVERTISING
The Company expenses advertising costs as incurred. Advertising costs for the years ended June 30, 2009 and 2008 were $12,650and $10,759 respectively.
COMPREHENSIVE INCOME (LOSS)
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS No. 130"), establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity, except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS No. 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. During the year ended June 30, 2009 and 2008, the Company recorded $2,110,305 and $5,523,975 as unrealized loss on marketable securities, respectively. Other comprehensive loss, as presented on the accompanying consolidated balance sheets amounted to $0 and $1,522,997 as of June 30, 2009 and 2008, respectively.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." Deferred taxes are provided on the liability method whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
REPORTING OF SEGMENTS
Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information ("SFAS No. 131"), which supersedes Statement of Financial Accounting Standards No. 14, Financial Reporting for Segments of a Business Enterprise, establishes standards for the way that public enterprises report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements regarding products and services, geographic areas and major customers. SFAS No. 131 defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision
maker in deciding how to allocate resources and in assessing performance. The Company operates in one segment during the years ended June 30, 2009 and 2008.
RISKS AND UNCERTAINTIES
In the normal course of business, the Company is subject to certain risks and uncertainties. The Company provides its service and receives marketable securities upon execution of transactions. Consequently, the value of the securities received from customers can be affected by economic fluctuations and each customer's business growth. The actual realized value of these securities could be significantly different than recorded value.
RECLASIFICATIONS
For comparative purposes, prior year's consolidated financial statements have been reclassified to conform to report classifications of the current year.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations”. The objective of this statement will significantly change the accounting for business combinations. Under Statement 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition date fair value with limited exceptions. Statement 141 applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company does not expect the adoption of SFAS No. 141R to have a material impact on the consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements-An Amendment of ARB No. 51". The objective of this statement is to establish new accounting and reporting standards for the Noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.. Statement 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company does not expect the adoption of SFAS No. 160 to have a material impact on the consolidated financial statements.
In March 2008, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133, which requires additional disclosures about the objectives of the derivative instruments and hedging activities, the method of accounting for such instruments under SFAS No. 133 and its related interpretations, and a tabular disclosure of the effects of such instruments and related hedged items on our financial position, financial performance, and cash flows. The Company does not expect the adoption of SFAS No. 161 to have a material impact on the consolidated financial statements.
In May 2008, FASB issued SFASB No.162, “The Hierarchy of Generally Accepted Accounting Principles”. The pronouncement mandates the GAAP hierarchy reside in the accounting literature as opposed to the audit literature. This has the practical impact of elevating FASB Statements of Financial Accounting Concepts in the GAAP hierarchy. This pronouncement will become effective 60 days following SEC approval. The Company does not expect this pronouncement will impact the consolidated financial statements.
In May 2008, FASB issued SFASB No. 163, “Accounting for Financial Guarantee Insurance Contracts-an interpretation of FASB Statement No. 60”. The scope of the statement is limited to financial guarantee insurance (and reinsurance) contracts. The pronouncement is effective for fiscal years beginning after December 31, 2008. The Company does not expect this pronouncement will impact the consolidated financial statements.
In June 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) Emerging Issues Task Force (EITF) No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” Under the FSP, unvested share-based payment awards that contain rights to receive nonforfeitable dividends (whether paid or unpaid) are participating securities, and should be included in the two-class method of computing EPS. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008 and the Company does not expect that FSP EITF No. 03-6-1 would have a material impact on the consolidated financial statements.
In April 2009, the FASB issued FASB Staff Position (“FSP”) FAS No. 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (“FSP FAS 107-1 and APB 28-1”), which amends SFAS No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about the fair value of financial instruments for interim reporting periods, as well as annual reporting periods. FSP FAS 107-1 and APB 28-1 are effective for all interim and annual reporting periods ending after June 15, 2009 and the Company does not expect that FSP No. 107-1 would have a material impact on the consolidated financial statements.
In April 2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (FSP 157-4), and FSP FASB 107-1 and Accounting Principles Board (APB) 28-1, Interim Disclosures about Fair Value of Financial Instruments (FSP 107-1). These two staff positions relate to fair value measurements and related disclosures. The FASB also issued a third FSP relating to the accounting for impaired debt securities titled FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (FSP 115-2). These standards are effective for interim and annual periods ending after June 15, 2009. FSP 157-4 and FSP 115-2 do not currently apply to the Company’s activities, but the Company will adopt the disclosure requirements of FSP 107-1.
In May 2009, the FASB issued Statement No. 165, “Subsequent Events” (“SFAS 165”), which establishes general standards of accounting for, and requires disclosure of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. We adopted the provisions of SFAS 165 for the quarter ended June 30, 2009. The adoption of these provisions will not have a material effect on our consolidated financial statements.
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (SFAS 167). The amendments include: (1) the elimination of the exemption for qualifying special purpose entities, (2) a new approach for determining who should consolidate a variable-interest entity, and (3) changes to when it is necessary to reassess who should consolidate a variable-interest entity. SFAS 167 is effective for the first annual reporting period beginning after November 15, 2009 and for interim periods within that first annual reporting period. The Company will adopt SFAS 167 in fiscal 2010 and is evaluating the impact it will have on the consolidated results of the Company.
In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS 168”). SFAS 168 establishes the FASB Accounting Standards Codification (the “Codification”) as the single source of authoritative nongovernmental U.S. GAAP. The Codification is effective for interim and annual periods ending after September 15, 2009. The adoption of this standard will not have a material impact on our financial statements.
NOTE 3 - NASD EXAMINATION AND DISCONTINUANCE OF PROVIDENTIAL SECURITIES, INC.
After the completion of a routine audit of Providential Securities, Inc. ("Providential") in July and August 2000, the National Association of Securities Dealers, Inc. alleged that Providential violated certain provisions of the NASD's Conduct Rules 2120, 2330, 2110 and 3010, and Rules 15c2-4, 10b-5, 10b-9 and 15c3-3 of the Securities and Exchange Commission. Providential Securities, Inc. and Henry Fahman voluntarily submitted a Letter of Acceptance, Waiver and Consent ("AWC",), which was accepted by NASD Regulation, Inc. on October 27, 2000.
Providential Securities, Inc. was censured, fined $115,000.00 and required to offer rescission to those public customers who participated in the Providential Private Placement. In addition, Henry Fahman was banned, in all capacities, from associating with any NASD member. Based upon the above-mentioned circumstances, Providential Securities, Inc. withdrew its membership from the NASD in October 2000 and ceased its securities brokerage operation. The fine of $115,000 is included in accrued expenses in the accompanying consolidated financial statements. The Company has offered all Preferred Stock holders rescission on their investment. During the year ended June 30, 2004, $235,000 from the amount due to Preferred Stock Holders plus $105,600 in related dividends payable totaling $340,600 has been paid either in cash or with the issuance of common stock. The balance of unredeemed preferred shares and the related interest has been included in current liabilities on the accompanying consolidated financial statements (Note 12).
NOTE 4 - LOANS RECEIVABLE FROM RELATED PARTIES
Loans receivable from related parties consist of the following at June 30, 2009 and 2008:
Loans to Bio-Warm/ DDC Industries and Cavico are unsecured, interest free and due on demand. As DDC Industries became a subsidiary of the Company(Note 1), this loan was eliminated during consolidation.
Loans to Jeantex Group and Provimex HTV is unsecured and bear 8.5% interest per annum and due on demand. $30,000 of loan to Pho Express bears 32.5% interest per annum and the remaining portion is interest free and due on demand. The loans to Pho Express will be applied toward the payment of investment upon closing of joint venture agreement. During the year ended June 30, 2009, the interest income from these loans has not been recorded as the receiving of these interests is not assured.
NOTE 5 - OTHER CURRENT ASSETS:
The Other Assets comprise of the following as of June 30, 2009 and 2008 :
NOTE 6- MARKETABLE EQUITY SECURITIES AVAILABLE FOR SALE
The Company’s marketable securities are classified as available-for-sale and, as such, are carried at fair value. All of the securities are comprised of shares of common stock of the investee. Securities classified as available-for-sale may be sold in response to changes in interest rates, liquidity needs, and for other purposes.
Each investment in marketable securities represents less than twenty percent (20%) of the outstanding common stock and stock equivalents of the investee, and each security is nationally quoted on the National Association of Securities Dealers OTC Bulletin Board ("OTC:BB") or the Pink Sheets. As such, each investment is accounted for in accordance with the provisions of SFAS No. 115.
Following is a summary of marketable equity securities classified as available for sale as of June 30, 2009:
The changes in net unrealized holding gain/loss on securities available for sale have been included as a separate component of stockholders' equity. For the years ended June 30, 2009 and 2008, an unrealized loss of $0 and $1,522,997 were recorded, respectively.
During the year ended June 30, 2009, the Company sold all 6,645,584 shares of Eastbridge Investment stock for $202,337. The Company sold 335,000 shares of Cavico Corp. for $60,853 and delivered 300,000 shares of Cavico Corp. for payment of interest amounting $45,000. In addition, the Company received 7,270,000 shares of Catthai Corporation for services of which 6,000,000 shares were recorded as revenue in the year ended June 30, 2008. The Company purchased 1,200 shares of Catthai Corporation at $2,371 during the year ended June 30, 2009. The Company received 3,500,000 shares of Vietnam United Steel Corporation for services. The Company used 1,500,000 shares of All Line, Inc. for payment for services valued at $30,000 and sold 85,000 shares for $4,325.
In March 2007, Bio-Warm entered into a purchase agreement to acquire 100% of Vietnam-based Dai Dung Metallic Manufacture Construction and Trade Company (DDMMCT) and changed its name to DDC Industries, Inc. The Company received 7,527,506 shares for advisory services, which was equivalent to 20% of all issued and outstanding shares of DDC Industries, Inc. The merger agreement with DDMMCT was rescinded on November 18, 2008 in entirety and shareholders of DDMMCT agreed to return 28,610,025 shares of 30,110,025 issued shares. On December 1, 2008, DDC Industries Inc. changed its name to PHI Mining Group. On December 1, 2008, Indochina Mining Corporation, a subsidiary of the Company, entered into stock purchase agreement with PHI Mining Group to exchange all of its capital stock with the same number of newly issued shares of PHI Mining Group. As a result, the Company owned about 83% of PHI Mining Group, Inc. as of December 1, 2008. Prior to the merger between PHI Mining Group and Indochina, Company held 20% interest in DDCI Industries which was increased to 76% as a result of rescission as mentioned above and subsequent acquisition of Company’s subsidiary Indochina by PHI Mining Group (DDCI Industries) resulted in the increase in Company’s interest to 83%. This transaction was recorded as related party transaction which resulted in the capitalization of PHI Mining Group into the Company.
During the year ended June 30, 2009, 23,285,714 shares of Jeantex Group, Inc. were exchanged with 900,000 shares of PHILand Corporation which were owned by the Company.
The Company recorded a realized loss on the sale of marketable securities of $4,018, 965 including realized loss of $2,074,647 on securities of DDCI which became a subsidiary of the Company for the year ended June 30, 2009 and a gain of $701,832 for the year ended June 30, 2008.
NOTE 7 - PROPERTY AND EQUIPMENT
Property and equipment at June 30, 2009 and 2008 consists of the following:
Depreciation expenses were $15,842 and $2,634 for the fiscal years ended June 30, 2009 and 2008, respectively.
NOTE 8 - CONSTRUCTION IN PROGRESS
Construction in progress represents the costs incurred by PHILand Corporation, a subsidiary of the Company for real estate development amounting to $657,462 as of June 30, 2009. The costs included interest capitalized of $80,952.
NOTE 9 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The accounts payable and accrued expenses at June 30, 2009 and 2008 consist of the following:
Accounts payable & Accrued Expenses $
1,167,455 $ 379,175
Accrued salaries and payroll taxes
300, 199
166,557
Accrued interest
833,607
551,323
Accrued legal
385,084
339,804
Accrued consulting fees
177,981
168,870
$ 2,864,325 $ 1,605,728
During the year ended June 30, 2009, the Company was forgiven for the accrued interest of $131,808 on certain short term notes. This amount of was recorded as a gain on settlement of debts in the consolidated financial statements.
During the year ended June 30, 2008, the Company wrote off $66,719 of old accounts payable for which the statue of limitation set by the state has expired. This amount of was recorded as a gain on settlement of debts in the consolidated financial statements.
NOTE 10 - DUE TO OFFICER
Due to officer, represents advances made by officers of the Company and its subsidiaries, which are non-interest bearing, except for $100,000 as described below, unsecured and due on demand. As of June 30, 2009 and 2008, the balances were $1,013,561 and $561,982, respectively.
As of June 30, 2009, the Company has a short term note payable amounting $100,000 with interest bearing $3,000 per month payable to former Chief Technology Officer (CTO).
NOTE 11 - LOANS AND PROMISSORY NOTES
SHORT TERM NOTES PAYABLE:
As of June 30, 2009 and 2008, the Company has short term notes payable amounting $2,310,085 and $1,816,255, with accrued interest of $833,607 and $340,753, respectively. These notes bear interest rates ranging from 6% to 36% per annum. $1,811,500 of these short term notes are past due and $315,535 are due on demand. During the year ended June 30, 2009 and 2008, the Company paid $167,485and $174,000 of principal and $200,135 and $196,1888 of interest on short term notes, respectively.
DUE TO PREFERRED STOCKHOLDERS:
The Company classified $215,000 of preferred stock subscribed as a current liability payable to holders of preferred stock due to non compliance of preferred shares subscription agreement. This amount was past due as of June 30, 2009.
The interest payable to holders of preferred stock of $232,655 and $206,855 has been included in accrued interest included in account payable and accrued expenses on the balance sheet as of June 30, 2009 and 2008, respectively.
OTHER CURRENT LIABILITIES
During the year ended June 30, 2004, the Company received an overpayment of $89,691 for the exercise of stock options receivable. This amount has not been paid by the Company as of June 30, 2009, and has been classified as other payable and is shown on the consolidated financial statements in other current liabilities.
NOTE 12 - LITIGATION
LEGAL PROCEEDING SETTLED AND UNPAID AS OF JUNE 30, 2009:
QUANG VAN CAO AND NHAN THI NGUYEN CAO VS. PROVIDENTIAL SECURITIES, INC. ET AL.
This case was originally submitted to Orange County Superior Court, CA on June 25, 1997, Case No. 781121, and subsequently moved to NASD Dispute resolution for arbitration. On or about August 24, 2000, the Company's legal counsel negotiated with the Claimant's counsel and unilaterally reached a settlement that had not been approved by the Company. While the Company was in the process of re-negotiating the terms of said settlement, the Claimants filed a request for arbitration hearing before the National Association of Securities Dealers on October 4, 2000, Case No. 99-03160. Thereafter, the Claimants filed a complaint with the Orange County Superior Court, CA on October 31, 2000, Case No. 00CC13067 for alleged breach of contract for damages in the sum of $75,000 plus pre-judgment interest, costs incurred in connection with the complaint, and other relief. Without admitting or denying any allegations, the Company reached a settlement agreement with the Claimants whereby the Company would pay the Claimants a total of $62,500 plus $4,500 in administrative costs. As the date of this report, the Company has paid $2,500 and is subject to an entry of judgment for $79,000. The settlement amount has been accrued in the accompanying consolidated financial statements.
CONSECO FINANCE VENDOR SERVICES CORPORATION FKA GREEN TREE VENDOR SERVICES CORPORATION VS. PROVIDENTIAL SECURITIES, INC., HENRY D. FAHMAN AND TINA T. PHAN
In September 1997 Providential Securities, Inc. entered into a written Lease Agreement to lease certain items of equipment from Green Tree Vendor Services, in return for which Providential Securities, Inc. agreed to pay thirty-six monthly installments, each in the amount of $1,552. On or about September 12, 2000, and subsequently, Providential Securities, Inc. was unable to make the monthly payments to Claimant due to the lack of revenues following the interruption and subsequent closure of its securities brokerage operations. (See Note 3) Claimant filed a complaint for money with the Superior Court of the State of California, County of Orange (Case No. 01CC02613) on February 23, 2001 seeking $39,102 plus interest thereon at the legal rate from September 12, 2000. The claimant entered a judgment against Providential Securities, Inc., Henry Fahman and Tina Phan for $48,933. The judgment amount has been accrued in the accompanying consolidated financial statements.
PENDING LITIGATION:
NGON VU VS. PROVIDENTIAL SECURITIES, INC.
Claimant was a former employee of Providential Securities, Inc. who was laid off in 2000 due to closure of business. The Claimant complained to the Department of Industrial Relations (DIR) for allegedly unpaid vacation and salaries. On June 13, 2001, the DIR filed a request to enter a judgment against Providential Securities, Inc. for $9,074 including wages and interest, penalty, post hearing and filing fee. The sought amount of $9,074 has been accrued in the accompanying consolidated financial statements.
VERIO VS. PROVIDENTIAL SECURITIES, INC.
On or about April 1, 2003, Verio, Inc. filed a judgment against Providential Securities, Inc., a wholly-owned subsidiary of the Company which was discontinued in October 2000, for a total of $9,141. This sum consists of $6,800 for services allegedly rendered by Verio, Inc. to Providential Securities, Inc. in 2000 and $2,341 for legal costs. Both amounts have been accrued in the accompanying consolidated financial statements.
DOW JONES & COMPANY, INC. VS. PROVIDENTIAL SECURITIES, INC. AND PHI GROUP, INC.
On March 19, 2002 Dow Jones & Company filed a complaint with the Superior Court of California, County of Orange, West Justice Center (Case No. 02WL1633), against Providential Securities, Inc., the discontinued operations of the Company, and PHI Group, Inc. for $9,973 plus prejudgment interest at the rate of ten (10%) per annum from November 1, 2000, reasonable attorneys’ fees and other and further relief. This claim is in connection with services allegedly rendered by the Plaintiff to Providential Securities, Inc. prior to November 2000. The Company intends to settle this case. The sought amount of $9,973 (excluding interest) has been accrued in Accrued Expenses in the accompanying consolidated financial statements.
KEY EQUIPMENT FINANCE, INC., VS. 49-6215601204 PROVIDENTIAL SECURITIES, INC.; HENRY D. FAHMAN; TINA T. PHAN, CASE NO 06WL00289
On January 18, 2006 Key equipment Finance filed a suit in the Superior Court of the State of California, County of Orange - West District claiming breach of the terms of lease agreement by failure to make the monthly installment due although demand therefore was made. The remaining balance due and owing to plaintiff under the lease is $14,439 plus interest from the date of default. The plaintiff also claiming for breach of guaranty, common counts, unjust enrichment and cost of law suit and any other relief the Court may deem just and proper. As of June 30, 2008, the Company has accrued $14,439.
NASD CASE:
After the completion of a routine audit of Providential Securities, Inc. in July and August 2000, the National Association of Securities Dealers, Inc. alleged that Providential violated certain provisions of the NASD's Conduct Rules. As a result, Providential Securities, Inc. withdrew its membership from the NASD in October 2000 and ceased its securities brokerage operation. $127,305, including $115,000 fine charged by NASD, is included in accrued expenses in the accompanying consolidated financial statements. (Note 3)
ARBITRATION CASES:
The Company had four arbitration cases from day-traders against Providential Securities, Inc., a discontinued stock brokerage operation of the Company. The total amount of damages for these cases, which were closed as of June 30, 2001, was $54,505. This amount has been accrued in the accompanying consolidated financial statements.
NOTE 13 - BASIC AND DILUTED NET LOSS PER SHARE
Net loss per share is calculated in accordance with SFAS No. 128, "Earnings per Share". Under the provision of SFAS No. 128, basic net loss per share is computed by dividing the net loss for the period by the weighted-average number of common shares outstanding for the period. Diluted EPS is based on the weighted-average number of shares of common stock outstanding for the period and common stock equivalents outstanding at the end of the period. Basic and diluted weighted average number of shares for the year ended June 30, 2009 were the same since the inclusion of Common stock equivalents is anti-dilutive.
NOTE 14 - STOCKHOLDER'S EQUITY
Effective April 13, 2009, the Company amended its articles of incorporation to change its par values of preferred and common stock to $0.001. The Company has 400,000,000 authorized capital stock, consisting of 300,000,000 shares of common stock and
100,000,000 shares of preferred stock. The effect of the change has been reflected retroactively in the consolidated financial statements.
Treasury Stock:
During the years ended June 30, 2009 and 2008, the Company purchased 170,000 and 120,500 treasury shares for $4,233and $3,784, respectively. During the year ended June 30, 2009, the Company used 1,280,000 shares of its treasury shares valued at $36,736 to convert a note of $9,336. The Company recorded $27,400 loss on conversion. The balance of treasury stock of 1,330,440 shares as of June 30, 2009 was valued at $1,330.
Common Stock:
Fiscal year ended June 30, 2009:
During the year ended June 30, 2009, the Company issued 1,300,000 shares of common stock valued at $32,500 for a payment of accrued payroll and consulting fees.
Fiscal year ended June 30, 2008:
During the year ended June 30, 2008, the Company issued 1,800,000 shares of common stock valued at $90,000 for services.
During the year ended June 30, 2008, the Company issued 6,000,000 shares of common stock for conversion of short term notes amounting $180,000.
During the year ended June 30, 2008, the Company issued 14,000,000 shares of common stock for payment of accrued salaries amounting $420,000 for officers.
Shares to be Issued:
On 06/09/2006, Luberski Inc. transferred and subsequently sold 1,000,000 shares of common stock of PHI Group, Inc. which belonged to the officer of the Company and were given to Luberski, Inc. as collateral for the loan. As of June 30, 2007, the Company agreed to pay back 1,000,000 shares valued at $57,000 to the officer and recorded the transaction as shares to be issued.
Prepaid Consulting:
During the year ended June 30, 2008, the Company signed a consulting agreement for consulting service for one year. The Company issued 1,500,000 shares of common stock to the consultant valued at $75,000 based upon the market value of the stock at the date of stock issuance. The Company amortized $37,500 during the year ended June 30, 2009 and $37,500 in the year ended June 30, 2008.
Subscriptions Receivable:
The subscription receivable balance of $25,500 at June 30, 2008 from a consultant for shares issued during the year ended 2005 was written off during the fiscal year ended June 30, 2009.
NOTE 15 - STOCK BASED COMPENSATION PLAN
Stock-Based Compensation:
On February 7, 2005, the Company adopted a stock-based compensation plan and set aside 14,000,000 shares of common stock for selected eligible participants of the Company and subsidiaries, and certain independent contractors providing certain services to the Company. As of June 30, 2009, 13,778,512 shares have been issued for salaries, consulting and professional services in lieu of cash under this plan.
Prior to July 1, 2006, the Company measured stock compensation expense using the intrinsic value method of accounting in accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations (APB No. 25). The company adopted SFAS No. 123-R effective July 1, 2006 using the modified prospective method.
Warrants:
During the quarter ended September 30, 2006, the Company issued 250,000 stock warrants with a term of 5 years and a three year vesting period. The following assumptions were used in the Black-Scholes pricing model:
NOTE 16- GAIN ON SETTLEMENT OF DEBT
During the year ended June 30, 2009 and 2008, the Company recorded a gain of $187,794 and $67,719 on the settlement of debt, respectively. (Note 9 and 11)
NOTE 17 - RELATED PARTY TRANSACTIONS
The Company accrued $210,000 salaries for Henry Fahman (President of the Company) and Tina Phan (Secretary of the Company) during the years ended June 30, 2009 and 2008.
During the years ended June 30, 2009 and 2008, the Company had $24,000 consulting revenue from a company related through a common officer.
In March 2007, Bio-Warm entered into a purchase agreement to acquire 100% of Vietnam-based Dai Dung Metallic Manufacture Construction and Trade Company (DDMMCT) and changed its name to DDC Industries, Inc. The Company received 7,527,506 shares for advisory services, which was equivalent to 20% of all issued and outstanding shares of DDC Industries, Inc. The merger agreement with DDMMCT was rescinded on November 18, 2008 in entirety and shareholders of DDMMCT agreed to return 28,610,025 shares of 30,110,025 issued shares. On December 1, 2008, DDC Industries Inc. changed its name to PHI Mining Group.
On December 1, 2008, Indochina Mining Corporation, a subsidiary of the Company, entered into stock purchase agreement with PHI Mining Group to exchange all of its capital stock with the same number of newly issued shares of PHI Mining Group. As a result, the Company owned about 83% of PHI Mining Group, Inc at December 1, 2008. Prior to the merger between PHI Mining Group and Indochina, Company held 20% interest in DDC Industries which was increased to 76% as a result of recession as mentioned above and subsequent acquisition of Company’s subsidiary Indochina by PMG Mining Group (DDC Industries) resulted in the increase in Company’s interest to 83%. This transaction was recorded as related party transaction which resulted in the consolidation of PHI Mining Group into the Company.
NOTE 18 - INCOME TAXES
No provision was made for income tax since the Company has significant net operating loss carry forward. Through June 30, 2009, the Company incurred net operating losses for tax purposes of approximately $8.3 million. The net operating loss carry forward may be used to reduce taxable income through the year 2029. Net operating loss for carry forwards for the State of California is generally available to reduce taxable income through the year 2029. The availability of the Company's net operating loss carryforward is subject to limitation if there is a 50% or more positive change in the ownership of the Company's stock.
The net deferred tax asset balance, due to net operating loss carryforwards as of June 30, 2009 and 2008 were approximately $6.7 million and $3.4 million respectively. A 100% valuation allowance has been established against the deferred tax assets, as the utilization of the loss carryforwards cannot reasonably be assured.
The following is a reconciliation of the provision for income taxes at the U.S. federal income tax rate to the income taxes reflected in the Consolidated Statements of Operations:
NOTE 19- CONTRACTS AND COMMITMENTS
AGREEMENT WITH HAWK ASSOCIATES, INC.
On August 11, 2006, the Company entered into an investor relations consulting agreement with Hawk Associates, Inc., a Florida corporation, to be effective September 1, 2006. According to the agreement, Hawk Associates will provide investor relations consulting services to the Company for a period of six months, after which the agreement will automatically renew monthly until notice is provided by one of the parties to the other. The Company agrees to pay Hawk Associates $4,500 per month for the investor relations consulting services and Hawk Associates will be issued warrants to purchase 250,000 common shares of the Company based on the closing price of $0.015 per share as of September 1, 2006. These warrants will be valid until August 30, 2011.
BUSINESS AND FINANCIAL CONSUTLING AGREEMENT WITH CATTHAI PLASTIC COMPANY
On June 25, 2007, the Company entered into a business consulting agreement with Catthai Plastic Company (“CATHACO, LTD”), a Vietnamese company located in Ho Chi Minh City, Vietnam. The services include (1) taking CATHACO public in the US via reverse merger, a business combination or IPO (2) arranging intermediate funding after it become a fully-reporting publicly traded company on the OTCBB or a higher exchange in the US (3) subsequent listings of the new company’s shares on the Berlin and Frankfurt Stock Exchanges if necessary (4)further long-term funding and capital requirements as needed. The Company recorded $3,000,000 as part of accounts receivable based on the fair market value of 6,000,000 shares at the date of the merger consummated on June 30, 2008. During the period ended December 31, 2008, the Company received these 6,000,000 shares and 1,270,000 additional shares for transaction related to stock purchased from Strategia for merger.
BUSINESS COOPERATION AGREEMENT WITH PHO EXPRESS
On September 19, 2007, Provimex, Inc., a subsidiary of the Company entered into business cooperation agreement with an owner of Pho Express to establish a new Vietnamese style noodle soup restaurant, Pho Express International, LLC. Pho Express agreed to contribute all assets and liabilities in exchange for 40% of equity ownership and Provimex agreed to pay $165,000 in exchange for 60% of equity ownership of Pho Express International, LLC. The Company paid $96,100 toward this investment and loaned $13,500 to Pho Express as of June 30, 2009. The business cooperation agreement was not closed as of the date of this report.
BUSINESS AND FINANCIAL CONSULTING AGREEMENT WITH MAST VENTURES, LLC
Effective April 1, 2008, the Company entered into a business and financial consulting agreement with Mast Ventures, LLC to raise capital for a wholly owned subsidiary, PhiLand Corporation for 5 years. The service includes assistance identifying potential investors, developing an approach in seeking such current financing and investor relations. The Company agreed to pay 5% of the total funds raised by the consultant.
OFFICE SPACE LEASE
The Company signed on a 5 year lease agreement for the corporate office effective May 1, 2008. The monthly rental is $6,690.70 and will be increased by 3.5% per annum commencing in the thirteenth month of the initial lease term and continuing annually thereafter.
The leases for offices in Vietnam are for 12 months starting January 2008 and July 2008. The monthly rental is ranging from approximately $625 to $4,100 per month.
Future commitments under operating leases are as follows for the twelve months ending June 30:
$ 83,091
86,007
89,017
76,777
-
Total minimum lease payments $ 334,892
The rent expense was $147,043 and $81,130 for the year ended June 30, 2009 and 2008, respectively.
NOTE 20 - GOING CONCERN UNCERTAINTY
As shown in the accompanying consolidated financial statements, the Company has accumulated deficit of $23,312,661 and negative cash flow from operations amounting $550,329 for the year ended June 30, 2009. These factors as well as the uncertain conditions that the Company faces in its day-to-day operations with respect to cash flows create an uncertainty as to the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. Management has taken action to strengthen the Company's working capital position and generate sufficient cash to meet its operating needs through June 30, 2010 and beyond. The Company also anticipates generating more revenue through its proposed mergers and acquisitions. No assurances can be made that management will be successful in achieving its plan. The president and chairman of the Company has committed to funding the Company's operations for the next 12 months.
NOTE 21 - SUBSEQUENT EVENTS
.On June 5, 2009, Philand Ranch Limited, a company registered under the laws of England and Wales, acquired all the issued and outstanding common stock of PhiLand Corporation in exchange for the same amount of ordinary shares of Philand Ranch Limited. As a result of the stock exchange between Philand Corporation and Philand Ranch Limited, the Company currently owns 18,734,753 shares of ordinary stock of Philand Ranch Limited. Effective September 07, 2009, Philand Ranch Limited’s ordinary stock was approved to trade on the Open Market Segment of the Frankfurt Stock Exchange under the symbol 1P8.F, WKN A0RPEA.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM. 9A. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
We have adopted and maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods required under the SEC’s rules and forms and that the information is gathered and communicated to our management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), as appropriate, to allow for timely decisions regarding required disclosure.
As required by SEC Rule 15d-15(b), our Chief Executive Officer and Chief Financial Officer carried out an evaluation under the supervision and with the participation of our management, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 15d-14 as of the end of the period covered by this report. Based on the foregoing evaluation, they have concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic SEC filings and to ensure that information required to be disclosed in our periodic SEC filings is accumulated and communicated to our management, including our Chief Executive Officer/ Chief Financial Officer, to allow timely decisions regarding required disclosure about our internal control over financial reporting discussed below.
This annual report does not include an attestation report of the Company’s registered accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission .
(b) Changes in Internal Control, Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the fiscal year ended June 30, 2009, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER MATTERS
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table sets forth certain information as of June 30, 2009, with respect to the Directors and Executive Officers of the Company.
NAME AGE POSITION
Henry D. Fahman Chairman of the Board, President, Acting Chief
Financial Officer
Tina T. Phan Treasurer
Tam T. Bui Director
Frank Hawkins Director
Paul K. Nguyen Director
Lawrence G. Olson Director
Directors are elected at the annual meeting of shareholders and hold office until the following annual meeting and until their successors are elected and qualified. All Executive Officers serve at the discretion of the Board of Directors.
Henry D. Fahman has been President and Chairman of the Board of PHI Group, Inc. since January 14, 2000, and is currently Acting Financial Officer of the Company. Mr. Fahman served as President and Chairman of the Board of Providential Securities, Inc. from its inception in October 1992 to October 2000. He holds a B.S., magna cum laude, in business administration from the University of California at Berkeley, with emphasis in finance and economic analysis and policy, and is a graduate of the Advanced Management Program (AMP166) from Harvard Business School. He has also attended other Executive Education programs at Harvard Business School and Stanford University, including Mergers and Acquisitions, Creating Competitive Advantage, and Advanced General Management. Previously, he served as a Resettlement Coordinator for the United Nations High Commissioner for Refugees. Mr. Fahman also serves as Excutive Chairman of PhiLand Ranch Limited. Mr. Fahman is the husband of Tina T. Phan, our Secretary and Treasurer and a member of our Board of Directors.
Tina T. Phan has been a Treasurer since April 10, 2009 and served as a Director and Secretary of the Company from January 2000 to April 10, 2009 and was Vice President of Operations of Providential Securities, Inc. from 1995 to 2000. Mrs. Phan holds a B.S. in management information system from California State University, Los Angeles. Currently Mrs. Phan serves as Treasurer of the Company. Mrs. Phan is the wife of Henry D. Fahman.
Tam Bui has been a Director of the Company since April 10, 2009 and served as a Chief Technology Officer from May 2002 to April 10, 2009. Mr. Bui holds Bachelor and Master of Science degrees from the University of Minnesota and has attended continuing Education at the University of California, Los Angeles. He has over 18 years of experience with Honeywell, Inc. and TRW as Senior Production Engineer/Computer Application Engineer, Project Manager, Department Manager, Program Manager and Implementation Manager. He was responsible for the implementation of LAPD Emergency Command Control Communications Systems. He has a broad knowledge and experience in the areas of information technology, intranet/internet technology, inventory management, material resource planning, enterprise resource planning, human resource management, and international business.
Paul Nguyen has been a Director of the Company since April 10, 2009 and is currently Senior Partner of Nguyen & Larsen, LLP, a law firm, and Chief Executive Officer of Summit Medical Group, Inc. in Orange County, CA, Mr. Nguyen received a MS in aeronautical engineering from California Institute of Technology in 1984 and was named Research Scientist by NASA from 1984-1987. After graduating from the Harvard Business School JD/MBA program in 1991, Mr. Nguyen served as Institutional Investment Associate from 1991-1992 and Managing Director from 1992-1993 for JP Morgan in New York and Tokyo. Mr. Nguyen served as Senior Associate attorney for Baker & McKenzie in Ha Noi, Vietnam from 1993-1995. In 2000, Mr. Nguyen received a MD from Loma Linda School of Medicine and was board certified in plastic surgery in 2005.
Lawrence G. Olson became a director of PHI Group, Inc. in January 2008. Mr. Olson has been a director of Santa Fe Gold Corp., a public company (OTCBB:SGFE), since March 1999 in connection with the Company's acquisition of Arizona Mica Properties, Inc., a private Arizona corporation owned by Mr. Olson and his partners. He has held the position of Chairman of Santa Fe Gold’s Board of Directors since October 2000, and until October 2003 also held the positions of President and Chief Executive Officer. Mr. Olson has owned and operated a successful business, Olson Precast of Arizona Inc., since 1973. Mr. Olson received a B.S. Degree in Civil Engineering from the University of Southern California.
The Company's securities are not registered under Section 12(g) of the Exchange Act. Accordingly, the Directors and Executive Officers of the Company are not required to file reports under Section 16(a) of that act.
Frank Hawkins, Director has been a Director of the Company since April 10, 2009 and Mr. Hawkins is a founder and CEO of Hawk Associates with nearly 30 years of award-winning investor relations experience, Mr. Hawkins has earned the wide respect of Wall Street's investment community for straight talk and integrity. He was formerly vice president/corporate relations and planning and head of the investor relations program at Knight-Ridder, Inc. in Miami. Mr. Hawkins started his career as an agent handler in clandestine collection operations for the Defense Intelligence Agency in Germany and went on to become a foreign and war correspondent, international businessman, senior corporate executive and president of the Access Asia Group in Hong Kong. He has lived in eight countries. He has been involved in stock listings in Tokyo and Frankfurt and company presentations in London, Zurich, Geneva and Singapore. Fluent in German, he is a graduate of Cornell University and author of "Ritter's Gold," an adventure novel published in several languages by the New American Library. He is a member of the Association of Former Intelligence Officers and the Audubon Society and is listed in Who's Who in America and Who's Who in the World. He serves on the board of the Florida Keys Electric Cooperative.
ITEM 11. EXECUTIVE COMPENSATION
(a) Any compensation received by officers, directors, and management personnel of the Company will be determined and approved from time to time by the Board of Directors of the Company as it deems appropriate and reasonable. Officers, directors, and management personnel of the Company will be reimbursed for any out-of-pocket expenses incurred on behalf of the Company.
Except for non-cash payments mentioned in this report, there was no monetary compensation paid to any officers of the Company during the year ended June 30, 2009.
(b) There are no annuity, pension or retirement benefits proposed to be paid to officers, directors, or employees of the Company in the event of retirement at normal retirement date as there is no existing plan provided for or contributed to by the Company.
(c) All members of the Company's Board of Directors, whether officers of the Company or not, may receive an amount yet to be determined annually for their participation in meetings of the Board and will be required to attend a minimum of four meetings per fiscal year. The Company reimburses all expenses for meeting attendance or out of pocket expenses connected directly with their Board participation.
(d) On July 10, 2000 the Company adopted a Stock Option and Incentive Plan (the "Plan") which provides for the issuance of up to a maximum of 16 million shares of the Company's common stock to officers, employees and non-employee directors at the sole discretion of the board of directors. On August 10, 2000 the Company granted fully vested 14 million options under the Plan to officers, directors and employees at an exercise price of $.50 per share. All the options were exercisable on July 1, 2001 and would expire on December 31, 2002. On June 15, 2002, the Company extended the expiration date of these employee stocks to December 31, 2005. As of the date of this report, there have been no options exercised and all of these options have been forfeited.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial ownership of shares of the Company's common stock as of June 30, 2009 (195,130,961 issued and outstanding,) by (i) all shareholders known to the Company to be beneficial owners of more than 5% of the outstanding common stock; and (ii) all directors and executive officers of the Company, and as a group:
(1) Each person has sole voting power and sole dispositive power as to all of the shares shown as beneficially owned by them
(2) Certain of these shares have been pledged to secure certain obligations of the Company.
(3) Tina Phan is the wife of Henry Fahman.
* Less than 1%.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Henry D. Fahman, Chairman and Chief Executive Officer of the Company, has from time to time made cash advances to the Company. The advances are unsecured, interest free and payable on demand.
Certain of the officers and directors of the Company are engaged in other businesses, either individually or through partnerships and corporations in which they have an interest, hold an office, or serve on a board of directors. As a result, certain conflicts of interest may arise between the Company and its officers and directors. The Company will attempt to resolve such conflicts of interest in favor of the Company. The officers and directors of the Company are accountable to it and its shareholders as fiduciaries, which require that such officers and directors exercise good faith and integrity in handling the Company's affairs. A shareholder may be able to institute legal action on behalf of the Company or on behalf of itself and other similarly situated shareholders to recover damages or for other relief in cases of the resolution of conflicts is in any manner prejudicial to the Company.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
The aggregate fees billed by Kabani & Company., independent auditors, for the audit of the Company’s annual consolidated financial statements and reviews of quarterly financial statements for the years ended June 30, 2009 and 2008 were $54,500 and $45,000 respectively.
All Other Fees
The Company did not pay Kabani & Company any non-audit fees for fiscal year 2009 or 2008.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
Financial Statements
The following consolidated financial statements of PHI Group, Inc. and its subsidiaries are included:
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (Kabani & Company)
EXHIBIT NO.
DESCRIPTION
2.1 Plan of Exchange between the Company and Prima Eastwest Model Management, Inc. (incorporated by reference to Exhibit
2 to the Form 8-K filed on March 1, 1996)
2.2 Corporate Combination Agreement between the Company and Providential Securities, Inc., effective on January 14, 2000
(incorporated by reference to Exhibit 10.12 to the Form 10-KSB filed on January 10, 2000).
3.1 Articles of Incorporation (1)
3.2 Amendment to Articles of Incorporation (incorporated by reference to Exhibit 3.1 of the Form 10-KSB for the fiscal year
ended June 30, 1995).
3.3 Amendment to Articles of Incorporation (6)
3.4 Certificate of Amendment to Articles of Incorporation (6)3.5 Bylaws, as amended (6)
4.1 Form of Series 1 Bridge Notes Purchase and Security Agreement between the Company and investors, dated March 27,
2000 (6)
4.2 Form of Series 1 Bridge Note executed by the Company issued by the Company to Investors. (6)
4.3 Form of Common Stock Purchase Warrant issued by the Company to investors. (6)
4.4 Form of Re-pricing Warrant issued by the Company to investors. (6)
4.5 Form of Registration Rights Agreement between the Company and investors, dated March 27, 2000 (6)
4.6 Form of Common Stock Purchase Warrant to be issued by the Company to Sovereign Capital Advisors, LLC (6)
4.7 Form of Convertible Promissory Note issued by the Company to preferred shareholders of Providential Securities, Inc. (6)
5.1 Opinion Re Validity of Agreements (6) 10.1 Benatone Exchange Agreement, with Creditors (2)
10.2 Benatone Share Acquisition Agreement (for Weldnow Enterprise, Ltd.) (2)
10.3 Benatone Share Acquisition Agreement (Dynedeem Limited) (2)
10.4 Benatone Exchange Agreement (2)
10.5 Benatone Asset Sale Agreement (2)
10.6 Benatone Royalty Agreement (2)
10.7 Benatone Consultancy Agreement (2)
10.8 Benatone Deed (2)
10.9 Autokraft Stock Purchase Agreement (3)
10.10 Autokraft Stock Subscription Agreement (3)
10.11 Prima Agreement and Plan of Merger (4)
SIGNATURES
Pursuant to the requirement of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
PHI GROUP, INC.
Date: October 13, 2009
By: /s/ Henry D. Fahman
Henry D. Fahman, President
In accordance with the Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for the audited historical information contained herein, this report specifies forward-looking statements of management of the Company within the meaning of Section 27a of the Securities Act of 1933 and Section 21e of the Securities Exchange Act of 1934 ("forward-looking statements") including, without limitation, forward-looking statements regarding the Company's expectations, beliefs, intentions and future strategies. Forward-looking statements are statements that estimate the happening of future events and are not based on historical facts. Forward- looking statements may be identified by the use of forward-looking terminology, such as "could", "may", "will", "expect", "shall", "estimate", "anticipate", "probable", "possible", "should", "continue", "intend" or similar terms, variations of those terms or the negative of those terms. The forward-looking statements specified in this report have been compiled by management of the Company on the basis of assumptions made by management and considered by management to be reasonable. Future operating results of the Company, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements. The assumptions used for purposes of the forward-looking statements specified in this report represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. In addition, those forward-looking statements have been compiled as of the date of this report and should be evaluated with consideration of any changes occurring after the date of this report. No assurance can be given that any of the assumptions relating to the forward-looking statements specified in this report are accurate and the Company assumes no obligation to update any such forward-looking statements.
RESULTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 2009 AND JUNE 30, 2008
Revenues:
The Company generated net revenue of $2,006,220 from consulting and advisory services for the year ended June 30, 2009, as compared to $3,609,318 for the year ended June 30, 2008, which represented a 44.41% decrease in consulting and advisory revenue. This decrease is mainly due to a decrease in the size and scope of the merger and acquisition activities during the current year.
Operating Expenses:
The Company incurred total operating expenses of $1,595,009 for the year ended June 30, 2009 as compared to $1,658,534 for the year ended June 30, 2008. This represents a 3.8% decrease in operating expenses from the prior year. The decrease was primarily due to the decrease in professional services and general and administrative expenses relative to a decrease in consulting and advisory services. The Company’s professional fees have decreased 23% to $599,804 for the year ended June 30, 2009 compared to $778,440 in the prior year. This is mainly due to a decrease in legal fees. Legal fees were decreased by 94% from $137,635 in the prior year to $7,951 in the current year. The Company incurred high legal fees in the prior year due to legal service related to fund raising activities and the legal fees payment as a part of consulting services for our clients.
Net income (loss) from operations:
The Company had net income from operations of $411,211 for the year ended June 30, 2009 as compared to $1,950,784 for the year ended June 30, 2008. This was mainly due to a 44% decrease in consulting and advisory revenue and a 3.8% decrease in operating expenses during the current fiscal year. The decrease in operating expenses was primarily due to the decrease in professional expenses and general and administrative expenses during the current fiscal year.
Net income:
The Company had net loss of $8,322,040 for the year ended June 30, 2009 as compared to a net income of $2,359,282 for the year ended June 30, 2008. Fiscal year ended June 30, 2009 included a loss on marketable securities of $4,018, 965 compared to a gain of $701,832 for the year ended June 30, 2008. The Company also recorded a gain on debt settlement of $187,794 for the year ended June 30, 2009 compared to $67,719 for the year ended June 30, 2008. The interest expenses increased to $586,468 for the year ended June 30, 2009 compared to $362,536 due to new notes payable added in the current period. The Company recorded an impairment of marketable securities in the amount of $4,061,715 and that of loan receivable in the amount of $282,148 for the year ended June 30, 2009, compared to no impairment recorded for the year ended June 30, 2008. The net loss based on the basic and diluted weighted average number of common shares outstanding for the year ended June 30, 2009 was ($0.04) as compared to net income of $0.01 for the year ended June 30, 2008.
LIQUIDITY AND CAPITAL RESOURCES
Our business plan was restructured in November 2000 and has been updated to its now-current form. We must continue to raise capital to fulfill our plan of acquiring other companies and assisting in the development of those internally. The Company expects that the working capital cash requirements over the next 12 months will be generated from operations and additional financing.
We had cash and cash equivalents of $37,813and $117,166 as of June 30, 2009 and June 30, 2008, respectively.
Our operating activities used $550,329 cash in the year ended June 30, 2009 compared to $1,782,930 in the year ended June 30, 2008. The largest items affecting cash from operations was the marketable securities received for services totaling $2,080,200 and the loss on sale of marketable securities of $ $4,018,965 in the year ended June 30, 2009, compared to a gain of $701,832 in the prior year. .
Cash used in investing activities was $ 575,127 compared to cash provided by $473,478 in the year ended June 30, 2009 and 2008, respectively. During the years ended June 30, 2009 and 2008, the Company received $268,840 and $642,094, respectively from the sale of marketable securities. The Company spent $25,292 and $35,388 to purchase marketable securities in the years ended June 30, 2009 and 2008, respectively. The Company used $125,421 in investments during the year ended June 30, 2009 and $106,000 in investments during the year ended June 30, 2008, respectively. The Company spent $35,792 and $27,228 to purchase of fixed assets in the fiscal year ended June 30, 2009 and 2008, respectively.
Cash provided by financing activities was $1,046,103 and $1,418,866 for the years ended June 30, 2009 and 2008, respectively. For the year ended June 30, 2009, this was primarily from proceeds on notes including borrowing from officers in the amount of $491,934 and from unrelated parties in the amount of 637,600, offset by total payments on notes amounting $214,198. For the year ended June 30, 2008, proceeds from notes totaled $1,322,600, borrowings from officer totaled $355,642, reduced by the payments on notes amounting $255,592 and purchase of treasury shares of $3,784.
SHORT TERM NOTES PAYABLE:
As of June 30, 2009 and 2008, the Company has short term notes payable amounting $2,310,085 and $1,816,255 with accrued interest of $466,387 and $340,753, respectively. These notes bear interest rates ranging from 6% to 36% per annum. $1,811,500 of these short term notes are past due and $315,535 are due on demand as of June 30, 2009. During the year ended June 30, 2009 and 2008, the Company paid $167,485 and $174,000 of principal and $200,135 and $196,188 of interest on short term notes. Some of the notes payable are secured by assets of the Company as summarized below:
DUE TO PREFERRED STOCKHOLDERS
The Company classified $215,000 of preferred stock subscribed as a current liability payable to holders of preferred stock due to non compliance of preferred shares subscription agreement. This amount was past due as of June 30, 2009. The Company made $5,000 interest payment during the year ended June 30, 2007.
The interest payable to holders of preferred stock of $232,655 has been included in accrued interest included in account payable and accrued expenses on the balance sheet as of June 30, 2009.
OTHER CURRENT LIABILITIES
During the year ended June 30, 2004, the Company received an overpayment of $89,691 from the exercise of stock options. This amount has not been paid by the Company as of June 30, 2009, and has been classified as other payable and is included in Other current liabilities.
COMPANY'S PLAN OF OPERATION FOR NEXT 12 MONTHS
After the divestiture of the Company’s Diva subsidiaries in June 2000 and the discontinuance of the securities brokerage operations in October 2000, we have restructured and updated our primary scope of business to focus on mergers and acquisitions, merger and acquisition advisory services, and investments in various businesses with potential for high growth. For the next twelve months, the Company intends to emphasize on M&A advisory services for small and mid-sized companies in the US and the Pacific Rim, to focus on the development of the real estate program in Chu Lai and South Hoi An, central Vietnam, through PhiLand Ranch Limited, to develop mining business in Southeast Asia through PHI Mining Group, Inc., to pursue oil and gas transactions through Providential Energy Corporation, and to engage in other special situations that may create value for the Company’s shareholders. There is no guaranty that the Company will be successful in any of its plans.
FINANCIAL PLANS
Management has taken action and is formulating additional plans to strengthen the Company's working capital position and generate sufficient cash to meet its operating needs through June 30, 2010 and beyond. Among the actions to be taken, the Company intends to raise additional capital from the US and international markets and is currently in the process of attaining additional financing. In addition, the Company also anticipates generating more revenue through its proposed mergers and acquisitions. No assurances can be made that management will be successful in achieving its plan.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about PHI Group Inc.’s market risk involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements.
Currency Fluctuations and Foreign Currency Risk
Some of our operations are conducted in Vietnam using Vietnamese Dong, which is the official currency of Vietnam. The effect of the fluctuations of exchange rates is considered minimal to our business operations.
Interest Rate Risk
We do not have significant interest rate risk, as most of our debt obligations are primarily short-term in nature to individuals, with fixed interest rates.
Valuation of Securities Risk
Since majority of our income is paid with the marketable securities, the value of our assets may fluctuate significantly depending on the market value of the securities we hold.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
PHI Group, Inc. (formerly, Providential Holdings, Inc.)
We have audited the accompanying consolidated balance sheets of PHI Group, Inc. (a Nevada corporation) and subsidiaries as of June 30, 2009, and 2008 and the related consolidated statements of operations, stockholders' equity, and cash flows for the years ended June 30, 2009 and 2008. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audit of these statements 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 made 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of PHI Group, Inc. and subsidiaries as of June 30, 2009, and the results of its consolidated operations and its cash flows for the years ended June 30, 2009 and 2008 in conformity with accounting principles generally accepted in the United States of America.
The Company's financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has accumulated deficit of $23,312,661 and negative cash flow from operations amounting $550,329 for the year ended June 30, 2009. These factors as discussed in Note 20 to the consolidated financial statements 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 20. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ KABANI & COMPANY, INC.
CERTIFIED PUBLIC ACCOUNTANTS
Los Angeles, California
October 13, 2009
PHI GROUP, INC. AND SUBSIDIARIES
(FORMERLY, PROVIDENTIAL HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS
PHI Group, Inc., ("PHI") is engaged in a number of business activities, the most important of which is merger and acquisition advisory services. The Company acquires and consolidates special opportunities in selective industries to create additional value, acts as an incubator for emerging companies and technologies, and provides financial consultancy and M&A advisory services to U.S. and foreign companies.
A wholly owned division of the Company, Provimex was formed on April 10, 2001 under the name "Providential Imex", to focus on trade commerce with Vietnam. This division changed its name to Provimex on July 5, 2001. This subsidiary was later incorporated as a Nevada corporation on September 23, 2004. The Company has declared a 15% stock dividend of Provimex, Inc. to shareholders of record as of September 15, 2004.
In May 2003, the Company formed a subsidiary under the name of Providential Capital to provide financial products and services for the micro-small cap arenas and to manage the Company's proprietary merger and acquisition activities. Providential Capital will focus its attention on the underserved segment of smaller companies in the United States and abroad. Providential Capital began providing merger and acquisition advisory services to its clients since the fiscal year ended June 30, 2003.
On July 7, 2003 a wholly-owned DBA of Providential Holdings, Inc, Touchlink Communications was formed to provide point-of-sale (POS) terminals and prepaid calling cards to retailers, convenient stores and non-profit organizations across the US. This POS system enables merchants and participating partners to offer prepaid products without purchasing or storing any inventory in advance. This company was later incorporated as a Nevada corporation in February 2004 under the name of Touchlink Communications, Inc. to provide long distance services to residential and business customers in the United States. The Company has declared a 15% stock dividend of Touchlink Communications, Inc. to shareholders of record as of September 15, 2004.
On November 1, 2003, the Company formed PHI Video Corp., which was later renamed PHI Digital Corp. ("PHI Digital"), a Nevada corporation, to provide the sale of consumer electronics, including flat-screen television sets and monitors. PHI Digital has been renamed "TULON INDUSTRIES, INC." to change its scope of business. This subsidiary did not generate any revenue during the fiscal years ended June 2005 and 2006.
On December 31, 2003, the Company formed Providential Oil & Gas, Inc., a Nevada corporation and wholly-owned subsidiary, to pursue independent oil and gas business. On November 24, 2005, Providential Oil & Gas, Inc. signed an agreement with Terra-Firma Gas & Oil, Inc., a Nevada corporation with headquarters in Midland, Texas, to co-develop up to twenty-four gas wells on Hudspeth Ranch, Crockett County, West Texas. A $20,000 investment has been made by the Company on this project in the fiscal year ended June 30, 2006. The Company wrote off this investment in the fiscal year ended June 30, 2007. On June 14, 2006, Providential Oil & Gas, Inc. changed its name to Providential Energy Corporation to expand its scope of business to potentially include alternative energy such as fuel cells and biodiesel. This entity did not have any operations during the year ended June 30, 2009 and 2008.
In July 2007, PhiLand Corporation, a Nevada corporation and wholly-owned subsidiary of the Company, was formed to manage the real estate development project in South Hoi An, Quang Nam Province, Vietnam. In July 2007, Providential Holdings entered into a principle agreement with the People’s Committee of Quang Nam Province, which allows the Company to lease approximately 8,000 acres of land in South Hoi An, Quang Nam Province, Vietnam to develop an integrated tourism zone under a 70-year lease term. PhiLand Corporation is currently involved in planning and developing this project. During the year ended June 30, 2009, 3,500,000 shares of PhiLand Corporation were issued to employees and consultants of the Company and 244,286 shares which were owned by the Company were sold to individuals for $140,000, 29,000 shares were exchanged for the payment of note amounting $29,000 and 900,000 shares which were owned by the Company were exchanged with 23,285,714 shares of Jeantex Group, Inc. In addition, during the year ended June 30, 2009, 408,000 shares of PhiLand Corporation were sold for $49,000. The total of 5,081,286 shares held by minority shareholders makes up approximately 21% of outstanding shares. On June 5, 2009, Philand Ranch Limited, a company registered under the laws of England and Wales, acquired all the issued and outstanding common stock of PhiLand Corporation in exchange for the same amount of ordinary shares of Philand Ranch Limited. As a result
of the stock exchange between Philand Corporation and Philand Ranch Limited, the Company currently owns 18,734,753 shares of ordinary stock of Philand Ranch Limited, which is listed on the Open Market Segment of the Frankfurt Stock Exchange under the symbol 1P8.F, WKN A0RPEA.
In March 2007, the Company received 900,000 shares, valued at $675,000, of Bio-Warm, which subsequently acquired 100% of Vietnam-based Dai Dung Metallic Manufacture Construction and Trade Company (DDMMCT) and changed its name to DDC Industries, Inc. The Company received these shares for advisory services completed earlier in that month. In June 2007, the Company received 3,763,753 shares of DDC Industries for services performed in the merger of Bio-Warm Corp. and DDMMCT which was closed on March 30, 2007 and received the remaining 3,763,753 shares during the year ended June 30, 2008 per the agreement, which in total, is equivalent to 20% of all issued and outstanding shares of DDC Industries, Inc. The merger agreement with DDMMCT was rescinded on November 18, 2008 in entirety and shareholders of DDMMCT agreed to return 28,610,025 shares of 30,110,025 issued shares. On December 1, 2008, DDC Industries Inc. changed its name to PHI Mining Group, Inc. The common stock of PHI Mining Group, Inc. is currently trading on the Pink Sheets under the symbol “PHIG”. PHI Mining Group did not generate any revenues in the year ended June 30, 2009.
IndoChina Mining Corporation, a Nevada corporation., was incorporated on March 20, 2008 for exploitation and processing of diatomite mines. On April 14, 2008, IndoChina Mining Corporation (IMC), entered into a Cooperation agreement with Phu Yen Minerals Joint Stock Company (PYMICO). Under this agreement, PYMICO and IMC will cooperate to contribute capital for establishment of a joint venture specializing in exploitation and processing of diatomite in Phu Yen providence and IMC will participate in PYMICO through purchasing a maximum of 30% shares of PYMICO when the latter issues additional shares in 2008. IndoChina Mining also entered into agreements
On December 1, 2008, Indochina Mining Corporation entered into stock purchase agreement with PHI Mining Group (formerly DDC Industries, Inc.) to exchange all of its capital stock with the same number of newly issued shares of PHI Mining Group. As a result, the Company owns approximately 83% of PHI Mining Group.
On May 20, 2008, Providential Vietnam, a Vietnamese corporation and wholly-owned subsidiary of the Company, was formed to provide M&A advisory services, management consulting, corporate restructuring, asset management, fund management, and investment banking, services in independent oil and gas, alternative energy, and mining, commercial and residential real estate, hotels and integrated hospitality and Investments in selective opportunities with potential for high growth.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of PHI Group, Inc., and its subsidiaries, Providential Securities, Inc., Providential Capital, PHI Digital Inc., (“PHI Digital”), Provimex, Providential Energy Corporation, Touchlink Communications, PHI Mining Group, Providential Vietnam and PhiLand Ranch, and its 100% owned subsidiary. PhiLand Corporation, Ltd., collectively referred to as the "Company". All significant inter-company transactions have been eliminated in consolidation. Providential Securities, Inc, PHI Digital, Provimex, Providential Energy Corporation, Touchlink Communications are inactive.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all liquid investments with a maturity of three months or less from the date of purchase that are readily convertible into cash to be cash equivalents.
MARKETABLE SECURITIES
The Company's securities are classified as available-for-sale and, as such, are carried at fair value. Securities classified as available-for-sale may be sold in response to changes in interest rates, liquidity needs, and for other purposes.
Each investment in marketable securities represents less than twenty percent (20%) of the outstanding common stock and stock equivalents of the investee, and each security is nationally quoted on the National Association of Securities Dealers OTC Bulletin Board ("OTC:BB") or Pink Sheets. As such, each investment is accounted for in accordance with the provisions of SFAS No. 115. Unrealized holding gains and losses for available-for-sale securities are excluded from earnings and reported as a separate component of stockholder's equity. Realized gains and losses for securities classified as available-for-sale are reported in earnings based upon the adjusted cost of the specific security sold. On June 30, 2009 and 2008, the marketable securities have been recorded at $1,750,000 and $4,435,938, respectively based upon the fair value of the marketable securities.
ACCOUNTS RECEIVABLE
The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis.
As of June 30, 2009 and 2008, the Company had balances of $67,500 and $3,044,520 as accounts receivable. The balance as of June 30, 2008 includes the securities receivable of $3,000,000 at the fair market value of shares at the date of the merger consummated on June 30, 2008.
IMPAIRMENT OF LONG-LIVED ASSETS
Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations for a Disposal of a Segment of a Business." The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with SFAS 144. SFAS 144 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Maintenance and repair costs are charged to expense as incurred; costs of major additions and betterments are capitalized. When property and equipment are sold or otherwise disposed of, the cost and related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is reflected in income. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, ranging from three to ten years.
DEPRECIATION AND AMORTIZATION
The cost of property and equipment is depreciated over the estimated useful lives of the related assets. Depreciation and amortization of fixed assets are computed on a straight-line basis.
NET EARNINGS PER SHARE
The Company adopted the provisions of Statement of Financial Accounting Standards No. 128, Earnings per Share ("SFAS No. 128"). SFAS No. 128 eliminates the presentation of primary and fully diluted earnings per share ("EPS") and requires presentation of basic and diluted EPS. Basic EPS is computed by dividing income (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is based on the weighted-average number of shares of common stock outstanding for the period and common stock equivalents outstanding at the end of the period.
The Company has the following dilutive stock warrants as of June 30, 2009- and 2008 .
STOCK-BASED COMPENSATION
Effective July 1, 2006, the Company adopted SFAS 123R and accordingly has adopted the modified prospective application method. Under this method, SFAS 123R is applied to new awards and to awards modified, repurchased, or cancelled after the effective date. Additionally, compensation cost for the portion of awards that are outstanding as of the date of adoption for which the requisite service has not been rendered (such as unvested options) is recognized over a period of time as the remaining requisite services are rendered.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Effective July 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157 (SFAS 157), Fair Value Measurements and adopted this Statement for the assets and liabilities shown in the table below. SFAS 157 clarifies the definition of fair value, prescribes methods for measuring fair value, establishes a fair value hierarchy based on the inputs used to measure fair value, and expands disclosures about the use of fair value measurements. The adoption of SFAS 157 did not have a material impact on our fair value measurements. Financial Accounting Standards Board (FASB) Staff Position SFAS No. 157-2, Effective Date of SFAS No. 157, permits the Company to defer the recognition and measurement of the nonfinancial assets and nonfinancial liabilities until January 1, 2009. At June 30, 2009, the Company did not have any nonfinancial assets or nonfinancial liabilities that are recognized or disclosed at fair value. SFAS No. 157 requires that financial assets and liabilities that are reported at fair value be categorized as one of the following types of investments based upon the methodology for determining fair value.
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The Company utilizes various approaches to measure fair value for available-for-sale securities.
Asets measured at fair value on a recurring basis are summarized below. The Company has no financial liabilities measured at fair value on a recurring basis.
REVENUE RECOGNITION
The Company's revenue recognition policies are in compliance with Staff accounting bulletin (SAB) 104. The Company recognizes consulting and advisory fee revenues when the transaction is completed and the service fees are earned. Expenses are recognized in the period in which the corresponding liability is incurred. Payments received before all of the relevant criteria for revenue recognition are recorded as unearned revenue.
ADVERTISING
The Company expenses advertising costs as incurred. Advertising costs for the years ended June 30, 2009 and 2008 were $12,650and $10,759 respectively.
COMPREHENSIVE INCOME (LOSS)
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS No. 130"), establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity, except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS No. 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. During the year ended June 30, 2009 and 2008, the Company recorded $2,110,305 and $5,523,975 as unrealized loss on marketable securities, respectively. Other comprehensive loss, as presented on the accompanying consolidated balance sheets amounted to $0 and $1,522,997 as of June 30, 2009 and 2008, respectively.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." Deferred taxes are provided on the liability method whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
REPORTING OF SEGMENTS
Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information ("SFAS No. 131"), which supersedes Statement of Financial Accounting Standards No. 14, Financial Reporting for Segments of a Business Enterprise, establishes standards for the way that public enterprises report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements regarding products and services, geographic areas and major customers. SFAS No. 131 defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision
maker in deciding how to allocate resources and in assessing performance. The Company operates in one segment during the years ended June 30, 2009 and 2008.
RISKS AND UNCERTAINTIES
In the normal course of business, the Company is subject to certain risks and uncertainties. The Company provides its service and receives marketable securities upon execution of transactions. Consequently, the value of the securities received from customers can be affected by economic fluctuations and each customer's business growth. The actual realized value of these securities could be significantly different than recorded value.
RECLASIFICATIONS
For comparative purposes, prior year's consolidated financial statements have been reclassified to conform to report classifications of the current year.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations”. The objective of this statement will significantly change the accounting for business combinations. Under Statement 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition date fair value with limited exceptions. Statement 141 applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company does not expect the adoption of SFAS No. 141R to have a material impact on the consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements-An Amendment of ARB No. 51". The objective of this statement is to establish new accounting and reporting standards for the Noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.. Statement 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company does not expect the adoption of SFAS No. 160 to have a material impact on the consolidated financial statements.
In March 2008, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133, which requires additional disclosures about the objectives of the derivative instruments and hedging activities, the method of accounting for such instruments under SFAS No. 133 and its related interpretations, and a tabular disclosure of the effects of such instruments and related hedged items on our financial position, financial performance, and cash flows. The Company does not expect the adoption of SFAS No. 161 to have a material impact on the consolidated financial statements.
In May 2008, FASB issued SFASB No.162, “The Hierarchy of Generally Accepted Accounting Principles”. The pronouncement mandates the GAAP hierarchy reside in the accounting literature as opposed to the audit literature. This has the practical impact of elevating FASB Statements of Financial Accounting Concepts in the GAAP hierarchy. This pronouncement will become effective 60 days following SEC approval. The Company does not expect this pronouncement will impact the consolidated financial statements.
In May 2008, FASB issued SFASB No. 163, “Accounting for Financial Guarantee Insurance Contracts-an interpretation of FASB Statement No. 60”. The scope of the statement is limited to financial guarantee insurance (and reinsurance) contracts. The pronouncement is effective for fiscal years beginning after December 31, 2008. The Company does not expect this pronouncement will impact the consolidated financial statements.
In June 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) Emerging Issues Task Force (EITF) No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” Under the FSP, unvested share-based payment awards that contain rights to receive nonforfeitable dividends (whether paid or unpaid) are participating securities, and should be included in the two-class method of computing EPS. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008 and the Company does not expect that FSP EITF No. 03-6-1 would have a material impact on the consolidated financial statements.
In April 2009, the FASB issued FASB Staff Position (“FSP”) FAS No. 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (“FSP FAS 107-1 and APB 28-1”), which amends SFAS No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about the fair value of financial instruments for interim reporting periods, as well as annual reporting periods. FSP FAS 107-1 and APB 28-1 are effective for all interim and annual reporting periods ending after June 15, 2009 and the Company does not expect that FSP No. 107-1 would have a material impact on the consolidated financial statements.
In April 2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (FSP 157-4), and FSP FASB 107-1 and Accounting Principles Board (APB) 28-1, Interim Disclosures about Fair Value of Financial Instruments (FSP 107-1). These two staff positions relate to fair value measurements and related disclosures. The FASB also issued a third FSP relating to the accounting for impaired debt securities titled FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (FSP 115-2). These standards are effective for interim and annual periods ending after June 15, 2009. FSP 157-4 and FSP 115-2 do not currently apply to the Company’s activities, but the Company will adopt the disclosure requirements of FSP 107-1.
In May 2009, the FASB issued Statement No. 165, “Subsequent Events” (“SFAS 165”), which establishes general standards of accounting for, and requires disclosure of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. We adopted the provisions of SFAS 165 for the quarter ended June 30, 2009. The adoption of these provisions will not have a material effect on our consolidated financial statements.
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (SFAS 167). The amendments include: (1) the elimination of the exemption for qualifying special purpose entities, (2) a new approach for determining who should consolidate a variable-interest entity, and (3) changes to when it is necessary to reassess who should consolidate a variable-interest entity. SFAS 167 is effective for the first annual reporting period beginning after November 15, 2009 and for interim periods within that first annual reporting period. The Company will adopt SFAS 167 in fiscal 2010 and is evaluating the impact it will have on the consolidated results of the Company.
In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS 168”). SFAS 168 establishes the FASB Accounting Standards Codification (the “Codification”) as the single source of authoritative nongovernmental U.S. GAAP. The Codification is effective for interim and annual periods ending after September 15, 2009. The adoption of this standard will not have a material impact on our financial statements.
NOTE 3 - NASD EXAMINATION AND DISCONTINUANCE OF PROVIDENTIAL SECURITIES, INC.
After the completion of a routine audit of Providential Securities, Inc. ("Providential") in July and August 2000, the National Association of Securities Dealers, Inc. alleged that Providential violated certain provisions of the NASD's Conduct Rules 2120, 2330, 2110 and 3010, and Rules 15c2-4, 10b-5, 10b-9 and 15c3-3 of the Securities and Exchange Commission. Providential Securities, Inc. and Henry Fahman voluntarily submitted a Letter of Acceptance, Waiver and Consent ("AWC",), which was accepted by NASD Regulation, Inc. on October 27, 2000.
Providential Securities, Inc. was censured, fined $115,000.00 and required to offer rescission to those public customers who participated in the Providential Private Placement. In addition, Henry Fahman was banned, in all capacities, from associating with any NASD member. Based upon the above-mentioned circumstances, Providential Securities, Inc. withdrew its membership from the NASD in October 2000 and ceased its securities brokerage operation. The fine of $115,000 is included in accrued expenses in the accompanying consolidated financial statements. The Company has offered all Preferred Stock holders rescission on their investment. During the year ended June 30, 2004, $235,000 from the amount due to Preferred Stock Holders plus $105,600 in related dividends payable totaling $340,600 has been paid either in cash or with the issuance of common stock. The balance of unredeemed preferred shares and the related interest has been included in current liabilities on the accompanying consolidated financial statements (Note 12).
NOTE 4 - LOANS RECEIVABLE FROM RELATED PARTIES
Loans receivable from related parties consist of the following at June 30, 2009 and 2008:
Loans to Bio-Warm/ DDC Industries and Cavico are unsecured, interest free and due on demand. As DDC Industries became a subsidiary of the Company(Note 1), this loan was eliminated during consolidation.
Loans to Jeantex Group and Provimex HTV is unsecured and bear 8.5% interest per annum and due on demand. $30,000 of loan to Pho Express bears 32.5% interest per annum and the remaining portion is interest free and due on demand. The loans to Pho Express will be applied toward the payment of investment upon closing of joint venture agreement. During the year ended June 30, 2009, the interest income from these loans has not been recorded as the receiving of these interests is not assured.
NOTE 5 - OTHER CURRENT ASSETS:
The Other Assets comprise of the following as of June 30, 2009 and 2008 :
NOTE 6- MARKETABLE EQUITY SECURITIES AVAILABLE FOR SALE
The Company’s marketable securities are classified as available-for-sale and, as such, are carried at fair value. All of the securities are comprised of shares of common stock of the investee. Securities classified as available-for-sale may be sold in response to changes in interest rates, liquidity needs, and for other purposes.
Each investment in marketable securities represents less than twenty percent (20%) of the outstanding common stock and stock equivalents of the investee, and each security is nationally quoted on the National Association of Securities Dealers OTC Bulletin Board ("OTC:BB") or the Pink Sheets. As such, each investment is accounted for in accordance with the provisions of SFAS No. 115.
Following is a summary of marketable equity securities classified as available for sale as of June 30, 2009:
The changes in net unrealized holding gain/loss on securities available for sale have been included as a separate component of stockholders' equity. For the years ended June 30, 2009 and 2008, an unrealized loss of $0 and $1,522,997 were recorded, respectively.
During the year ended June 30, 2009, the Company sold all 6,645,584 shares of Eastbridge Investment stock for $202,337. The Company sold 335,000 shares of Cavico Corp. for $60,853 and delivered 300,000 shares of Cavico Corp. for payment of interest amounting $45,000. In addition, the Company received 7,270,000 shares of Catthai Corporation for services of which 6,000,000 shares were recorded as revenue in the year ended June 30, 2008. The Company purchased 1,200 shares of Catthai Corporation at $2,371 during the year ended June 30, 2009. The Company received 3,500,000 shares of Vietnam United Steel Corporation for services. The Company used 1,500,000 shares of All Line, Inc. for payment for services valued at $30,000 and sold 85,000 shares for $4,325.
In March 2007, Bio-Warm entered into a purchase agreement to acquire 100% of Vietnam-based Dai Dung Metallic Manufacture Construction and Trade Company (DDMMCT) and changed its name to DDC Industries, Inc. The Company received 7,527,506 shares for advisory services, which was equivalent to 20% of all issued and outstanding shares of DDC Industries, Inc. The merger agreement with DDMMCT was rescinded on November 18, 2008 in entirety and shareholders of DDMMCT agreed to return 28,610,025 shares of 30,110,025 issued shares. On December 1, 2008, DDC Industries Inc. changed its name to PHI Mining Group. On December 1, 2008, Indochina Mining Corporation, a subsidiary of the Company, entered into stock purchase agreement with PHI Mining Group to exchange all of its capital stock with the same number of newly issued shares of PHI Mining Group. As a result, the Company owned about 83% of PHI Mining Group, Inc. as of December 1, 2008. Prior to the merger between PHI Mining Group and Indochina, Company held 20% interest in DDCI Industries which was increased to 76% as a result of rescission as mentioned above and subsequent acquisition of Company’s subsidiary Indochina by PHI Mining Group (DDCI Industries) resulted in the increase in Company’s interest to 83%. This transaction was recorded as related party transaction which resulted in the capitalization of PHI Mining Group into the Company.
During the year ended June 30, 2009, 23,285,714 shares of Jeantex Group, Inc. were exchanged with 900,000 shares of PHILand Corporation which were owned by the Company.
The Company recorded a realized loss on the sale of marketable securities of $4,018, 965 including realized loss of $2,074,647 on securities of DDCI which became a subsidiary of the Company for the year ended June 30, 2009 and a gain of $701,832 for the year ended June 30, 2008.
NOTE 7 - PROPERTY AND EQUIPMENT
Property and equipment at June 30, 2009 and 2008 consists of the following:
Depreciation expenses were $15,842 and $2,634 for the fiscal years ended June 30, 2009 and 2008, respectively.
NOTE 8 - CONSTRUCTION IN PROGRESS
Construction in progress represents the costs incurred by PHILand Corporation, a subsidiary of the Company for real estate development amounting to $657,462 as of June 30, 2009. The costs included interest capitalized of $80,952.
NOTE 9 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The accounts payable and accrued expenses at June 30, 2009 and 2008 consist of the following:
Accounts payable & Accrued Expenses $
1,167,455 $ 379,175
Accrued salaries and payroll taxes
300, 199
166,557
Accrued interest
833,607
551,323
Accrued legal
385,084
339,804
Accrued consulting fees
177,981
168,870
$ 2,864,325 $ 1,605,728
During the year ended June 30, 2009, the Company was forgiven for the accrued interest of $131,808 on certain short term notes. This amount of was recorded as a gain on settlement of debts in the consolidated financial statements.
During the year ended June 30, 2008, the Company wrote off $66,719 of old accounts payable for which the statue of limitation set by the state has expired. This amount of was recorded as a gain on settlement of debts in the consolidated financial statements.
NOTE 10 - DUE TO OFFICER
Due to officer, represents advances made by officers of the Company and its subsidiaries, which are non-interest bearing, except for $100,000 as described below, unsecured and due on demand. As of June 30, 2009 and 2008, the balances were $1,013,561 and $561,982, respectively.
As of June 30, 2009, the Company has a short term note payable amounting $100,000 with interest bearing $3,000 per month payable to former Chief Technology Officer (CTO).
NOTE 11 - LOANS AND PROMISSORY NOTES
SHORT TERM NOTES PAYABLE:
As of June 30, 2009 and 2008, the Company has short term notes payable amounting $2,310,085 and $1,816,255, with accrued interest of $833,607 and $340,753, respectively. These notes bear interest rates ranging from 6% to 36% per annum. $1,811,500 of these short term notes are past due and $315,535 are due on demand. During the year ended June 30, 2009 and 2008, the Company paid $167,485and $174,000 of principal and $200,135 and $196,1888 of interest on short term notes, respectively.
DUE TO PREFERRED STOCKHOLDERS:
The Company classified $215,000 of preferred stock subscribed as a current liability payable to holders of preferred stock due to non compliance of preferred shares subscription agreement. This amount was past due as of June 30, 2009.
The interest payable to holders of preferred stock of $232,655 and $206,855 has been included in accrued interest included in account payable and accrued expenses on the balance sheet as of June 30, 2009 and 2008, respectively.
OTHER CURRENT LIABILITIES
During the year ended June 30, 2004, the Company received an overpayment of $89,691 for the exercise of stock options receivable. This amount has not been paid by the Company as of June 30, 2009, and has been classified as other payable and is shown on the consolidated financial statements in other current liabilities.
NOTE 12 - LITIGATION
LEGAL PROCEEDING SETTLED AND UNPAID AS OF JUNE 30, 2009:
QUANG VAN CAO AND NHAN THI NGUYEN CAO VS. PROVIDENTIAL SECURITIES, INC. ET AL.
This case was originally submitted to Orange County Superior Court, CA on June 25, 1997, Case No. 781121, and subsequently moved to NASD Dispute resolution for arbitration. On or about August 24, 2000, the Company's legal counsel negotiated with the Claimant's counsel and unilaterally reached a settlement that had not been approved by the Company. While the Company was in the process of re-negotiating the terms of said settlement, the Claimants filed a request for arbitration hearing before the National Association of Securities Dealers on October 4, 2000, Case No. 99-03160. Thereafter, the Claimants filed a complaint with the Orange County Superior Court, CA on October 31, 2000, Case No. 00CC13067 for alleged breach of contract for damages in the sum of $75,000 plus pre-judgment interest, costs incurred in connection with the complaint, and other relief. Without admitting or denying any allegations, the Company reached a settlement agreement with the Claimants whereby the Company would pay the Claimants a total of $62,500 plus $4,500 in administrative costs. As the date of this report, the Company has paid $2,500 and is subject to an entry of judgment for $79,000. The settlement amount has been accrued in the accompanying consolidated financial statements.
CONSECO FINANCE VENDOR SERVICES CORPORATION FKA GREEN TREE VENDOR SERVICES CORPORATION VS. PROVIDENTIAL SECURITIES, INC., HENRY D. FAHMAN AND TINA T. PHAN
In September 1997 Providential Securities, Inc. entered into a written Lease Agreement to lease certain items of equipment from Green Tree Vendor Services, in return for which Providential Securities, Inc. agreed to pay thirty-six monthly installments, each in the amount of $1,552. On or about September 12, 2000, and subsequently, Providential Securities, Inc. was unable to make the monthly payments to Claimant due to the lack of revenues following the interruption and subsequent closure of its securities brokerage operations. (See Note 3) Claimant filed a complaint for money with the Superior Court of the State of California, County of Orange (Case No. 01CC02613) on February 23, 2001 seeking $39,102 plus interest thereon at the legal rate from September 12, 2000. The claimant entered a judgment against Providential Securities, Inc., Henry Fahman and Tina Phan for $48,933. The judgment amount has been accrued in the accompanying consolidated financial statements.
PENDING LITIGATION:
NGON VU VS. PROVIDENTIAL SECURITIES, INC.
Claimant was a former employee of Providential Securities, Inc. who was laid off in 2000 due to closure of business. The Claimant complained to the Department of Industrial Relations (DIR) for allegedly unpaid vacation and salaries. On June 13, 2001, the DIR filed a request to enter a judgment against Providential Securities, Inc. for $9,074 including wages and interest, penalty, post hearing and filing fee. The sought amount of $9,074 has been accrued in the accompanying consolidated financial statements.
VERIO VS. PROVIDENTIAL SECURITIES, INC.
On or about April 1, 2003, Verio, Inc. filed a judgment against Providential Securities, Inc., a wholly-owned subsidiary of the Company which was discontinued in October 2000, for a total of $9,141. This sum consists of $6,800 for services allegedly rendered by Verio, Inc. to Providential Securities, Inc. in 2000 and $2,341 for legal costs. Both amounts have been accrued in the accompanying consolidated financial statements.
DOW JONES & COMPANY, INC. VS. PROVIDENTIAL SECURITIES, INC. AND PHI GROUP, INC.
On March 19, 2002 Dow Jones & Company filed a complaint with the Superior Court of California, County of Orange, West Justice Center (Case No. 02WL1633), against Providential Securities, Inc., the discontinued operations of the Company, and PHI Group, Inc. for $9,973 plus prejudgment interest at the rate of ten (10%) per annum from November 1, 2000, reasonable attorneys’ fees and other and further relief. This claim is in connection with services allegedly rendered by the Plaintiff to Providential Securities, Inc. prior to November 2000. The Company intends to settle this case. The sought amount of $9,973 (excluding interest) has been accrued in Accrued Expenses in the accompanying consolidated financial statements.
KEY EQUIPMENT FINANCE, INC., VS. 49-6215601204 PROVIDENTIAL SECURITIES, INC.; HENRY D. FAHMAN; TINA T. PHAN, CASE NO 06WL00289
On January 18, 2006 Key equipment Finance filed a suit in the Superior Court of the State of California, County of Orange - West District claiming breach of the terms of lease agreement by failure to make the monthly installment due although demand therefore was made. The remaining balance due and owing to plaintiff under the lease is $14,439 plus interest from the date of default. The plaintiff also claiming for breach of guaranty, common counts, unjust enrichment and cost of law suit and any other relief the Court may deem just and proper. As of June 30, 2008, the Company has accrued $14,439.
NASD CASE:
After the completion of a routine audit of Providential Securities, Inc. in July and August 2000, the National Association of Securities Dealers, Inc. alleged that Providential violated certain provisions of the NASD's Conduct Rules. As a result, Providential Securities, Inc. withdrew its membership from the NASD in October 2000 and ceased its securities brokerage operation. $127,305, including $115,000 fine charged by NASD, is included in accrued expenses in the accompanying consolidated financial statements. (Note 3)
ARBITRATION CASES:
The Company had four arbitration cases from day-traders against Providential Securities, Inc., a discontinued stock brokerage operation of the Company. The total amount of damages for these cases, which were closed as of June 30, 2001, was $54,505. This amount has been accrued in the accompanying consolidated financial statements.
NOTE 13 - BASIC AND DILUTED NET LOSS PER SHARE
Net loss per share is calculated in accordance with SFAS No. 128, "Earnings per Share". Under the provision of SFAS No. 128, basic net loss per share is computed by dividing the net loss for the period by the weighted-average number of common shares outstanding for the period. Diluted EPS is based on the weighted-average number of shares of common stock outstanding for the period and common stock equivalents outstanding at the end of the period. Basic and diluted weighted average number of shares for the year ended June 30, 2009 were the same since the inclusion of Common stock equivalents is anti-dilutive.
NOTE 14 - STOCKHOLDER'S EQUITY
Effective April 13, 2009, the Company amended its articles of incorporation to change its par values of preferred and common stock to $0.001. The Company has 400,000,000 authorized capital stock, consisting of 300,000,000 shares of common stock and
100,000,000 shares of preferred stock. The effect of the change has been reflected retroactively in the consolidated financial statements.
Treasury Stock:
During the years ended June 30, 2009 and 2008, the Company purchased 170,000 and 120,500 treasury shares for $4,233and $3,784, respectively. During the year ended June 30, 2009, the Company used 1,280,000 shares of its treasury shares valued at $36,736 to convert a note of $9,336. The Company recorded $27,400 loss on conversion. The balance of treasury stock of 1,330,440 shares as of June 30, 2009 was valued at $1,330.
Common Stock:
Fiscal year ended June 30, 2009:
During the year ended June 30, 2009, the Company issued 1,300,000 shares of common stock valued at $32,500 for a payment of accrued payroll and consulting fees.
Fiscal year ended June 30, 2008:
During the year ended June 30, 2008, the Company issued 1,800,000 shares of common stock valued at $90,000 for services.
During the year ended June 30, 2008, the Company issued 6,000,000 shares of common stock for conversion of short term notes amounting $180,000.
During the year ended June 30, 2008, the Company issued 14,000,000 shares of common stock for payment of accrued salaries amounting $420,000 for officers.
Shares to be Issued:
On 06/09/2006, Luberski Inc. transferred and subsequently sold 1,000,000 shares of common stock of PHI Group, Inc. which belonged to the officer of the Company and were given to Luberski, Inc. as collateral for the loan. As of June 30, 2007, the Company agreed to pay back 1,000,000 shares valued at $57,000 to the officer and recorded the transaction as shares to be issued.
Prepaid Consulting:
During the year ended June 30, 2008, the Company signed a consulting agreement for consulting service for one year. The Company issued 1,500,000 shares of common stock to the consultant valued at $75,000 based upon the market value of the stock at the date of stock issuance. The Company amortized $37,500 during the year ended June 30, 2009 and $37,500 in the year ended June 30, 2008.
Subscriptions Receivable:
The subscription receivable balance of $25,500 at June 30, 2008 from a consultant for shares issued during the year ended 2005 was written off during the fiscal year ended June 30, 2009.
NOTE 15 - STOCK BASED COMPENSATION PLAN
Stock-Based Compensation:
On February 7, 2005, the Company adopted a stock-based compensation plan and set aside 14,000,000 shares of common stock for selected eligible participants of the Company and subsidiaries, and certain independent contractors providing certain services to the Company. As of June 30, 2009, 13,778,512 shares have been issued for salaries, consulting and professional services in lieu of cash under this plan.
Prior to July 1, 2006, the Company measured stock compensation expense using the intrinsic value method of accounting in accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations (APB No. 25). The company adopted SFAS No. 123-R effective July 1, 2006 using the modified prospective method.
Warrants:
During the quarter ended September 30, 2006, the Company issued 250,000 stock warrants with a term of 5 years and a three year vesting period. The following assumptions were used in the Black-Scholes pricing model:
NOTE 16- GAIN ON SETTLEMENT OF DEBT
During the year ended June 30, 2009 and 2008, the Company recorded a gain of $187,794 and $67,719 on the settlement of debt, respectively. (Note 9 and 11)
NOTE 17 - RELATED PARTY TRANSACTIONS
The Company accrued $210,000 salaries for Henry Fahman (President of the Company) and Tina Phan (Secretary of the Company) during the years ended June 30, 2009 and 2008.
During the years ended June 30, 2009 and 2008, the Company had $24,000 consulting revenue from a company related through a common officer.
In March 2007, Bio-Warm entered into a purchase agreement to acquire 100% of Vietnam-based Dai Dung Metallic Manufacture Construction and Trade Company (DDMMCT) and changed its name to DDC Industries, Inc. The Company received 7,527,506 shares for advisory services, which was equivalent to 20% of all issued and outstanding shares of DDC Industries, Inc. The merger agreement with DDMMCT was rescinded on November 18, 2008 in entirety and shareholders of DDMMCT agreed to return 28,610,025 shares of 30,110,025 issued shares. On December 1, 2008, DDC Industries Inc. changed its name to PHI Mining Group.
On December 1, 2008, Indochina Mining Corporation, a subsidiary of the Company, entered into stock purchase agreement with PHI Mining Group to exchange all of its capital stock with the same number of newly issued shares of PHI Mining Group. As a result, the Company owned about 83% of PHI Mining Group, Inc at December 1, 2008. Prior to the merger between PHI Mining Group and Indochina, Company held 20% interest in DDC Industries which was increased to 76% as a result of recession as mentioned above and subsequent acquisition of Company’s subsidiary Indochina by PMG Mining Group (DDC Industries) resulted in the increase in Company’s interest to 83%. This transaction was recorded as related party transaction which resulted in the consolidation of PHI Mining Group into the Company.
NOTE 18 - INCOME TAXES
No provision was made for income tax since the Company has significant net operating loss carry forward. Through June 30, 2009, the Company incurred net operating losses for tax purposes of approximately $8.3 million. The net operating loss carry forward may be used to reduce taxable income through the year 2029. Net operating loss for carry forwards for the State of California is generally available to reduce taxable income through the year 2029. The availability of the Company's net operating loss carryforward is subject to limitation if there is a 50% or more positive change in the ownership of the Company's stock.
The net deferred tax asset balance, due to net operating loss carryforwards as of June 30, 2009 and 2008 were approximately $6.7 million and $3.4 million respectively. A 100% valuation allowance has been established against the deferred tax assets, as the utilization of the loss carryforwards cannot reasonably be assured.
The following is a reconciliation of the provision for income taxes at the U.S. federal income tax rate to the income taxes reflected in the Consolidated Statements of Operations:
NOTE 19- CONTRACTS AND COMMITMENTS
AGREEMENT WITH HAWK ASSOCIATES, INC.
On August 11, 2006, the Company entered into an investor relations consulting agreement with Hawk Associates, Inc., a Florida corporation, to be effective September 1, 2006. According to the agreement, Hawk Associates will provide investor relations consulting services to the Company for a period of six months, after which the agreement will automatically renew monthly until notice is provided by one of the parties to the other. The Company agrees to pay Hawk Associates $4,500 per month for the investor relations consulting services and Hawk Associates will be issued warrants to purchase 250,000 common shares of the Company based on the closing price of $0.015 per share as of September 1, 2006. These warrants will be valid until August 30, 2011.
BUSINESS AND FINANCIAL CONSUTLING AGREEMENT WITH CATTHAI PLASTIC COMPANY
On June 25, 2007, the Company entered into a business consulting agreement with Catthai Plastic Company (“CATHACO, LTD”), a Vietnamese company located in Ho Chi Minh City, Vietnam. The services include (1) taking CATHACO public in the US via reverse merger, a business combination or IPO (2) arranging intermediate funding after it become a fully-reporting publicly traded company on the OTCBB or a higher exchange in the US (3) subsequent listings of the new company’s shares on the Berlin and Frankfurt Stock Exchanges if necessary (4)further long-term funding and capital requirements as needed. The Company recorded $3,000,000 as part of accounts receivable based on the fair market value of 6,000,000 shares at the date of the merger consummated on June 30, 2008. During the period ended December 31, 2008, the Company received these 6,000,000 shares and 1,270,000 additional shares for transaction related to stock purchased from Strategia for merger.
BUSINESS COOPERATION AGREEMENT WITH PHO EXPRESS
On September 19, 2007, Provimex, Inc., a subsidiary of the Company entered into business cooperation agreement with an owner of Pho Express to establish a new Vietnamese style noodle soup restaurant, Pho Express International, LLC. Pho Express agreed to contribute all assets and liabilities in exchange for 40% of equity ownership and Provimex agreed to pay $165,000 in exchange for 60% of equity ownership of Pho Express International, LLC. The Company paid $96,100 toward this investment and loaned $13,500 to Pho Express as of June 30, 2009. The business cooperation agreement was not closed as of the date of this report.
BUSINESS AND FINANCIAL CONSULTING AGREEMENT WITH MAST VENTURES, LLC
Effective April 1, 2008, the Company entered into a business and financial consulting agreement with Mast Ventures, LLC to raise capital for a wholly owned subsidiary, PhiLand Corporation for 5 years. The service includes assistance identifying potential investors, developing an approach in seeking such current financing and investor relations. The Company agreed to pay 5% of the total funds raised by the consultant.
OFFICE SPACE LEASE
The Company signed on a 5 year lease agreement for the corporate office effective May 1, 2008. The monthly rental is $6,690.70 and will be increased by 3.5% per annum commencing in the thirteenth month of the initial lease term and continuing annually thereafter.
The leases for offices in Vietnam are for 12 months starting January 2008 and July 2008. The monthly rental is ranging from approximately $625 to $4,100 per month.
Future commitments under operating leases are as follows for the twelve months ending June 30:
$ 83,091
86,007
89,017
76,777
-
Total minimum lease payments $ 334,892
The rent expense was $147,043 and $81,130 for the year ended June 30, 2009 and 2008, respectively.
NOTE 20 - GOING CONCERN UNCERTAINTY
As shown in the accompanying consolidated financial statements, the Company has accumulated deficit of $23,312,661 and negative cash flow from operations amounting $550,329 for the year ended June 30, 2009. These factors as well as the uncertain conditions that the Company faces in its day-to-day operations with respect to cash flows create an uncertainty as to the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. Management has taken action to strengthen the Company's working capital position and generate sufficient cash to meet its operating needs through June 30, 2010 and beyond. The Company also anticipates generating more revenue through its proposed mergers and acquisitions. No assurances can be made that management will be successful in achieving its plan. The president and chairman of the Company has committed to funding the Company's operations for the next 12 months.
NOTE 21 - SUBSEQUENT EVENTS
.On June 5, 2009, Philand Ranch Limited, a company registered under the laws of England and Wales, acquired all the issued and outstanding common stock of PhiLand Corporation in exchange for the same amount of ordinary shares of Philand Ranch Limited. As a result of the stock exchange between Philand Corporation and Philand Ranch Limited, the Company currently owns 18,734,753 shares of ordinary stock of Philand Ranch Limited. Effective September 07, 2009, Philand Ranch Limited’s ordinary stock was approved to trade on the Open Market Segment of the Frankfurt Stock Exchange under the symbol 1P8.F, WKN A0RPEA.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM. 9A. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
We have adopted and maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods required under the SEC’s rules and forms and that the information is gathered and communicated to our management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), as appropriate, to allow for timely decisions regarding required disclosure.
As required by SEC Rule 15d-15(b), our Chief Executive Officer and Chief Financial Officer carried out an evaluation under the supervision and with the participation of our management, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 15d-14 as of the end of the period covered by this report. Based on the foregoing evaluation, they have concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic SEC filings and to ensure that information required to be disclosed in our periodic SEC filings is accumulated and communicated to our management, including our Chief Executive Officer/ Chief Financial Officer, to allow timely decisions regarding required disclosure about our internal control over financial reporting discussed below.
This annual report does not include an attestation report of the Company’s registered accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission .
(b) Changes in Internal Control, Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the fiscal year ended June 30, 2009, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER MATTERS
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table sets forth certain information as of June 30, 2009, with respect to the Directors and Executive Officers of the Company.
NAME AGE POSITION
Henry D. Fahman Chairman of the Board, President, Acting Chief
Financial Officer
Tina T. Phan Treasurer
Tam T. Bui Director
Frank Hawkins Director
Paul K. Nguyen Director
Lawrence G. Olson Director
Directors are elected at the annual meeting of shareholders and hold office until the following annual meeting and until their successors are elected and qualified. All Executive Officers serve at the discretion of the Board of Directors.
Henry D. Fahman has been President and Chairman of the Board of PHI Group, Inc. since January 14, 2000, and is currently Acting Financial Officer of the Company. Mr. Fahman served as President and Chairman of the Board of Providential Securities, Inc. from its inception in October 1992 to October 2000. He holds a B.S., magna cum laude, in business administration from the University of California at Berkeley, with emphasis in finance and economic analysis and policy, and is a graduate of the Advanced Management Program (AMP166) from Harvard Business School. He has also attended other Executive Education programs at Harvard Business School and Stanford University, including Mergers and Acquisitions, Creating Competitive Advantage, and Advanced General Management. Previously, he served as a Resettlement Coordinator for the United Nations High Commissioner for Refugees. Mr. Fahman also serves as Excutive Chairman of PhiLand Ranch Limited. Mr. Fahman is the husband of Tina T. Phan, our Secretary and Treasurer and a member of our Board of Directors.
Tina T. Phan has been a Treasurer since April 10, 2009 and served as a Director and Secretary of the Company from January 2000 to April 10, 2009 and was Vice President of Operations of Providential Securities, Inc. from 1995 to 2000. Mrs. Phan holds a B.S. in management information system from California State University, Los Angeles. Currently Mrs. Phan serves as Treasurer of the Company. Mrs. Phan is the wife of Henry D. Fahman.
Tam Bui has been a Director of the Company since April 10, 2009 and served as a Chief Technology Officer from May 2002 to April 10, 2009. Mr. Bui holds Bachelor and Master of Science degrees from the University of Minnesota and has attended continuing Education at the University of California, Los Angeles. He has over 18 years of experience with Honeywell, Inc. and TRW as Senior Production Engineer/Computer Application Engineer, Project Manager, Department Manager, Program Manager and Implementation Manager. He was responsible for the implementation of LAPD Emergency Command Control Communications Systems. He has a broad knowledge and experience in the areas of information technology, intranet/internet technology, inventory management, material resource planning, enterprise resource planning, human resource management, and international business.
Paul Nguyen has been a Director of the Company since April 10, 2009 and is currently Senior Partner of Nguyen & Larsen, LLP, a law firm, and Chief Executive Officer of Summit Medical Group, Inc. in Orange County, CA, Mr. Nguyen received a MS in aeronautical engineering from California Institute of Technology in 1984 and was named Research Scientist by NASA from 1984-1987. After graduating from the Harvard Business School JD/MBA program in 1991, Mr. Nguyen served as Institutional Investment Associate from 1991-1992 and Managing Director from 1992-1993 for JP Morgan in New York and Tokyo. Mr. Nguyen served as Senior Associate attorney for Baker & McKenzie in Ha Noi, Vietnam from 1993-1995. In 2000, Mr. Nguyen received a MD from Loma Linda School of Medicine and was board certified in plastic surgery in 2005.
Lawrence G. Olson became a director of PHI Group, Inc. in January 2008. Mr. Olson has been a director of Santa Fe Gold Corp., a public company (OTCBB:SGFE), since March 1999 in connection with the Company's acquisition of Arizona Mica Properties, Inc., a private Arizona corporation owned by Mr. Olson and his partners. He has held the position of Chairman of Santa Fe Gold’s Board of Directors since October 2000, and until October 2003 also held the positions of President and Chief Executive Officer. Mr. Olson has owned and operated a successful business, Olson Precast of Arizona Inc., since 1973. Mr. Olson received a B.S. Degree in Civil Engineering from the University of Southern California.
The Company's securities are not registered under Section 12(g) of the Exchange Act. Accordingly, the Directors and Executive Officers of the Company are not required to file reports under Section 16(a) of that act.
Frank Hawkins, Director has been a Director of the Company since April 10, 2009 and Mr. Hawkins is a founder and CEO of Hawk Associates with nearly 30 years of award-winning investor relations experience, Mr. Hawkins has earned the wide respect of Wall Street's investment community for straight talk and integrity. He was formerly vice president/corporate relations and planning and head of the investor relations program at Knight-Ridder, Inc. in Miami. Mr. Hawkins started his career as an agent handler in clandestine collection operations for the Defense Intelligence Agency in Germany and went on to become a foreign and war correspondent, international businessman, senior corporate executive and president of the Access Asia Group in Hong Kong. He has lived in eight countries. He has been involved in stock listings in Tokyo and Frankfurt and company presentations in London, Zurich, Geneva and Singapore. Fluent in German, he is a graduate of Cornell University and author of "Ritter's Gold," an adventure novel published in several languages by the New American Library. He is a member of the Association of Former Intelligence Officers and the Audubon Society and is listed in Who's Who in America and Who's Who in the World. He serves on the board of the Florida Keys Electric Cooperative.
ITEM 11. EXECUTIVE COMPENSATION
(a) Any compensation received by officers, directors, and management personnel of the Company will be determined and approved from time to time by the Board of Directors of the Company as it deems appropriate and reasonable. Officers, directors, and management personnel of the Company will be reimbursed for any out-of-pocket expenses incurred on behalf of the Company.
Except for non-cash payments mentioned in this report, there was no monetary compensation paid to any officers of the Company during the year ended June 30, 2009.
(b) There are no annuity, pension or retirement benefits proposed to be paid to officers, directors, or employees of the Company in the event of retirement at normal retirement date as there is no existing plan provided for or contributed to by the Company.
(c) All members of the Company's Board of Directors, whether officers of the Company or not, may receive an amount yet to be determined annually for their participation in meetings of the Board and will be required to attend a minimum of four meetings per fiscal year. The Company reimburses all expenses for meeting attendance or out of pocket expenses connected directly with their Board participation.
(d) On July 10, 2000 the Company adopted a Stock Option and Incentive Plan (the "Plan") which provides for the issuance of up to a maximum of 16 million shares of the Company's common stock to officers, employees and non-employee directors at the sole discretion of the board of directors. On August 10, 2000 the Company granted fully vested 14 million options under the Plan to officers, directors and employees at an exercise price of $.50 per share. All the options were exercisable on July 1, 2001 and would expire on December 31, 2002. On June 15, 2002, the Company extended the expiration date of these employee stocks to December 31, 2005. As of the date of this report, there have been no options exercised and all of these options have been forfeited.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial ownership of shares of the Company's common stock as of June 30, 2009 (195,130,961 issued and outstanding,) by (i) all shareholders known to the Company to be beneficial owners of more than 5% of the outstanding common stock; and (ii) all directors and executive officers of the Company, and as a group:
(1) Each person has sole voting power and sole dispositive power as to all of the shares shown as beneficially owned by them
(2) Certain of these shares have been pledged to secure certain obligations of the Company.
(3) Tina Phan is the wife of Henry Fahman.
* Less than 1%.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Henry D. Fahman, Chairman and Chief Executive Officer of the Company, has from time to time made cash advances to the Company. The advances are unsecured, interest free and payable on demand.
Certain of the officers and directors of the Company are engaged in other businesses, either individually or through partnerships and corporations in which they have an interest, hold an office, or serve on a board of directors. As a result, certain conflicts of interest may arise between the Company and its officers and directors. The Company will attempt to resolve such conflicts of interest in favor of the Company. The officers and directors of the Company are accountable to it and its shareholders as fiduciaries, which require that such officers and directors exercise good faith and integrity in handling the Company's affairs. A shareholder may be able to institute legal action on behalf of the Company or on behalf of itself and other similarly situated shareholders to recover damages or for other relief in cases of the resolution of conflicts is in any manner prejudicial to the Company.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
The aggregate fees billed by Kabani & Company., independent auditors, for the audit of the Company’s annual consolidated financial statements and reviews of quarterly financial statements for the years ended June 30, 2009 and 2008 were $54,500 and $45,000 respectively.
All Other Fees
The Company did not pay Kabani & Company any non-audit fees for fiscal year 2009 or 2008.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
Financial Statements
The following consolidated financial statements of PHI Group, Inc. and its subsidiaries are included:
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (Kabani & Company)
EXHIBIT NO.
DESCRIPTION
2.1 Plan of Exchange between the Company and Prima Eastwest Model Management, Inc. (incorporated by reference to Exhibit
2 to the Form 8-K filed on March 1, 1996)
2.2 Corporate Combination Agreement between the Company and Providential Securities, Inc., effective on January 14, 2000
(incorporated by reference to Exhibit 10.12 to the Form 10-KSB filed on January 10, 2000).
3.1 Articles of Incorporation (1)
3.2 Amendment to Articles of Incorporation (incorporated by reference to Exhibit 3.1 of the Form 10-KSB for the fiscal year
ended June 30, 1995).
3.3 Amendment to Articles of Incorporation (6)
3.4 Certificate of Amendment to Articles of Incorporation (6)3.5 Bylaws, as amended (6)
4.1 Form of Series 1 Bridge Notes Purchase and Security Agreement between the Company and investors, dated March 27,
2000 (6)
4.2 Form of Series 1 Bridge Note executed by the Company issued by the Company to Investors. (6)
4.3 Form of Common Stock Purchase Warrant issued by the Company to investors. (6)
4.4 Form of Re-pricing Warrant issued by the Company to investors. (6)
4.5 Form of Registration Rights Agreement between the Company and investors, dated March 27, 2000 (6)
4.6 Form of Common Stock Purchase Warrant to be issued by the Company to Sovereign Capital Advisors, LLC (6)
4.7 Form of Convertible Promissory Note issued by the Company to preferred shareholders of Providential Securities, Inc. (6)
5.1 Opinion Re Validity of Agreements (6) 10.1 Benatone Exchange Agreement, with Creditors (2)
10.2 Benatone Share Acquisition Agreement (for Weldnow Enterprise, Ltd.) (2)
10.3 Benatone Share Acquisition Agreement (Dynedeem Limited) (2)
10.4 Benatone Exchange Agreement (2)
10.5 Benatone Asset Sale Agreement (2)
10.6 Benatone Royalty Agreement (2)
10.7 Benatone Consultancy Agreement (2)
10.8 Benatone Deed (2)
10.9 Autokraft Stock Purchase Agreement (3)
10.10 Autokraft Stock Subscription Agreement (3)
10.11 Prima Agreement and Plan of Merger (4)
SIGNATURES
Pursuant to the requirement of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
PHI GROUP, INC.
Date: October 13, 2009
By: /s/ Henry D. Fahman
Henry D. Fahman, President
In accordance with the Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
ITEM 9B. OTHER MATTERS
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table sets forth certain information as of June 30, 2009, with respect to the Directors and Executive Officers of the Company.
NAME AGE POSITION
Henry D. Fahman Chairman of the Board, President, Acting Chief
Financial Officer
Tina T. Phan Treasurer
Tam T. Bui Director
Frank Hawkins Director
Paul K. Nguyen Director
Lawrence G. Olson Director
Directors are elected at the annual meeting of shareholders and hold office until the following annual meeting and until their successors are elected and qualified. All Executive Officers serve at the discretion of the Board of Directors.
Henry D. Fahman has been President and Chairman of the Board of PHI Group, Inc. since January 14, 2000, and is currently Acting Financial Officer of the Company. Mr. Fahman served as President and Chairman of the Board of Providential Securities, Inc. from its inception in October 1992 to October 2000. He holds a B.S., magna cum laude, in business administration from the University of California at Berkeley, with emphasis in finance and economic analysis and policy, and is a graduate of the Advanced Management Program (AMP166) from Harvard Business School. He has also attended other Executive Education programs at Harvard Business School and Stanford University, including Mergers and Acquisitions, Creating Competitive Advantage, and Advanced General Management. Previously, he served as a Resettlement Coordinator for the United Nations High Commissioner for Refugees. Mr. Fahman also serves as Excutive Chairman of PhiLand Ranch Limited. Mr. Fahman is the husband of Tina T. Phan, our Secretary and Treasurer and a member of our Board of Directors.
Tina T. Phan has been a Treasurer since April 10, 2009 and served as a Director and Secretary of the Company from January 2000 to April 10, 2009 and was Vice President of Operations of Providential Securities, Inc. from 1995 to 2000. Mrs. Phan holds a B.S. in management information system from California State University, Los Angeles. Currently Mrs. Phan serves as Treasurer of the Company. Mrs. Phan is the wife of Henry D. Fahman.
Tam Bui has been a Director of the Company since April 10, 2009 and served as a Chief Technology Officer from May 2002 to April 10, 2009. Mr. Bui holds Bachelor and Master of Science degrees from the University of Minnesota and has attended continuing Education at the University of California, Los Angeles. He has over 18 years of experience with Honeywell, Inc. and TRW as Senior Production Engineer/Computer Application Engineer, Project Manager, Department Manager, Program Manager and Implementation Manager. He was responsible for the implementation of LAPD Emergency Command Control Communications Systems. He has a broad knowledge and experience in the areas of information technology, intranet/internet technology, inventory management, material resource planning, enterprise resource planning, human resource management, and international business.
Paul Nguyen has been a Director of the Company since April 10, 2009 and is currently Senior Partner of Nguyen & Larsen, LLP, a law firm, and Chief Executive Officer of Summit Medical Group, Inc. in Orange County, CA, Mr. Nguyen received a MS in aeronautical engineering from California Institute of Technology in 1984 and was named Research Scientist by NASA from 1984-1987. After graduating from the Harvard Business School JD/MBA program in 1991, Mr. Nguyen served as Institutional Investment Associate from 1991-1992 and Managing Director from 1992-1993 for JP Morgan in New York and Tokyo. Mr. Nguyen served as Senior Associate attorney for Baker & McKenzie in Ha Noi, Vietnam from 1993-1995. In 2000, Mr. Nguyen received a MD from Loma Linda School of Medicine and was board certified in plastic surgery in 2005.
Lawrence G. Olson became a director of PHI Group, Inc. in January 2008. Mr. Olson has been a director of Santa Fe Gold Corp., a public company (OTCBB:SGFE), since March 1999 in connection with the Company's acquisition of Arizona Mica Properties, Inc., a private Arizona corporation owned by Mr. Olson and his partners. He has held the position of Chairman of Santa Fe Gold’s Board of Directors since October 2000, and until October 2003 also held the positions of President and Chief Executive Officer. Mr. Olson has owned and operated a successful business, Olson Precast of Arizona Inc., since 1973. Mr. Olson received a B.S. Degree in Civil Engineering from the University of Southern California.
The Company's securities are not registered under Section 12(g) of the Exchange Act. Accordingly, the Directors and Executive Officers of the Company are not required to file reports under Section 16(a) of that act.
Frank Hawkins, Director has been a Director of the Company since April 10, 2009 and Mr. Hawkins is a founder and CEO of Hawk Associates with nearly 30 years of award-winning investor relations experience, Mr. Hawkins has earned the wide respect of Wall Street's investment community for straight talk and integrity. He was formerly vice president/corporate relations and planning and head of the investor relations program at Knight-Ridder, Inc. in Miami. Mr. Hawkins started his career as an agent handler in clandestine collection operations for the Defense Intelligence Agency in Germany and went on to become a foreign and war correspondent, international businessman, senior corporate executive and president of the Access Asia Group in Hong Kong. He has lived in eight countries. He has been involved in stock listings in Tokyo and Frankfurt and company presentations in London, Zurich, Geneva and Singapore. Fluent in German, he is a graduate of Cornell University and author of "Ritter's Gold," an adventure novel published in several languages by the New American Library. He is a member of the Association of Former Intelligence Officers and the Audubon Society and is listed in Who's Who in America and Who's Who in the World. He serves on the board of the Florida Keys Electric Cooperative.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
(a) Any compensation received by officers, directors, and management personnel of the Company will be determined and approved from time to time by the Board of Directors of the Company as it deems appropriate and reasonable. Officers, directors, and management personnel of the Company will be reimbursed for any out-of-pocket expenses incurred on behalf of the Company.
Except for non-cash payments mentioned in this report, there was no monetary compensation paid to any officers of the Company during the year ended June 30, 2009.
(b) There are no annuity, pension or retirement benefits proposed to be paid to officers, directors, or employees of the Company in the event of retirement at normal retirement date as there is no existing plan provided for or contributed to by the Company.
(c) All members of the Company's Board of Directors, whether officers of the Company or not, may receive an amount yet to be determined annually for their participation in meetings of the Board and will be required to attend a minimum of four meetings per fiscal year. The Company reimburses all expenses for meeting attendance or out of pocket expenses connected directly with their Board participation.
(d) On July 10, 2000 the Company adopted a Stock Option and Incentive Plan (the "Plan") which provides for the issuance of up to a maximum of 16 million shares of the Company's common stock to officers, employees and non-employee directors at the sole discretion of the board of directors. On August 10, 2000 the Company granted fully vested 14 million options under the Plan to officers, directors and employees at an exercise price of $.50 per share. All the options were exercisable on July 1, 2001 and would expire on December 31, 2002. On June 15, 2002, the Company extended the expiration date of these employee stocks to December 31, 2005. As of the date of this report, there have been no options exercised and all of these options have been forfeited.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial ownership of shares of the Company's common stock as of June 30, 2009 (195,130,961 issued and outstanding,) by (i) all shareholders known to the Company to be beneficial owners of more than 5% of the outstanding common stock; and (ii) all directors and executive officers of the Company, and as a group:
(1) Each person has sole voting power and sole dispositive power as to all of the shares shown as beneficially owned by them
(2) Certain of these shares have been pledged to secure certain obligations of the Company.
(3) Tina Phan is the wife of Henry Fahman.
* Less than 1%.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Henry D. Fahman, Chairman and Chief Executive Officer of the Company, has from time to time made cash advances to the Company. The advances are unsecured, interest free and payable on demand.
Certain of the officers and directors of the Company are engaged in other businesses, either individually or through partnerships and corporations in which they have an interest, hold an office, or serve on a board of directors. As a result, certain conflicts of interest may arise between the Company and its officers and directors. The Company will attempt to resolve such conflicts of interest in favor of the Company. The officers and directors of the Company are accountable to it and its shareholders as fiduciaries, which require that such officers and directors exercise good faith and integrity in handling the Company's affairs. A shareholder may be able to institute legal action on behalf of the Company or on behalf of itself and other similarly situated shareholders to recover damages or for other relief in cases of the resolution of conflicts is in any manner prejudicial to the Company.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
The aggregate fees billed by Kabani & Company., independent auditors, for the audit of the Company’s annual consolidated financial statements and reviews of quarterly financial statements for the years ended June 30, 2009 and 2008 were $54,500 and $45,000 respectively.
All Other Fees
The Company did not pay Kabani & Company any non-audit fees for fiscal year 2009 or 2008.
PART IV
ITEM 15.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
Financial Statements
The following consolidated financial statements of PHI Group, Inc. and its subsidiaries are included:
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (Kabani & Company)
EXHIBIT NO.
DESCRIPTION
2.1 Plan of Exchange between the Company and Prima Eastwest Model Management, Inc. (incorporated by reference to Exhibit
2 to the Form 8-K filed on March 1, 1996)
2.2 Corporate Combination Agreement between the Company and Providential Securities, Inc., effective on January 14, 2000
(incorporated by reference to Exhibit 10.12 to the Form 10-KSB filed on January 10, 2000).
3.1 Articles of Incorporation (1)
3.2 Amendment to Articles of Incorporation (incorporated by reference to Exhibit 3.1 of the Form 10-KSB for the fiscal year
ended June 30, 1995).
3.3 Amendment to Articles of Incorporation (6)
3.4 Certificate of Amendment to Articles of Incorporation (6)3.5 Bylaws, as amended (6)
4.1 Form of Series 1 Bridge Notes Purchase and Security Agreement between the Company and investors, dated March 27,
2000 (6)
4.2 Form of Series 1 Bridge Note executed by the Company issued by the Company to Investors. (6)
4.3 Form of Common Stock Purchase Warrant issued by the Company to investors. (6)
4.4 Form of Re-pricing Warrant issued by the Company to investors. (6)
4.5 Form of Registration Rights Agreement between the Company and investors, dated March 27, 2000 (6)
4.6 Form of Common Stock Purchase Warrant to be issued by the Company to Sovereign Capital Advisors, LLC (6)
4.7 Form of Convertible Promissory Note issued by the Company to preferred shareholders of Providential Securities, Inc. (6)
5.1 Opinion Re Validity of Agreements (6) 10.1 Benatone Exchange Agreement, with Creditors (2)
10.2 Benatone Share Acquisition Agreement (for Weldnow Enterprise, Ltd.) (2)
10.3 Benatone Share Acquisition Agreement (Dynedeem Limited) (2)
10.4 Benatone Exchange Agreement (2)
10.5 Benatone Asset Sale Agreement (2)
10.6 Benatone Royalty Agreement (2)
10.7 Benatone Consultancy Agreement (2)
10.8 Benatone Deed (2)
10.9 Autokraft Stock Purchase Agreement (3)
10.10 Autokraft Stock Subscription Agreement (3)
10.11 Prima Agreement and Plan of Merger (4)
SIGNATURES
Pursuant to the requirement of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
PHI GROUP, INC.
Date: October 13, 2009
By: /s/ Henry D. Fahman
Henry D. Fahman, President
In accordance with the Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.