UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark one)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: Feburary 28, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF
THE EXCHANGE ACT
For the transition period from________ to_____________
Commission file number: 000-17058
PHOENIX INTERNATIONAL INDUSTRIES, INC.
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(Exact name of small business issuer as specified in its charter)
FLORIDA 59-2564162 (State or other jurisdiction of (IRS
Employer identification No.)
incorporation or organization)
1750 Osceola Drive, West Palm Beach, Florida, 33409
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(Address of principal executive offices)
(561) 688-0440
--------------
(Issuer's telephone number)
------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
Check whether the issuer (1) filed all reports required
to be filed by section 13 or 15 (d) of the Exchange
Act during the past 12 months ( or for such shorter period that
the registrant was required to file such report (s), and (2) has
been subject to such filing requirements for the past
90 days. Yes [X ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest
practicable date: Common Stock, $.001 par value,
12,628,847 shares outstanding as of March 29, 1999
Transitional Small Business Disclosure Format: Yes __ No X
<PAGE>
PHOENIX INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEET AS OF FEBRUARY
28, 1999 AND MAY 31, 1998 2
CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE THREE MONTHS AND THE NINE MONTHS ENDED
FEBRUARY 28, 1999 AND FEBRUARY 28, 1998 3
CONSOLIDATED STATEMENT OF STOCKHOLDERS'
EQUITY FOR THE NINE MONTHS FEBRUARY 28, 1999 4
CONSOLIDATED STATEMENT OF CASH FLOWS FOR
THE NINE MONTHS ENDED FEBRUARY 28, 1999
AND FEBRUARY 28, 1998 5
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
PART II: OTHER INFORMATION
SIGNATURE
2
<PAGE>
PHOENIX INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
February 28, 1999 (unaudited) and May 31, 1998
<TABLE>
<CAPTION>
ASSETS
(000's omitted)
February 28, 1999 May 31, 1998
----------------- ------------
CURRENT ASSETS (unaudited)
<S> <C> <C>
Cash $ 218 $ 3
Restricted cash 203,209 --
Accounts receivable net of allowance for
doubtful accounts of $12,000 4 44
Other current assets 181 3
Net investment in subsidiary under
contract for sale -- 268
------------ ------------
TOTAL CURRENT ASSETS 203,612 318
CONSTRUCTION IN PROGRESS 102,501 --
PROPERTY AND EQUIPMENT, NET 21 20
GOODWILL, NET 157 --
OTHER ASSETS 7,697 189
------------ ------------
TOTAL ASSETS $ 313,988 $ 527
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 50 $ 69
Interest payable 5,538
Other current liabilities 143 5
------------ ------------
TOTAL CURRENT LIABILITIES 5,731 74
NOTES PAYABLE
Related Party 539 --
Other 301,722 571
------------ ------------
TOTAL LIABILITIES 307,992 645
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value: 5,000 shares authorized; no
shares outstanding -- --
shares authorized: no shares outstanding
Common stock, $0.001 par value; 20,000,000 shares authorized:
13,093,402 shares issued and outstanding (8,622,028 May 31, 1998) 11 8
Additional paid-in-capital 8,390 4,988
Retained deficit (7,748) (5,114)
Minority Interests 5,343 --
------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 5,996 (118)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 313,988 $ 527
============ ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
PHOENIX INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months and nine months ended February 28, 1999 and February 28,
1998
(UNAUDITED)
<TABLE>
<CAPTION>
(000's omitted) (000's omitted)
Three Months Ended Nine Months Ended
--------------------------------------- ---------------------------------------
February 28, 1999 February 28, 1998 February 28, 1999 February 28, 1998
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
REVENUES $ 1,516 $ 546 $ 1,562 $ 1,172
COST OF CONSULTING SERVICES -- 387 -- 759
------- ------- ------- -------
1,516 159 1,562 413
OPERATING EXPENSES 3,847 570 4,257 1,411
------- ------- ------- -------
OPERATING LOSS (2,331) (411) (2,695) (998)
INCOME TAX BENEFIT (PROVISION) -- 104 -- 253
------- ------- ------- -------
------- ------- ------- -------
LOSS FROM CONTINUING OPERATIONS (2,331) (307) (2,695) (745)
DISCONTINUED OPERATIONS -- -- 60 --
------- ------- ------- -------
$(2,331) $ (307) $(2,635) $ (745)
======= ======= ======= =======
LOSS PER SHARE
Loss from continuing operations $ (0.28) $ (0.05) $ (0.32) $ (0.12)
======= ======= ======= =======
Net loss $ (0.28) $ (0.05) $ (0.31) $ (0.12)
======= ======= ======= =======
WEIGHTED AVERAGE COMMON SHARES 8,431 6,360 8,431 6,360
======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
PHOENIX INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Nine months ended February 28, 1999
(Unaudited)
<TABLE>
<CAPTION>
Additional Total
(000's omitted) Numbers of Common Paid In Retained Stockholders'
Shares Stock Capital Earnings (Deficit) Equity (Deficit)
-------- -------- -------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
Balance, May 31, 1998 8,622 $ 8 $ 4,988 $ (5,114) $ (126)
Recession of ITC acquisition (1,413) (1) (302) -- (302)
Issuance of stock for
consulting services 50 -- 32 -- 32
Shares issued 4,262 4 3,673 -- 3,677
Minority intersets -- -- 5,343 -- 5,343
Net Loss -- -- -- (2,635) (2,635)
-------- -------- -------- -------- --------
Balance February 28, 1999 11,521 $ 11 $ 13,734 $ (7,749) $ 5,996
======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
PHOENIX INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine months ended February 28, 1999 and February 28, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
(000's omitted)
Nine Months Ended
--------------------------------------------
February 28, 1999 February 28, 1998
----------------- -----------------
<S> <C> <C>
NET CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,336 (750)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Restricted cash acquired through Cambridge Gas acquisition 207,718
Cash paid in acqusition of Cambridge Gas (200)
Construction Costs (6,828)
Acquisition of property and equipment (4) (103)
--------- ---------
NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES 200,686 (103)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of loans payable (212) --
Issuance of common stock 1,614 896
Stock subscriptions receivable -- 23
--------- ---------
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES 1,402 919
--------- ---------
Net Increase in Cash 203,424 66
Cash at Beginning of Year 3 1
--------- ---------
Cash at End of the Period $ 203,427 $ 67
========= =========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
PHOENIX INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY
ORGANIZATION
Phoenix International Industries, Inc. and Subsidiaries (the Company) provided,
to entities located primarily in the southeastern United States, computer
consulting and certain telecommunication services through its wholly-owned
subsidiaries: HDX 9000, Inc. (HDX), Mic Mac Investments, Inc. (MIC MAC) and
Intuitive Technology Consultants, Inc. (ITC). Previously, the Company sold
products and systems for use in the environmental clean-up industry. HDX, MIC
MAC, and ITC were acquired during the year ended May 31, 1998. On June 1, 1998,
the Company discontinued substantially all of its computer consulting operations
and disposed of ITC in a transaction account for as a recession on the business
combination.
The Company acquired 100% of the stock of Cambridge Gas Transport Corporation
(CGTC), a Cayman Islands Corporation, from Cambridge Holdings, LLC., a Delaware
Limited Liability Company (Cambridge) and Merrimac Shipping Limited, a Liberian
corporation (Merrimac) based on an agreement entered into on December 14, 1998.
Cambridge and Merrimac holds of record and owns beneficially 43.85% and 56.15%,
respectively, of the stock of Cambridge Gas Transport Corporation (CGTC) (see
Note 4), which in turn owns approximately 1,200,000 shares of Navigator
Holdings, PLC., (Holdings) and owns the voting rights for an additional 242,467
shares of Holdings. The terms of the agreement call for Phoenix to issue at
closing two million shares of its common stock, and payment of cash of $2
million at February 24, 1999 (of which $200,000 has been paid at the financial
statement date), and $1 million payable on April 1, and December 31, 1999 and
June 30, 2000. Cambridge and Merrimac will transfer to Phoenix its rights,
pursuant to an oral option agreement, to acquire 200,000 shares of Navigator for
$1 million.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of HDX,
MIC MAC, CGTC, Holdings, Navigator Gas Transport, PLC., and each of the five
shipholding companies. All intercompany accounts and transactions have been
eliminated in consolidation.
VESSELS UNDER CONSTRUCTION
Vessels under construction are capitalized in accordance with contract payments
made to the Builders. Vessels under construction also includes service of vessel
design, technical supervision, structuring and providing performance bonds,
capitalization of interest incurred during the period of the vessels'
construction.
DEBT ISSUE COSTS
Debt issue costs comprise expenses incurred in connection with the issuance of
ship mortgage notes. Such expenses are being amortized over the life of the ship
mortgage notes using the effective interest method.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The methods and assumptions used in estimating the fair values of financial
instruments are as follows:
RESTRICTED CASH: The carrying value of the guaranteed investment contract
is stated at contract value which approximates fair value. The contract is
with Pacific Mutual Life Insurance, a California life insurance company.
The contract is held in the name of the United States Trust Company
(Trustee) on behalf of the Issuer as the indenture trustee.
7
<PAGE>
PHOENIX INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SHIP MORTGAGE NOTES: The carrying value of the ship mortgage notes
approximates fair value as of February 28, 1999 based upon the current
borrowing rates available for financing with similar terms and maturities
and the short elapsed time between the date of the consolidated balance
sheet and the date of issuance of the ship mortgage notes.
BASIS OF PRESENTATION
The Company's unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and pursuant to the instructions to form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments, consisting of normal recurring
accrual adjustments, considered necessary for a fair presentation have been
included. Operating results for the nine-month period ended February 28, 1999
are not necessarily indicative of the results that may be expected for the year
ended May 31, 1999.
These financial statements and notes should be read in conjunction with the
Company's audited financial statements and notes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended May 31, 1998.
These financial statements have been prepared in accordance with accounting
principles generally accepted in the United States.
NOTE 3 - FINANCIAL RESULTS
The accompanying unaudited financial statements have been prepared assuming the
Company will continue as a going concern. The Company has accumulated losses of
approximately $3.7 million in the last 21 months and has insufficient working
capital. In connection with a proposed acquisition of an additional subsidiary,
the Company will continue to incur selling, general and administrative expenses.
Realization of certain assets is dependent upon the Company's ability to meet
its future financing requirements, the success of future operations and the
continued funding of the parent Company's operations by its chief executive
officer. These conditions raise substantial doubt about the Company's ability to
continue as a going concern. While the Company believes that these acquisitions
will become profitable in the future and that, with its prospective
acquisitions, it will generate future cash flows and return to profitability,
there can be no assurance that this will occur. Also, the Company believes it
will be able to raise the funds necessary to complete the aforementioned
acquisition in the foreign equity markets. In addition, the Company's chief
executive officer has committed to provide working capital to fund the selling,
general and administrative expenses of the parent company.
NOTE 4 CAMBRIDGE GAS TRANSPORT CORPORATION
Cambridge Gas Transport Corporation was formed as a Cayman Island corporation
for the purpose of owning 1,200,000 shares of Navigator Holdings, PLC (Holdings)
common stock in exchange for (i) acting as arranger for Navigator Gas Transport,
PLC. (Issuer) and (ii) management services to be performed by the Manager as
agent of prior to the Delivery Date of each vessel pursuant to the Management
Agreement.
The Issuer was formed by Holdings as an Isle of Man public limited company for
the purpose of establishing, owning and financing the Owners. Each Owner was
formed as an Isle of Man private limited company for the purpose of building and
operating one of the five semirefrigerated gas carriers and management services
to be performed by the Manager as agent of prior to the Delivery Date of each
vessel pursuant to the Management Agreement.
8
<PAGE>
PHOENIX INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
NOTE 4 CAMBRIDGE GAS TRANSPORT CORPORATION (CONTINUED)
On or after the Delivery Date of each vessel, the operations of each Owner will
consist solely of (i) operating, maintaining, insuring and using the Vessel and
conducting activities related thereto, (ii) receive payment under charters,
contracts or affreightment and other contracts relating to the employment of its
Vessel, (iii) receive proceeds from the sale, if any, of the Vessel, (iv) making
payments of interest and principal, (v) making payments of Management fees, (vi)
fulfilling its obligations under the Management Agreement and, (vii) fulfilling
its obligation under its Guarantee.
NOTE 5 - RESTRICTED CASH AND CASH EQUIVALENTS
Restricted cash is comprised of pre-funding and a capitalized interest account.
These accounts were established in the name of the Trustee. The net proceeds of
the Notes issued on behalf of the Company were deposited into the accounts in
the form of a guaranteed investment contract. Restricted cash will be used
primarily for the payments of interest and principal due on the Notes,
management fees, and contract payments to the Builders for the construction of
the vessels. At February 28, 1999, the aggregated amount of Restricted Cash and
Cash Equivalents was $203,209,326.
NOTE 6 - SHIP MORTGAGE NOTES
The Issuer placed, on August 7, 1997, through a private placement, $217,000,000
aggregate principal amount of 10 1/2 % First Priority Ship Mortgage Notes Due
2007 (First Priority Notes) and together with Holdings place 87,000 Units
(Units), each Unit consisting of one of the Company's 12% Second Priority Ship
Mortgage Notes Due 2007 (Second Priority Notes, and together with First Priority
Notes, the Notes) in a principal amount of $1,000 and 7.66 Warrants (each a
Warrant). Each Warrant will entitle the holder to purchase one share of Holdings
common stock. The Notes are unconditionally and irrevocably guaranteed by each
subsidiary of the Company (collectively, the Guarantors). The Notes will bear
interest from August 7, 1997 (Issue Date) until the principal thereof is paid or
made available for payment. Such interest will be payable semi-annually on June
30 and December 31 of each year, commencing December 31, 1997, to the person in
whose name the relevant First Priority Notes or Second Priority Notes are
registered at the close of business on the preceding June 15 or December 15.
The Notes have priority of payment and are collateralized by (i) an assignment
of each vessel; (ii) an assignment of the pre-funding account and capitalized
interest account held by the Trustee; (iii) an assignment of the Building
Contracts and technical supervision agreement; (iv) an assignment of the
commercial management agreement; (v) an assignment of the management agreement
with a Company's affiliate; (vi) an assignment of the performance bonds; (vii)
an assignment of the earnings and issuance proceeds related to each vessel and
(viii) certain other collateral.
ADDITIONAL NOTES
On the interest payment date following the delivery of the first vessel, if cash
available for distribution in the Revenue Account, as defined in the "Indenture
Agreement", to the holder of the Second Priority Notes on such date is
insufficient to pay all accrued and unpaid interest on the Second Priority Note,
such interest may be paid through the issuance to the holder by the Issuer of
additional Second Priority Notes having an aggregate principal amount equal to
the deficiency in such available cash; provided further, however, that the
Issuer may not issue more than $20.9 million in aggregate principal amount of
such additional Second Priority Notes.
9
<PAGE>
PHOENIX INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - SHIP MORTGAGE NOTES (CONTINUED)
REDEMPTION
OPTIONAL REDEMPTION - Except as set forth below, the Notes are not
redeemable at the option of the Issuer prior to June 30, 2002. On and
after such date, the First Priority Notes and the Second Priority Notes
may be redeemed at the option of the Issuer, in whole or in part, at any
time or from time to time, upon not less than 30 days nor more than 60
days prior notice mailed by first-class mail to each holder's registered
address, at the redemption prices set forth in the table below (express as
a percentage of the principal amount thereof), plus accrued and unpaid
interest to the date of redemption (subject to the right of a holder of
record on the relevant record date to receive interest due on the relevant
interest payment date):
if redeemed during the 12-month period Redemption Price
commencing on June 30 of the years set ---------------------------------------
forth below: First Priority Second Priority
Notes Notes
2002 -------------- ---------------
2003 105.75% 106.00%
2004 103.50 104.00
2005 and thereafter 101.75 102.00
100.00 100.00
In addition, at any time and from time to time prior to June 30, 2000, the
Issuer may redeem in the aggregate up to 35% of the original principal
amount of each series of Notes, on a pro rata basis, with the proceeds of
one of more public equity offerings (with the cash proceeds thereof to the
extent actually contributed to the Issuer) following which there exists a
public market, at a redemption price (expressed as a percentage of
principal amount) of 110.5% (in the case of the First Priority Notes) and
112% (in the case of the Second Priority Notes), plus accrued interest to
the redemption date (subject to the right of the holders of record on the
relevant record date to receive interest due on the relevant interest
payment date); provided, however, that at least $100 million aggregate
principal amount of First Priority Notes and $45 million aggregate
principal amount of Second Priority Notes must remain outstanding after
each redemption.
Other than as set forth in the previous paragraph, the First Priority
Notes will prohibit the Issuer from redeeming at the option of the Issuer
any Second Priority Notes while the First Priority Notes are outstanding.
MANDATORY REDEMPTION - In the event that an Owner elects to terminate its
Building Contract because of a material breach thereof by the Builders
(including a failure to pay liquidated damages for any delay in the
delivery of the related vessel), the Notes of each series will be subject
to mandatory redemption in part, on a pro rata basis, in an aggregate
principal amount equal to the Allocated Principal Amount (as defined in
"Builders Performance Bond", dated August 7, 1997) of the Notes for such
vessel an for each other vessel that has not been accepted by its related
Owner as of the date of such termination, at a redemption price equal to
100% of the principal amount thereof, plus accrued and unpaid interest to
and including the date of redemption (subject to the right of a holder of
record on the relevant record date to receive interest due on the relevant
interest payment date), upon the earlier to occur of (a) the receipt of a
refund amount with respect to the related Building Contract(s) and (b) 60
days after the termination of such Building Contract(s) by the related
Owner(s).
10
<PAGE>
PHOENIX INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - SHIP MORTGAGE NOTES (CONTINUED)
REDEMPTION (CONTINUED)
If a vessel is subject to Total Loss (as defined in the "Indenture
Agreement", dated August 7, 1997), the Notes of each series will be
subject to mandatory redemption in part, on a pro rata basis, in an
aggregate principal amount equal to the Allocated Principal Amount of the
Notes for such vessel, at a redemption price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest to the date of
redemption (subject to the right of a holder of record on the relevant
record date to receive interest due on the relevant interest payment
date), upon the earlier to occur of (a) the receipt of insurance proceeds
with respect to such Total Loss and (b) 60 days after such Total Loss was
deemed to have occurred.
DEBT TO COVENANTS
The Notes include certain covenants that, among other things, limit the
liability of the Issuer and the Owners to incur additional indebtedness, pay
dividends or make certain payments, restrict distribution from Owners, sell
assets, enter into certain mergers and consolidations, incur liens other than
permitted liens and enter into certain transactions with affiliates.
NOTICE OF DEFAULT
In February 28, 1998, the Company was in default under the Indenture for failure
to comply with the registration requirement stated in the Indenture. As a
result, the Company was required to pay an additional .50% interest to the
holders.
NOTE 7 - RELATED PARTY TRANSACTION
a) Arctic Gas, S.A. (Arctic) is a shipbuilding group responsible for the
original design and engineering specification for the Vessels. Arctic was
issued 200,000 shares of Holdings common stock in exchange for the vessel
design services contributed with a cost basis of $1 million (minority
interest).
b) GEBAB is a privately owned German company engaged in a range of shipping
activities including project financing. GEBAB, along with its affiliate
Martime, will be responsible for technical supervision of the construction of
the vessels. GEBAB was issued 200,000 shares of Holdings common stock in
exchange for services contributed. 100% of the company was sold to Phoenix
International (Phoenix) for cash consideration and shares of Phoenix common
stock (minority interest).
c) Tractebel Gas Engineering GmbH (TGE) is an indirect subsidiary of Tractebel
S.A., a major Belgium public company engaged in the utility and engineering
industries. TGE will design the complex gas plants to be utilized on the
vessels. TGE will also supervise the construction and erection of the
vessel's gas plants and will act as subcontractor to the main builder and as
such will be responsible for supplying materials for construction of the gas
plant and supervising its installation. TGE was issued 200,000 shares of
Holdings common stock in exchange for a cash contribution of $10 million and
payment to TGE to acquire the TGE Performance Bond with a cost basis of
$650,000 (minority interest).
d) Xenon Shipping, Inc. (Xenon Shipping) is an affiliate of Xenon Shipping, AS
(Xenon). Xenon is a leading Norwegian shipbroker specializing in the
petrochemical gas and LPG market. The Company is a 50% stockholder of Xenon.
Xenon Shipping was issued 200,000 shares of Holdings common stock in exchange
for a cash contribution in the amount of $9.3 million (minority interest).
11
<PAGE>
PHOENIX INTERNATIONAL INDUSTRIES, INC. AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - RELATED PARTY TRANSACTION (CONTINUED)
On August 7, 1997, the amount of $2 million, $1 million to Xenon Shipping and $1
million to GEBAB, was paid for their services in developing charter contracts
for the vessels during the pre-delivery period. The said amount is reflected in
the Company's financials as pre-paid marketing fees and is amortized over the
construction period of the Vessels.
NOTE 8 - CONTINGENCIES AND COMMITMENTS
Future contractual payments to be made under the Building contracts for each of
the three succeeding fiscal years ending December 31, until the completion are
as follows:
1999 $ 86,484,200
2000 84,208,300
GEBAB, in response to the sale of the Company threatened litigation citing a
breach in the Stockholders Agreement. Any pending suit was considered remotely
possible. Furthermore, a meeting was held in January of 1999 between the two
parties to resolve their differences.
During 1998, numerous agreements were reached between Cambridge Holdings, LLC.
and its former partners, whereby, 169,467 shares of Holdings common stock were
to be distributed to the departed partners in settlement of any pending lawsuit.
As of February 28, 1999, said shares have not yet been issued. However, the
events were reflected in the equity section of the statement of financial
condition.
NOTE 9 - CONCENTRATION OF CREDIT RISK
The Company has no sources for the payment of the principal of and the interest
on the Notes except for the pre-funding and capitalized interest accounts held
by the Trustee. Accordingly, the Company's ability to pay debt service on the
Notes is wholly dependent upon its financial condition, results of operations
and cash flows when the vessels are in operation.
NOTE 10 - MANAGEMENT AGREEMENTS
Each of the Owners entered into a Management Agreement with Navigator Gas
Management Limited (an Isle of Man public limited company, the Manager), an
affiliate of the Company. The Manager will manage their commercial and technical
operations, including providing administrative services, causing the compliance
of the Owners' covenants in the Notes and monitoring GEBAB's performance under
several management agreements entered into between the Owners and certain
stockholders. The Manager will receive a fee of $30,000 per annum for each
vessel prior to the Deliver Date for such vessels and $120,000 per vessel per
annum from and on the Delivery Date for such vessels.
12
<PAGE>
NOTE 11 - REGISTRATION ON THE NOTES
In connection with the offer to the Notes, the Issuer and the Guarantors entered
into a registration rights agreement for the benefit of the holders of the
Notes. Pursuant thereof, the Issuer and the Guarantors have agreed to use their
best efforts to effect an exchange offer to exchange up to $304,000,000 in
aggregate principal amount of the Notes.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
PHOENIX INTERNATIONAL INDUSTRIES, Inc. (the "Company") is a development stage
company. During the Company's three month period ended Feburary 28, 1998, the
Company incurred a net loss of ($2,331,000)($.28 per Share) compared to a loss
of $307,000 ($0.05 per Share) for the comparable three month period for the
prior fiscal year. The Company reported an adjusted net accounts receivable of
$4,000 for the three month period ended February 28, 1999, compared to $44,000
in accounts receivable for the comparable period of the prior year.
The Company's net loss for the period ended Feburary 28,1999, was
principally the result of the limited sales revenues during the quarter, the
continued expenses associated with continuing to operate and maintain its
offices and expenses associated with being a reporting company, which include
professional,accounting and printing/EDGAR preparation and filing fees, and the
non-cash expenses associated with the issuance of shares to its consultants for
continued services to the Company in lieu of cash compensation during the
period. Such non-cash compensation expensed during the three month period ended
Feburary 28, 1999, was $-0- compared to $387,000 during the same period in the
prior fiscal year. In order for the Company to pay its operating expenses,
including office rents, communication expenses, accounting and bookkeeping fees,
printing and EDGAR preparation costs, publication costs, and other general and
administrative expenses, the Company was dependent upon the funds provided by
non-interest bearing loans from the Company's executive officer as well as from
the private Placement of its securities to private investors.
Results of Discontinued Operations
In June of 1998 the Company sold its wholly owned subsidiary Intuitive
Technology Consultants, Inc.(ITC) of Atlanta, Georgia, to an "acquisition group"
headed by Scott Schuster the President and CEO of ITC. The sale was reported in
the Company's most recent 10-KSB filing and is incorporated herein by reference.
The services of the Company's consultants, together with that of the Company's
management, have enabled the Company to reach its present stage of development.
That development includes the purchase on December 14, 1998, of 100% of
Cambridge Gas Transport Corporation, owners of 58% of Navigator Gas
Transportation, LLC.("Navigator") As a result of the purchase, a group of the
minority shareholders of Navigator has filed a restraining order to stop the
transfer of the Navigator stock to Phoenix. Phoenix has initiated litigation
against the parties responsible for the delay in performing to both the letter
and intent of the purchase contract. Copies of that purchase contract were
included in the Company's latest 10-K filing and are incorporated by reference
herein. The December 31, 1998, audited financial statements of Cambridge Gas
Transport Corporation are attached hereto as Exhibit "A". Navigator is currently
building the 5 largest simi-refrigerated, multi-cargo, gas tankers in the world.
The Company has also entered into a letter of intent to purchase the Telephone
Company of Central Florida, Inc. (TCCF), a Competitive Local Exchange
Carrier("CLEC") telephone company currently operating under the protection of
"chapter 11" bankruptcy statutes, who last year generated more than $45 million
in revenue.
It is the belief of the management of the Company that these companies
will be the foundation upon which Phoenix will grow and become sucessful. They
are both "high tech", and at the same time diversified. They give Phoenix a
foothold in both the international shipping business and in the
telecommunication industry.
13
<PAGE>
Liquidity and Capital Resources
The Company, at Feburary 28, 1999, had current assets of approximately
$203,612,000 compared to $318,000 at May 31, 1998. To assist the Company in
obtaining its cash flow requirements, the Company may determine to seek funding
via the sale of "restricted securities", as well as revenues from the sale of
telecommunications products and services.
Not withstanding indications of interest from investors, there can be no
assurance that restricted offerings will be well received. The trading price of
shares of the Company's common stock during the three months ended February 28,
1999, has been in the range of $.38 to $1.53. While the Company has been
successful in raising capital via the unit private placement in the past, there
can be no assurance that the Company will be able to continue to raise private
capital, whether or not the Company's shares continue to trade at the levels
that have prevailed during the quarter ending Feb. 28, 1999. During The
reporting period December 1, through Feburary 28, 1999, the Company issued
2,200,000 shares of its common stock under Regulation "S" to obtain necessary
operating capitol. During the same reporting period the Company issued 2,000,000
shares of its common stock restricted as part of the contracted purchase price
for CGTC. For the same 3 month period, 50,000 restricted shares were issued as
consulting fees, to persons involved in assisting Phoenix with the purchase of
CGTC.
The Company's monthly operating expenses for the quarter ended Feburary 28, 1999
and during the present quarter include rent for space in West Palm Beach,
Florida, professional/accounting fees, telephones and other "normal operating
fees, but do not reflect any salary to Gerard Haryman, or Thomas Donaldson, the
Company's sole executive officers. The Company remains in the process of
negotiating salary contracts with both gentlemen, but does not contemplate
commencing payment to them unless and until it begins to generate a positive
cash flow from operations.
Statements in this Report on Form 10-Q, that are not statements of historical
fact, are to be regarded as forward-looking statements which are based on
information available to the Company as of the date hereof and involve a number
of risks and uncertainties. Among the important factors that could cause actual
results to differ materially from those indicatedby such forward-looking
statements are delays in product development,competitive pressures, general
economic conditions, risks of intellectual property and other litigation, and
the factors detailed below under "Certain Factors That May Affect Future
Results" or elsewhere herein or set forth from time to time in the Company's
periodic reports and registration statements filed with the Securities and
Exchange Commission.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
(a) The company is currently involved in litigation against its former
subsidiary, Intuitive Technology Consultants, Inc.("ITC"). The Company maintains
that ITC is in default on the majority of its (ITC's)obligations under the terms
of the sale of ITC to the ITC Acquisition Group and is seeking specific
performance and damages in an unspecified amount.
(b) The Company has instituted litigation against all parties involved in
the sale of Cambridge Gas Transport Corporation(CGTC) to Phoenix, including but
not limited to the directors of CTCG and the minority shareholders of Navigator,
GEBAB and Tractabel. Phoenix is seeking specific performance of the sales
contract and/or damages of an unspecified amount.
Item 2.Changes in Securities
NONE
Item 3.Defaults upon Senior Securities
NONE
14
<PAGE>
Item 4.Submission of Matters to a Vote of Security Holders
NONE
Item 5.Other Information
NONE
SIGNATURES
In accordance with the requirements of the SecuritiesExchange Act of 1934, the
registrant caused this reportcaused this report to be signed on its behalf by
theundersigned, thereunto duly authorized.
PHOENIX INTERNATIONAL INDUSTRIES,INC..
(Registrant)
February 9, 1999 By: /S/GERARD HARYMAN
-----------------------------------------
Gerard Haryman
President, Chief Executive Officer and
(acting) Chief Financial Officer
15
<PAGE>
EXHIBIT INDEX
Exhibit Description
- ------- -----------
10.1 Consolidated Financial Statements of Cambridge Gas Transport
Corporation
27.1 Financial Data Schedule
EXHIBIT 10.1
CAMBRIDGE GAS TRANSPORT CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
<PAGE>
CONTENTS
Report of Independent Certified Public Accountants 3
Financial Statements
Consolidated Statement of Financial Condition 4
Consolidated Statement of Operations and Retained Earnings 5
Consolidated Statement of Cash Flows 6
Notes to Consolidated Financial Statements 7 - 13
2
<PAGE>
LIEBMAN, BRUNO & CICEROLLP
1336 FOREST AVENUE, STATEN ISLAND, NY 10302
(718) 273-336-
FAX (718) 273-7681
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
To the Board of Directors of Cambridge Gas Transport Corporation:
We have audited the accompanying consolidated statement of financial condition
of Cambridge Gas Transport Corporation (the "Company") as of December 31,1998,
and the related statements of operations and retained earnings, and cash flows
for the nine months then ended These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on an
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 ft overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Cambridge Gas
Transportation Corporation as of December 31, 1998, and the results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
Liebman, Bruno & Cicero
Staten Island, New York
January 26, 1999
3
<PAGE>
<TABLE>
<CAPTION>
Cambridge Gas Transport Corporation
Consolidated-Statement of Financial Condition
December 31, 1998
<S> <C>
ASSETS
Current Assets:
Restricted cash and cash equivalents $ 207,717,897
-------------
TOTAL CURRENT ASSETS 207,717,897
-------------
Construction in Progress:
Vessels under construction 72,262,570
capitalized interest on vessels 8,081,918
other Capitalized costs 13,950,000
-------------
TOTAL CONSTRUCTION IN PROGRESS 94,294,488
-------------
Other Assets:
Deferred financing Costs - net of amortization 12,491,630
Prepaid marketing fees - net of amortization 861,676
-------------
TOTAL OTHER ASSETS 13,353,306
-------------
TOTAL ASSETS $ 315,365,691
-------------
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities:
Interest payable and other liabilities 0
TOTAL CURRENT LIABILITIES 0
Long-term Liabilities and Debt:
First priority ship Mortgage notes 217,000,000
Second priority ship remortgage notes 87,000,000
Less: Discount - Warrants net of amortization (7,266,821)
-------------
TOTAL LIABILITIES 296,733,179
-------------
Stockholders' Equity:
Common Stock par value $.01, 3,000,000
shares authorized 2,000,000
shares issued and outstanding 20,000
Additional paid. in capital 25,452,851
Retained earnings (Deficit) (21,073,688)
Minority interest 14,233,349
-------------
TOTAL STOCKHOLDERS EQUITY 18,632,512
-------------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 315,365,691
-------------
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE>
<TABLE>
<CAPTION>
Cambridge Gas Transportation Corporation
Consolidated Statement of Operations and Retained Earnings
For the Year Ended December 31,1998
<S> <C>
Interest Income $ 16,356,157
------------
Other income - Miscellaneous 6,492
------------
TOTAL INCOME 16,362
------------
Expanses:
Interest expense 29,210,644
Amortization/Depreciation 1,120,152
Administrative and other expenses 837,625
------------
TOTAL EXPENSES 31,168,421
------------
NET LOSS (14,905,772)
RETAINED EARNINGS, BEGINNING OF PERIOD (6,267,916)
------------
RETAINED EARNINGS (DEFICIT) END OF PERIOD $(21,073,688)
------------
</TABLE>
The accompanying notes are an integral part of this statement.
5
<PAGE>
<TABLE>
<CAPTION>
Cambridge Gas Transport Corporation
Consolidated Statement of Cash Flows
For the Year Ended December 31, 1998
<S> <C>
Cash Flows From Operating Activities
Net Loss $ (14,805,772)
Adjustments to reconcile Net Loss to
Net Cash used in Operating Activities
Amortization Expense 1,944,622
-------------
Net Cash used in Operating Activities (12,861,150)
-------------
Cash Flows from Investing Activities
Vessels under construction (27,310,800)
Capitalized interest an vessels (6,219,494)
-------------
NOT CASH USED IN INVESTING ACTIVITIES (33,530,294)
-------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (46,391,444)
-------------
Cash at Beginning of Year 254,109,341
-------------
Cash at End of Year $ 207,717,897
-------------
Supplemental data:
Cash paid for interest $ 34,605,667
-------------
</TABLE>
The accompanying notes are an integral part of this statement
6
<PAGE>
CAMBRIDGE GAS TRANSPORTATION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE I: DESCRIPTION OF OPERATION
Cambridge Gas Transport Corporation (the "Company) was formed as a Cayman Island
corporation for the purpose of owning 1,200,000 shares of Navigator Holdings PLC
('Holdings") Common Stock in exchange for (i) acting as arranger for Navigator
Gas Transport PLC (the "Issuer) AND (ii) management services to be performed by
the Manager as agent of the Company prior to the Delivery Date of each vessel
pursuant to the Management Agreement,
The Issuer was formed by Holdings as an Isle of Man public limited company for
the purpose of establishing, owning and financing the Owners. Each Owner was
formed as an Isle of Man private limited company for the purpose of building and
operating one of five semi-refrigerated gas carriers and management services to
be performed by the Manager as agent of the Company prior to the Delivery Date
of each vessel pursuant to the Management Agreement.
On or after the Delivery Date of each Vessel, the operations of each Owner will
consist of solely of (i) operating, maintaining, insuring and using die Vessel
and conducting activities related thereto, (h) receive payment under charters,
contracts of affreightment and other contracts relating to the employment of its
Vessel, (iii) receive proceeds from the sale, if any, of the Vessel, (iv) making
payments of interest and principal, (y) making payments of Management fees, (vi)
Willing its obligations under the Management Agreement and (vii) fulfilling its
obligation under its Guarantee.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION:
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America.
BASIS OF CONSOLIDATION:
The accompanying consolidated financial statements include the accounts of
Cambridge Gas Transport Corporation, Navigator Holdings, PLC, Navigator Gas
Transport PLC and each of the shipholding companies. All inter-company accounts
and transactions have been eliminated in consolidation.
7
<PAGE>
CAMBRIDGE GAS TRANSPORTATION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
VESSELS UNDER CONSTRUCTION
Vessels under construction are capitalized in accordance with contract payments
made to the Builders. Vessels under construction also includes service of vessel
design, technical supervision, structuring and providing performance bonds, and
capitalization of interest incurred during the period of the vessels'
construction
DEBT ISSUE COSTS:
Debt issue costs comprise expenses incurred in connection with the issuance of
ship mortgage notes. Such expenses are being amortized over the life of the ship
mortgage notes using the effective interest method.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The methods and assumptions used in estimating the fair values of financial
instruments arc as follows:
RESTRICTED CASH-, The carrying value of the guaranteed investment contract is
stated at contract value which approximates fair value. 7be contract is with
Pacific Mutual Life Insurance, a California life insurance company. The contract
is held in the NAME of the United States Trust Company (the "Trustee") on behalf
of the Issuer as the indenture trustee.
SHIP MORTGAGE NOTES: The carrying value of the ship mortgage notes approximates
fair value as of December 31, 1998 based upon the current borrowing rates
available for financing with similar terms and matures and the short elapsed
time between the date of the consolidated -balance sheet and the date of
issuance of the ship mortgage notes.
ACCOUNTING ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles 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. When
recorded, actual results could differ from such estimates. The most significant
assumption and estimate relates to vessels under construction. Resulting from a
market drop during 1998, the value of the Vessels was devaluated by
approximately 10 to 20 percent. Due to the instability of the Market and the
shipping industry, such changes were not reflected on the statement of financial
condition.
TAXATION:
The Company is exempt from United States federal, state and local income taxes
as a registered corporation of the Cayman Islands.
8
<PAGE>
CAMBRIDGE GAS TRANSPORTATION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 3 - RESTRICTED CASH AND CASH EQUIVALENTS.
Restricted cash is comprised of a pre-funding and a capitalized interest
account. These accounts were established in the name of the Trustee, The net
proceeds of the Notes, issued on behalf of the Company were deposited into the
accounts in the form of a guaranteed investment contract. Restricted cash will
be used primarily for the payments of interest and principal due on the Notes,
management fees, and contract payments to the Builders for the construction of
the vessels. At December 31, 1998, the aggregated amount of Restricted Cash and
Cash Equivalents was $207,717,897.
NOTE 4 - SHIP MORTGAGE NOTES.
The Issuer placed, on August 7, 1997, through a private placement, $217,000,000
aggregate principal amount of 10 1/2% First Priority Ship Mortgage Notes Due
2007 (the "First Priority NOTES") and together with Navigator Holdings PLC
("Holdings) placed 87,000 Units (the "Units"), each Unit consisting of one of
the Company's 12% Second Priority Ship Mortgage Notes Due 2007 (a "Second
Priority Note" and together with the First Priority Notes, the "Notes') in a
principal amount of $1,000 and 7.66 Warrants: (each a. "Warrant"). Each warrant
will entitle the holder to purchase one share of Navigator Holdings PLC common
stock. The Notes are unconditionally and irrevocably guaranteed by each
subsidiary of the Company (collectively, the "Guarantors"). The Notes will bear
interest from August 7, 1997 (the "Issue DATE") until the principal thereof is
paid or made available for payment. Such interest will be payable semi-annually
on June 30 and December 31 of each year, commencing December 31, 1997, to the
person in whose name the relevant First Priority Notes or Second Priority Notes
are registered at the close of business on the preceding June 15 or December 15
The Notes have priority of payment and axe collateralized by (i) an assignment
of each vessel; (ii) in assignment of the pre-funding account and capitalized
interest account held by the Trustee; (iii) an assignment of the Building
Contracts and technical supervision agreement; (iv) an assignment of the
commercial management agreement; (v) an assignment of the management agreement
with a Company's affiliate, (vi) an assignment of the performance bonds; (vii)
an assignment of the earnings and issuance proceeds related to each vessel and
(viii) certain other collateral
ADDITIONAL NOTES: On the interest payment date following the delivery of the
first vessel, if cash is available for distribution in the Revenue Account, as
defined in the "Indenture Agreement", to the holder of the Second Priority Notes
on such date is insufficient to pay all accrued and unpaid interest on the
Second Priority Note, such interest may be paid through the issuance to the
holder by the Issuer of additional Second Priority Notes having an aggregate
principal amount equal to the deficiency in such available cash; provided
further, however, that the Issuer may not issue more than $20.9 million in
aggregate principal amount of such additional Second Priority Notes.
9
<PAGE>
CAMBRIDGE GAS TRANSPORTATION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
REDEMPTION:
Optional Redemption
Except as set forth below, the Notes arc not redeemable at the option of the
Issuer prior to June 10, 2002. On and after such date, the First Priority Notes
and the Second Priority Notes may be redeemed at the option of the Issuer in
whole or in part at any time or from time to time, upon not less than 30 days'
nor more than 60 days' prior notice Mailed by first-class mail to each holder's
registered address, at the redemption prices set forth in the, table below
(expressed as a percentage of the principal amount thereof), plus accrued and
unpaid interest to the date of redemption (subject to the right of a holder of
record on the relevant record date to receive interest due on the relevant
interest payment date):
REDEMPTION PRICE
if redeemed during the 12-month period ------------------------------------
commencing on June 30, of the years set FIRST PRIORITY SECOND PRIORITY
forth below NOTES NOTES
-------------- ---------------
2002 105.75% 106.00%
2003 103.50 104.00
2004 101.75 102.00
2005 and thereafter 100.00 100.00
in addition and, at any time and from time to time prior to June 30. 2000, the
Issuer may redeem in the aggregate up to 35% of the original principal amount of
each series of Notes, on a pro rata basis, with the proceeds of one or more
public equity offerings (with the cash proceeds thereof to the extent actually
contributed to the Issuer) following which there exists a public market, at a
redemption price (expressed as a percentage of principal amount) of 110.5% (in
the case of the First Priority Notes) and 112% (in the case of the Second
Priority Notes), plus accrued interest to the redemption date (subject to the
right of holders of record on the relevant record date to receive interest due
on the relevant interest payment date); provided, however, that at least $100
million aggregate principal amount of First Priority Notes and $45 million
aggregate principal amount of Second Priority Notes must remain outstanding
after each redemption,
Other than as set forth IN the previous paragraph, the FIRST Priority Notes will
prohibit the ISSUER FROM redeeming at the option of the Issuer any Second
Priority Notes while the First PRIORITY Notes are OUTSTANDING.
Mandatory Redemption
In the event an Owner elects to terminate its Building Contract because of a
material breach thereof by the Builder (including a failure to pay liquidated
damages for any delay in the delivery of the related vessel), the Notes of each
series will be subject to mandatory
10
<PAGE>
CAMBRIDGE GAS TRANSPORTATION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
REDEMPTION
Mandatory Redemption (Continued)
redemption in part, on a pro rata basis, in an aggregate principal amount equal
to the Allocated Principal Amount (as defined in "Builders Performance Bond,
dated August 7, 1997) of the Notes for such vessel and for each other vessel
that has not been accepted by its related Owner as of the date of such
termination, at a redemption price equal to 100% of the principal amount
thereof, plus accrued and unpaid interest to and including the date of
redemption (subject to the tight of a holder of record on the relevant record
date to receive interest due on the relevant interest payment date), upon the
earlier to occur of (a) the receipt of a refund amount with respect to the
related Building Contract(s) and (b) 60 days after the termination of such
Building Contract(s) by the related Owner(s).
If a vessel is subject to Total Loss (as defined in the "Indenture Agreement",
dated August 7, 1997), the Notes of each series will be subject to mandatory
redemption in part, on a pro rata basis, in an aggregate principal amount equal
to the Allocated Principal Amount of the Notes FOR SUCH VESSEL, at a redemption
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest to the date of redemption (subject to the right of a holder of record
on the relevant record date to receive interest due on the relevant interest
payment date), upon the earlier to occur of (a) the receipt of insurance
proceeds with respect to such Total Loss and (b) 60 days after such Total Loss
was deemed to have occurred.
DEBT COVENANTS:
The Notes include certain covenants that, among other things, limit the ability
of the Issuer and the owners to incur additional indebtedness pay dividends or
make certain payments, restrict distribution form Owners, sell assets, enter
into certain mergers and consolidations, incur liens other than permitted liens
and enter into certain transactions with affiliates. Notice of Default In
February 1999, the Company was in default under the Indenture for failure to
comply with the registration requirement stated in the Indenture. As a result,
the Company was required to pay an additional .50% interest to the holders,
NOTE 5 - RELATED PARTY TRANSACTIONS.
a) Arctic Gas S, A. ("Arctic,") is a shipbuilding group responsible for the
original design and engineering specification for the Vessels. Arctic was issued
200,000 shares of Holdings common stock in exchange for the vessel design
services contributed with a cost basis of $1.0 million (minority interest).
11
<PAGE>
CAMBRIDGE GAS TRANSPORTATION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 5 - RELATED PARTY TRANSACTIONS (CONTINUED),
b) GEBAB is a privately owned German company, engaged in a range of shipping
activities including project financing. GEBAB, along with its affiliate Martime,
will be responsible for technical supervision of the construction, of the
vessels. GEBAB was issued 200,000 shares of Holdings common stock in exchange
for services contributed.
c) Tractebel Gas Engineering GmbH ("TGE") is an indirect subsidiary of Tractebel
S.A., a major Belgium public company engaged in the utility and engineering
industries. TGE will design the complex gas plants to be utilized on the
vessels. TGE will also supervise the construction and erection of the vessel's
gas plants and will act as subcontractor to the main builder and as 9=b will be
responsible, for supplying materials for construction of the gas plant and
supervising its installation. TGE was issued 200,000 shares of Holdings common
stock in exchange for a cash contribution of $10.0 million and payment to TGE to
acquire the TGE Performance Bond with a cost basis of $650,000 (minority
interest).
d) Xenon Shipping Inc. ("Xenon shipping") is an affiliate of Xenon Shipping AS
("Xenon"). Xenon is a leading Norwegian shipbroker specializing in the
petrochemical gas and LPG market. The Company is a 50% shareholder of Xenon.
Xenon Shipping was issued 200,000 shares of Holdings common stock in exchange
for a cash contribution in the amount of $9.3 million (minority interest).
On August 7, 1997, the amount of $2 million, $1, million to Xenon Shipping Inc.,
and $1 million to GEBAB, was paid for their services in developing charter
contracts for the vessels during the pre-delivery period. The said amount is
reflected on the Company's financials, as pre-paid marketing fees and is
amortized over the construction period of the Vessels.
NOTE 6 - CONTINGENCIES AND COMMITMENTS
Future contractual payments to be made under the Building contracts for each of
the three succeeding fiscal years ending December 3 1, until completion arc as
follows:
1999...............................93,311,900
2000.............................. 94,208,300
GEBAB (see Note 5), in response to the sale of the Company (see Note 11)
threatened litigation citing a breach in the shareholder Agreement. Any pending
suit was considered remotely possible. Furthermore, a meeting was held in
January of 1999 between the two parties to resolve their differences.
12
<PAGE>
CAMBRIDGE GAS TRANSPORTATION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 6 - CONTINGENCIES AND COMMITMENTS (CONTINUED).
During 1998, numerous agreements were reached between Cambridge Holdings LLC and
its former partners, whereby 169,467 shares of Navigator Holdings PLC common
stock were, to be distributed to the departed partners in settlement of any
pending lawsuit. As of December 31, 1998, said shares have not yet been issued.
However, the events were reflected in the equity section of the statement of
financial condition.
NOTE 7 - STOCKHOLDERS, EQUITY,
On December 14,1998, 100% of the Company was sold to Phoenix International
("Phoenix") for cash consideration and shares of Phoenix common stock.
NOTE 8- CONCENTRATION OF CREDIT RISK:
The Company has no sources for the payment of the principal of and the interest
on the Notes except for the pre-funding and capitalized interest accounts held
by the Trustee. Accordingly, the Company's ability to pay debt service on the
Notes is wholly dependent upon its financial condition, results of operations
and cash flows when the vessels are in operation.
NOTE 9 - MANAGEMENT AGREEMENTS;
Each of the Owners entered into a Management Agreement with Navigator Gas
Management Limited (an Isle of Man public limited company, the "Manager"), an
affiliate of the Company. The Manager will manage their commercial and technical
operations, including providing administrative services, causing the compliance
of the Owners' covenants in the Notes and monitoring GEBAB's performance under
several management agreements entered into between the Owners and certain
stockholders. The Manager will receive a fee of $30,000 per annum for each
vessel prior to the Delivery Date for such vessels and $120,000 per vessel per
annum from and on the Delivery Date for such vessels.
NOTE 10 - REGISTRATION OF THE NOTES:
In connection with the offer of the Notes, the Issuer and the Guarantors entered
into a registration rights agreement for the benefit of the holders of the
Notes. Pursuant thereof, the Issuer and the Guarantors have agreed to use their
best efforts to effect an exchange offer to exchange up to $304,000,000 in
aggregate principal amount of the Notes,
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> FEB-28-1999
<CASH> 203,427,369
<SECURITIES> 0
<RECEIVABLES> 15,700
<ALLOWANCES> 12,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,036,119
<PP&E> 110,375,610
<DEPRECIATION> 0
<TOTAL-ASSETS> 313,987,555
<CURRENT-LIABILITIES> 6,270,665
<BONDS> 0
0
0
<COMMON> 11,521
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 313,987,555
<SALES> 1,562,102
<TOTAL-REVENUES> 1,562,102
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,553,691
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,703,200
<INCOME-PRETAX> (2,694,789)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,694,789)
<DISCONTINUED> 60,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,694,789)
<EPS-PRIMARY> (.32)
<EPS-DILUTED> 0
</TABLE>
