<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Fiscal Year ended April 30, 1996 Commission File Number 0-21475
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DYNAMIC INTERNATIONAL, LTD.
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(Exact Name of Registrant as Specified in its Charter)
Nevada 93-1215401
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
58 Second Avenue
Brooklyn, New York 11215
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number,
including Area Code: (718) 369-4160
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Securities registered pursuant to Section 12(b) of the Act:
None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock (par value $.001 per share)
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Title of Class
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or for such shorter period that
the registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past ninety (90) days. Yes No x
---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the registrant's best knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[ ]
ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS
Check whether the issuer has filed all documents and reports required
to be filed by Section 12, 13 or 15(d) under the Securities Exchange Act of 1934
after the distribution of securities under a plan confirmed by a court.
Yes No x
---
The aggregate market value of voting stock held by non-affiliates of
the Registrant: can not be determined because of the absence of an active
trading market for Registrant's securities.
The number of shares outstanding of Registrant's Common Stock as of
January 30, 1997: 15,993,991
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
Dynamic International, Ltd., a Nevada corporation ("DIL"), is engaged
in the design, marketing and sale of a diverse line of hand exercise and light
exercise equipment, including hand grips, running weights, jump ropes and
aerobic steps and slides. It markets these products under the licensed
trademarks SPALDING(TM) and KATHY IRELAND(TM) as well as under its own
trademarked name SHAPE SHOP.(TM) In addition, it designs and markets sports bags
and luggage, which are marketed primarily under the licensed name JEEP(TM) and
under its own names PROTECH(TM) and SPORTS GEAR.(TM) The Company's objective is
to become a designer and marketer of goods that are associated with a
free-spirited lifestyle and leisure time.
The Company is the successor to Dynamic Classics, Ltd., a Delaware
corporation, incorporated in 1986 ("DCL," together with DIL, the "Company"),
which was the successor to a New York company incorporated in 1964. In August
1996, DCL merged with and into DIL, which had been newly formed for the purpose
of this merger. The objective of the merger was to change the Company's state of
incorporation from Delaware to Nevada.
PLAN OF REORGANIZATION
In 1994, the Company added a new line of products consisting primarily
of treadmills and ski machines. Initially, the Company was successful in
marketing these products. For the fiscal year ended April 30, 1995, sales of
these products represented approximately 53% of the Company's gross sales.
However, due to serious manufacturing defects and poor construction of the
Company's products delivered by the Company's manufacturers, primarily located
in the People's Republic of China, the Company was forced to allow substantial
charge backs by its customers. Although, pursuant to a written agreement, the
manufacturers acknowledged the defects and agreed to pay for returns and to
provide replacement goods at no cost, they breached this agreement soon
thereafter. The Company suffered severe losses from its venture into this line
of business and in August 1995 was forced to seek protection from its creditors
under Chapter 11 of the Bankruptcy Code.
In May 1996, the Bankruptcy Court approved a plan of reorganization
pursuant to which creditors would receive partial satisfaction of their claims.
MG Holdings Corp., which had purchased a promissory note from the Company's
principal financial institution, received 14,880,000 shares of Common Stock,
representing approximately 93% of the issued and outstanding shares thereby
gaining absolute control over the Company's affairs. See "Principal
Stockholders" and "Certain Relationships and Related Transactions." In addition,
as part of the plan of reorganization, the Company, then known under the name
DCL, merged into DIL, a newly formed Nevada corporation, for the purpose of
changing its state of incorporation. See "Legal Proceedings" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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PRODUCTS
Exercise Equipment
The Company's line of exercise equipment consists primarily of handheld
products, including dumbbells, ankle and wrist weights, hand grips, jumpropes,
exercise suits, slimmer belts and strength training products. In addition, the
Company markets light weight equipment such as aerobic steps and slides and
exercise mats. The Company also carries a line of small electronic devices
designed to monitor physical activity such as stopwatches, pedometers, pulse
meters and calorie counters.
Luggage
The Company's line of luggage consists primarily of duffle bags,
weekend bags, garment bags, suitcases, pilot cases and flight attendant wheeled
cases. Some of the models are equipped with wheels and/or retractable handles.
Design and Development
The Company usually designs its own exercise equipment and, with the
assistance of outside consultants, creates its own molds and tooling. Such molds
and tooling are used by the manufacturers to produce the equipment. The Company
retains an ownership interest in the molds which are returned to it upon the
termination of the Company's relationship with a particular manufacturer. The
Company has been granted a number of design patents with respect to certain of
its products. See "Intellectual Property." The Company employs a designer on a
full-time basis for the design of its luggage products. During the most recent
fiscal year the Company spent approximately $102,000 on design activities,
including fees to designers and patent attorneys.
Most of the Company's products are manufactured in the United States,
Philippines, Korea and Taiwan, which in the most recent fiscal year accounted
for approximately 28%, 26%, 17% and 12% of the Company's products, respectively.
In addition, the Company's products are manufactured in the People's Republic of
China, Hong Kong and Indonesia. Exercise equipment is usually shipped by the
manufacturers to the Company within 45 days of the placement of an order. Orders
for luggage and sports bags, which for the most part are produced in the
Philippines and China, usually require a period of 90 to 120 days before they
are shipped. The Company ordinarily has its products manufactured based on
purchase orders and it has no long term relationships with any of its
manufacturers. The Company believes that, if necessary, it will be able to
obtain its products from firms located in other countries at little if any
additional expense. As a consequence, the Company believes that an interruption
in deliveries by a manufacturer located in a particular country will not have a
material adverse impact on the business of the Company. Nevertheless, because of
political instability in a number of the supply countries, occasional import
quotas and other restrictions on trade or otherwise, there can be no assurance
that the Company will at all times have access to a sufficient supply of
merchandise.
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SALES AND MARKETING
The Company sells its products on a wholesale basis only. Most of its
products are sold to catalog showrooms, drug chains, discount store and sporting
goods chains. For the fiscal year ended April 30, 1996 approximately 19%, 18%
and 14% of the Company's revenues were derived from sales to Service
Merchandise, K-Mart and Wal-Mart, respectively. No other customer accounted for
more than ten percent of the Company's revenues. For the fiscal year ended April
30, 1996, sales of exercise equipment accounted for approximately 34% of the
Company's revenues while 66% of the Company's revenues were derived from the
sale of luggage.
The Company sells its products primarily through independent sales
agents on a commission-only basis. The Company currently engages approximately
23 sales agents either on an individual basis or through independent sales
organizations. Although it has written agreements with a number of its agents,
all of such agreements are terminable at will. The Company has no long term
arrangements with any of its agents. The Company usually pays commissions
ranging from 1% to 5% of the net sale price of its products.
The Company currently anticipates that it may increasingly focus its
attention on direct response marketing. The Company believes that its products
are particularly well suited for so-called impulse buys. Therefore, it intends
to develop plans to use infomercials to market its products. To date, no
significant expenditures have been made in connection with this effort.
COMPETITION
The Company's exercise products compete with products marketed and sold
by a number of companies. The Company believes that its main competitors are
Icon Health and Fitness, Inc. and Bollinger Industries. Both of these companies
possess far greater financial and other resources, including sales forces, than
the Company's. However, the Company believes that as a result of its ability to
use the trademarked names SPALDING(TM) and KATHY IRELAND(TM) it will be able to
retain its share of the market. Nevertheless, there can be no assurance that the
Company will be able to effectively compete with these companies as well as with
other smaller entities.
The Company's luggage products compete with products designed by a
number of the largest companies in the industry, including Samsonite, Sky Way
and American Tourister. The Company believes that because of its concentration
on the upscale lifestyle and the more specialized leisure market that are
associated with the trademark JEEP(TM) the Company will be able to continue to
grow its luggage business. Nevertheless, there can be no assurance that the
Company will be able to effectively compete with these companies as well as with
other smaller entities.
INTELLECTUAL PROPERTY
The Company owns a number of trademarks, including POCKETSPLUS, PROTECH
TRAVEL SYSTEMS & DESIGN and EXER-SLIDE.
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<PAGE> 5
License Agreements
The Company sells a number of its products under licensed names. The
Company has entered into licensee agreements which provide for the grant of
licenses to the Company and the payment of royalties by the Company, as follows:
JEEP -- Under an agreement dated January 8, 1993, as amended
by letter amendment dated January 8, 1996, between the Company and the
Chrysler Corporation (as so amended, the "Jeep Agreement"), the Company
was granted the exclusive license to use the names JEEP, WRANGLER and
RENEGADE in connection with the manufacture, sale and distribution of
luggage products. The current expiration date of the Jeep Agreement is
December 31, 1998. The parties have informally agreed to start
negotiations regarding the terms of an extension of the current
agreement.
SPALDING -- Under an agreement between the Company and
Spalding & Evenflo Companies Inc. dated April 1, 1994, the Company was
granted the exclusive right to use the name SPALDING in connection with
the sale and distribution of a number of products, including weight
bars and large exercise machines. The current expiration date of the
agreement is September 30, 1997. However, the Company is currently
negotiating a renewal of the agreement.
KATHY IRELAND -- Under an agreement with Kathy Ireland, Inc.,
dated December 22, 1994, Ms. Ireland approves and endorses certain
exercise equipment designed and manufactured by the Company. Under the
agreement, the Company has the right to use her name in connection with
the equipment and Ms. Ireland will make appearances to promote such
equipment. In addition, the Company has the right to use her photograph
and likeness in connection with the sale of the equipment. The
agreement is currently scheduled to expire in June 1998 but is subject,
at the Company's option, to renewal until June 2000.
MANAGEMENT AGREEMENT WITH ACHIM IMPORTING CO., INC.
Pursuant to a Warehousing and Service Agreement dated as of September
1, 1996 (the "Warehousing Agreement") between the Company and Achim Importing
Co., Inc. ("Achim"), Achim performs certain administrative services on behalf of
the Company. Under the Warehousing Agreement, Achim assists, among other things,
in the maintenance of financial and accounting books and records, in the
preparation of monthly financial accounts receivable aging schedules and other
reports and in the performance of credit checks on the Company's customers.
Achim also provides warehousing services consisting of receiving, shipping and
storing of the Company's merchandise. The Warehousing Agreement has a term of
two years and is automatically renewable for one year periods unless written
notice of termination shall have been given at least six months prior to the
commencement of a renewal period.
In consideration for the services performed under the Warehousing
Agreement, Achim receives an annual fee, payable monthly, calculated as a
percentage of the Company's invoiced
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sales ranging from 4% of invoiced sales under $30 million to 3% for sales of $60
million or more. Achim receives a service fee in the amount of 1.5% of the
Company's invoiced sales to customers and accounts located in the United States
if payment is made by letter of credit and 1% in connection with customers and
accounts located outside the United States, irrespective of manner of payment.
The Company also pays a monthly fee of 3% of the Company's invoiced sales in
connection with the warehousing services performed by Achim under the
Warehousing Agreement.
Achim is controlled by Marton Grossman, the Company's Chairman and
President. The Company believes that the terms of the Warehousing Agreement with
Achim are at least as favorable as would have been obtained from an unaffiliated
third party.
In addition, pursuant to an unwritten understanding, Achim makes its
lines of credit available to the Company which will enable it to finance the
purchases of its inventory from its overseas suppliers. Also, from time to time,
Achim will purchase the products directly from the manufacturer and resell them
to the Company without markup. Achim charges the Company interest on the unpaid
balance of the purchases. As of April 30, 1996, the Company owed an amount of
$2,129,893 in principal and interest under this arrangement. As of December 31,
1996, this sum had increased to $2,524,594.
EMPLOYEES
As of November 30, 1996, the Company employed 11 persons, of whom five
were engaged in administrative and clerical activities, four were engaged in
sales and two were involved in warehousing and shipping.
ITEM 2. PROPERTIES
The Company occupies a warehouse consisting of approximately 54,400
square feet, of which 4,500 square feet are dedicated to office space, located
at 58 Second Avenue, Brooklyn, New York. The property is owned by Sym Holding
which is owned by Isaac Grossman and one of his siblings. Mr. Grossman is the
Company's Vice Chairman, Treasurer and Secretary. The property is leased to
Achim which makes the property available to the Company. Other than the service
fees paid by the Company under the Warehousing Agreement, the Company pays no
rent for the property. See "Certain Relationships and Related Transactions" and
"Management Agreement with Achim Importing Co., Inc."
ITEM 3. LEGAL PROCEEDINGS
On August 23, 1995, the Company filed a petition under Chapter 11 of
the Bankruptcy Code in the United States Bankruptcy Court for the Southern
District of New York (the "Court").
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On May 23, 1996, the Court entered an Order confirming the Company's plan of
reorganization. See "Management Discussion and Analysis of Financial Condition
and Results of Operations."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET PRICE OF REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Until 1995, the Company's Common Stock was traded in the over the
counter market. As a result of the Company's petition under Chapter 11 of the
Bankruptcy Code in August 1995, no trading information is available after the
fiscal quarter ended July 31, 1995. The following table sets forth the high and
low bid quotations for the Company's Common Stock and Warrants through the
quarter ended July 31, 1995. These quotations have been reported by the National
Association of Securities Dealers, Inc. and represent quotations by dealers
without adjustments for retail mark-ups, mark-downs or commissions and may not
represent actual transactions.
<TABLE>
<CAPTION>
Common Stock
Fiscal
Quarter High Low
- -------------------------------------------------------------------
<S> <C> <C>
Ended
January 31, 1994 $2.438 $0.875
Ended
April 30, 1994 $3.250 $2.000
Ended
July 31, 1994 $2.625 $1.500
Ended
October 31, 1994 $2.750 $2.188
Ended
January 31, 1995 $1.750 $0.875
Ended
April 30, 1995 $2.000 $0.875
Ended
July 31, 1995 $1.438 $0.375
</TABLE>
The Company has not paid a cash dividend on its Common Stock. The
Company intends to retain all earnings for the foreseeable future for use in the
operation and expansion of its business and, accordingly, the Company does not
contemplate paying any cash dividends on its Common Stock in the near future.
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ITEM 6. SELECTED FINANCIAL DATA
The following tables summarize certain financial data that are
qualified by the more detailed financial statements included herein. Effective
August 8, 1996, the Company emerged as the surviving entity in a merger with
DCL. The balance sheet of the combined entity was substantially similar to that
of DCL immediately prior to the merger. As a consequence, the financial data of
the Company for the reporting periods consist of those of DCL.
<TABLE>
<CAPTION>
Year ended April 30 1996 1995 1994 1993
- ------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $7,151,715 $32,533,097 $29,497,353 $25,735,479
Income/(Loss) for year 6,945,299 (11,227,335) 244,308 (427,409)
Net Income (Loss) per Share 3.98 (6.44) .14 (.25)
Selected Balance Sheet Data:
Working Capital (Deficit) (293,884) (7,493,435) 3,094,821 3,173,751
Total Assets 4,253,396 6,414,185 16,677,772
13,373,816
Long term obligations,
including capitalized lease 23,965 116,124 127,877 92,129
obligations
</TABLE>
- ---------------
The Company has not paid a cash dividend to its public shareholders on
its Common Stock. The Company does not contemplate paying any cash dividends on
its Common Stock in the near future.
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<PAGE> 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion should be read in conjunction with the
Consolidated Financial Statements and related notes thereto of the Company
included elsewhere herein. The discharge of claims under the bankruptcy
proceedings described immediately below, has been reflected in the financial
statements for the fiscal year ended April 30, 1996. Effective August 8, 1996,
the Company completed a migratory merger from Delaware to Nevada by merging into
a newly formed Nevada entity, thereby changing its name from Dynamic Classics,
Ltd. to Dynamic International, Ltd. The balance sheet of the combined entity was
substantially identical to that of the Company prior to the merger. The Company
and its predecessor are herein together referred to as the "Company."
PLAN OF REORGANIZATION
In August 1995, the Company was forced to seek protection from its
creditors under Chapter 11 of the Bankruptcy Code.
In May 1996, the Bankruptcy Court approved a plan of reorganization
(the "Plan") pursuant to which creditors would receive partial satisfaction of
their claims. The amount of claims allowed under the bankruptcy proceedings,
aggregated approximately $17,223,800, which exceeded the assets as recorded
immediately subsequent to the confirmation of the Plan by approximately
$12,970,400. Under the Plan, the Company made cash payments in the amount of
approximately $515,800. MG Holdings Corp., which had purchased a promissory note
from the Company's principal financial institution, received 14,880,000 shares
of Common Stock in satisfaction of such promissory note, representing
approximately 93% of the issued and outstanding shares thereby gaining absolute
control over the Company's affairs. See "Principal Stockholders" and "Certain
Relationships and Related Transactions." An additional 800,000 shares and
320,000 shares were issued to the Company's unsecured creditors and the
Company's existing security holders, respectively. The value of the cash and
securities distributed under the plan of reorganization aggregated $531,561. An
amount of $16,692,193, representing the difference between the value of the
total distribution and the amount of allowable claims under the bankruptcy, was
recorded as an extraordinary gain.
In addition, under the Plan, the Company merged with a newly formed
Nevada corporation, for the purpose of changing its state of incorporation. The
balance sheet of the combined entity was substantially similar to the balance
sheet of the Company prior to the merger.
Pending the resolution of the bankruptcy proceedings, the Company
restructured its operations and relocated its administrative headquarters and
warehouse facilities.
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RESULTS OF OPERATIONS FOR THE YEARS ENDED APRIL 30, 1996 AND 1995
Sales for the years ended April 30, 1996 were $7,151,715, a decrease of
$25,381,382 or 78% from the previous fiscal year. The decrease was primarily due
to the discontinuation of a line of manual treadmills and ski machines. Sales of
this equipment alone accounted for approximately $15,580,000 during the fiscal
year ended April 30, 1995. During the fiscal year ended April 30, 1996, as a
result of the Company's bankruptcy proceedings, it was forced to reduce its
sales of other exercise equipment and of its luggage products which lead to a
decline in sales of $5,334,731 and $1,333,574, respectively, to $5,615,577 and
$4,701,813, respectively. Sales of exercise equipment and luggage products
during this period were offset by credits of $3,210,876 issued to customers in
connection with the discontinued line of manual treadmills and ski machines. In
addition, the Company's operating expenses decreased by approximately $1,083,265
to $6,683,151.
For the fiscal year ended April 30, 1996, after giving effect to an
extraordinary gain as a result of the discharge of pre-petition liabilities in
the amount of $16,692,193, the Company recorded net income of $6,945,299,
compared to a pre-tax loss of $11,309,425 during the previous fiscal year. For
the current fiscal year, the Company would have recorded a net loss of
$9,746,894 before the extraordinary gain, or a decrease of $1,562,531 from the
prior fiscal year. This decrease primarily reflected a reduction in the
Company's operating expenses of approximately $1,083,265 and a reduction in
interest expense of $1,001,345 primarily as a result of the bankruptcy
proceedings which for the most part exempted the Company from making interest
payments on outstanding debt.
RESULTS OF OPERATIONS FOR THE YEARS ENDED APRIL 30, 1995 AND 1994
Sales for the year ended April 30, 1995 increased from $29,497,353 to
$32,533,097, totalling $3,035,744, or 10% from the previous fiscal year. This
increase was primarily the result of the introduction of a new line of manual
treadmills and ski machines. Sales of these products amounted to approximately
$15,580,000. Sales of the Company's "Jeep" license sport/bag/luggage increased
by approximately $219,000. Increases in these product lines were offset by
declines in all of the companies other product lines of approximately
$12,763,000.
The Company's gross profits declined from approximately $8,134,000 in
fiscal 1994 to a gross loss of approximately $2,158,000 in fiscal 1995. This
decrease was due primarily to the disposal of approximately $1,247,000 of
defective manual treadmills and return credits issued to customers for defective
manual treadmills totalling approximately $7,000,000. In addition, the Company
incurred expenses in the amount of $589,160 in connection with the disposals of
other discontinued products. The inventory was further reduced by a lower cost
or market reserve of approximately $705,000.
Operating expenses increased by approximately $902,000. This increase
was due primarily to increases in the provision for bad debts of $473,999, an
increase in officers' salaries of $39,820, an increase in office salaries of
$129,000, an increase in severance pay of $71,000 and an increase in legal fees
of $107,612.
Interest expense increased by $531,944 due to higher interest rates.
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For the fiscal year ended April 30, 1995, the Company had a pre-tax
operating loss of $11,309,425 as compared to a pre-tax operating income of
$416,369 for the prior fiscal year. The decrease can be attributed to the severe
losses from its venture into a new line of manual treadmills.
SEASONALITY AND INFLATION
The Company's business is highly seasonal with higher sales typically
in the second and third quarters of the fiscal year as a result of shipments of
exercise equipment and luggage/sports bag related to the holiday season.
Management does not believe that the effects of inflation will have a
material impact on the Company, nor is it aware of changes in prices of material
or other operating costs or in the selling price of its products and services
that will materially effect the registrant.
LIQUIDITY AND CAPITAL RESOURCES
During the fiscal year ended April 30, 1996, cash used by operating
activities amounted to $1,145,616. This was primarily the result of temporary
benefits received by the Company under the bankruptcy and subsequent
reorganization. Net income of $6,945,299 and pre- petition liabilities of
$8,614,728 were offset by the gain on debt discharge under the Plan of
$16,692,193. In addition, the Company was not required to pay interest on most
of its debt during the bankruptcy period. Future cash flows will no longer
receive those benefits.
Cash of $47,933 was used primarily to purchase equipment for the
manufacture of two exercise products as well as computer hardware and software.
Financing activities generated cash in the amount of $877,493. Proceeds
from bank notes payable, bankers acceptances and a loan from MG Holding were
$3,393,628, $1,118,556 and $557,000, respectively. These proceeds were offset by
repayments of bankers acceptances and capital leases of $4,127,139 and $64,552,
respectively.
The Company had a negative cash flow of $316,056 for the fiscal year
ended April 30, 1996. The Company believes that cash generated by operations and
the availability of Achim's credit line to finance the Company's purchase of
inventory will be sufficient to finance its operations for the next twelve
months. In addition, pursuant to an unwritten understanding, Achim makes its
lines of credit available to the Company which will enable it to finance the
purchases of its inventory from its overseas suppliers. Also, from time to time,
Achim will purchase the products directly from the manufacturer and resell them
to the Company without markup. Achim charges the Company interest on the unpaid
balance of the purchases. As of April 30, 1996, the Company owed an amount of
$2,129,893 in principal and interest under this arrangement. As of December 31,
1996, this sum had increased to $2,524,594. See "Business-Management Agreement
with Achim Importing Co., Inc."
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are included herein commencing on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On June 26, 1996, the Company dismissed Hoberman, Miller & Co., P.C. as
its independent accountants ("Hoberman"). This action had been approved by the
Company's Board of Directors. During the past two years Hoberman did not issue a
report on the Company's financial statements that either contained an adverse
opinion or a disclaimer of opinion, or was qualified or modified as to
uncertainty, audit scope or accounting principles.
During the period of their engagement from June 30, 1973 until June 26,
1996, there were no disagreements between the Company and Hoberman on any matter
of accounting principles or practices, financial statement disclosure, or audit
scope and procedure, which disagreement, if not resolved to the satisfaction of
Hoberman, would have caused them to make reference to the subject matter of the
disagreement in connection with any report that was to have been, or will be,
prepared for the Company.
On July 11, 1996 the Company's Board of Directors appointed Moore
Stephens, P.C. as its independent accountants.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
OFFICERS AND DIRECTORS
The officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Marton Grossman 66 Chairman and President
Isaac Grossman 34 Vice Chairman, Treasurer and Secretary
Marvin Cooper 63 Executive Vice President
William Dolan 43 Vice President--Finance
</TABLE>
MARTON GROSSMAN has been the Chairman and Chief Executive Officer of
the Company since July 29, 1996. For the past 34 years, he has been President of
Achim Importing Co., a privately held company engaged in the import and export
of window coverings and accessories ("Achim"). In addition, he has been
President of MG Holding Co., Inc., a privately held financial holding company.
Mr. Grossman is the father of Isaac Grossman, the Company's Vice Chairman,
Treasurer and Secretary.
ISAAC GROSSMAN has been the Company's Vice Chairman, Treasurer and
Secretary since July 1996. He has been Vice President of Achim since 1989. Mr.
Grossman is the son of Marton Grossman, the Company's Chairman and President.
MARVIN COOPER has been the Company's Executive Vice President since
July 1996. Prior thereto, he had been the Company's President since 1964.
WILLIAM DOLAN has been the Company's Vice President-Finance since July
1996. Prior thereto, he had been the Company's Treasurer and Secretary since
1989.
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BOARD OF DIRECTORS
Each director is elected at the Company's annual meeting of
stockholders and holds office until the next annual meeting of stockholders, or
until his successor is elected and qualified. At present, the Company's bylaws
require no fewer than one director. Currently, there are two directors of the
Company. The bylaws permit the Board of Directors to fill any vacancy and the
new director may serve until the next annual meeting of stockholders or until
his successor is elected and qualified. Officers are elected by the Board of
Directors and their terms of office are, except to the extent governed by
employment contracts, at the discretion of the Board.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by the
Company during the three fiscal years ended April 30, 1996 (i) to its Chief
Executive Officer and (ii) to the three highest paid employees of the Company
whose cash compensation exceeded $100,000 per year in any such year (other than
the individuals listed in the table, no employee of the Company received
compensation in excess of $100,000):
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE(1)(2)
- ---------------------------------------------------------------------------------------------------------------------
Annual Compensation
(a) (b) (c) (d) (e)
-----------------------------------------------------------------------
Year Ended
Name/Principal Position April 30 Salary ($) Bonus ($) All Other
Compensation
========================================================================================================
<S> <C> <C> <C> <C>
Marvin Cooper, 1996 182,876
President and Director (3)
1995 250,099
1994 250,099
- --------------------------------------------------------------------------------------------------------
David Richman, 1996 76,263
Vice President (4)
1995 112,079
1994 128,201
- --------------------------------------------------------------------------------------------------------
William P. Dolan 1996 100,000
Vice President-Finance
1995 97,691
1994 74,414
- --------------------------------------------------------------------------------------------------------
John Black, 1996 6,100
Vice President (5)
1995 215,063
1994 160,192
- --------------------------------------------------------------------------------------------------------
</TABLE>
-15-
<PAGE> 16
- -------------------------
(1) The above compensation does not include the use of an automobile and
other personal benefits, the total value of which do not exceed as to
any named officer or director or group of executive officers the lesser
of $50,000 or 10% of such person's or persons' cash compensation.
(2) Pursuant to the regulations promulgated by the Securities and Exchange
Commission, the table omits columns reserved for types of compensation
not applicable to the Company.
(3) Mr. Cooper has resigned from his position as President and a Director
of the Company in July 1996, and is currently the Company's Executive
Vice President.
(4) Mr. Richman resigned his position in July 1996. However, he is still
affiliated with the Company.
(5) Mr. Black resigned his position in January 1995.
None of the individuals listed in the table above received any
long-term incentive plan awards during the fiscal year.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten-percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on review of the copies of such forms furnished to the
Company, or written representations that no Forms 5 were required, the Company
believes that during the period from May 1, 1995 through March 31, 1996 all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten-percent beneficial owners were complied with.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, as of January 30, 1997, information
regarding the beneficial ownership of the Company's Common Stock based upon the
most recent information available to the Company for (i) each person known by
the Company to own beneficially more than five (5%) percent of the Company's
outstanding Common Stock, (ii) each of the Company's officers and directors and
(iii) all officers and directors of the Company as a group. Unless otherwise
indicated, each stockholder's address is c/o the Company, 58 Second Avenue,
Brooklyn, New York 11215.
-16-
<PAGE> 17
<TABLE>
<CAPTION>
Shares Owned Beneficially
and of Record (1)
-------------------------
Name and Address No. of Shares % of Total
- ---------------- ------------- ----------
<S> <C> <C>
Marton Grossman (2) 14,880,000 93.0
Isaac Grossman (3) 2,323,000 14.5
Marvin Cooper 110,970 *
William P. Dolan 616 *
All Officers and Directors as a 14,991,586 93.7
Group (4 persons)
</TABLE>
- ------------------------------
* Less than 1%
(1) Includes shares issuable within 60 days upon the exercise of
all options and warrants. Shares issuable under options or
warrants are owned beneficially but not of record.
(2) Consists of shares of Common Stock held by the Marton Grossman
Retained Annuity Trust (the "Grossman Trust") of which
relatives of Mr. Grossman are beneficiaries. Mr. Grossman
disclaims beneficial ownership of these shares.
(3) Consists of shares held by the Grossman Trust of which Mr.
Isaac Grossman is the beneficiary. Does not include all other
shares held by the Grossman Trust.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the plan of reorganization, MG Holding Corp.,
purchased from the Company's principal lender a note in the principal amount of
approximately $6,822,530. MG Holding is wholly owned by Marton Grossman, the
Company's Chairman and President. The note was subsequently repaid by the
Company through the issuance of 14,880,000 shares of Common Stock to MG Holding.
MG Holding assigned the Common Stock to a trust for the benefit of members of
Mr. Grossman's family.
Also in connection with the plan of reorganization, MG Holding loaned
approximately $1,205,000 to the Company to consummate the plan and other
expenses. The Company issued a promissory note to MG Holding evidencing the loan
and granted it a security interest in all of the Company's assets.
Pursuant to the Warehousing Agreement between the Company and Achim,
Achim performs certain administrative services on behalf of the Company. Under
the Warehousing Agreement, Achim assists, among other things, in the maintenance
of financial and accounting
-17-
<PAGE> 18
books and records, the preparation of monthly financial accounts receivable
aging schedules and other reports and in the performance of credit checks on the
Company's customers. Achim also provides warehousing services consisting of
receiving, shipping and storing of the Company's merchandise. The Warehousing
Agreement has a term of two years and is automatically renewable for one year
periods unless written notice of termination shall have been given at least six
months prior to the commencement of a renewal period.
In consideration for the services performed under the Warehousing
Agreement, Achim receives an annual fee, payable monthly, calculated as a
percentage of the Company's invoiced sales ranging from 4% of invoiced sales
under $30 million to 3% for sales of $60 million or more. Achim receives a
service fee in the amount of 1.5% of the Company's invoiced sales to customers
and accounts located in the United States if payment is made by letter of credit
and 1% in connection with customers and accounts located outside the United
States, irrespective of manner of payment. The Company also pays a monthly fee
of 3% of the Company's invoiced sales in connection with the warehousing
services performed by Achim under the Warehousing Agreement.
Achim is controlled by Marton Grossman, the Company's Chairman and
President. The Company believes that the terms of the Warehousing Agreement with
Achim are at least as favorable as would have been obtained from an unaffiliated
third party.
In addition, pursuant to an unwritten understanding, Achim makes its
lines of credit available to the Company which will enable it to finance the
purchases of its inventory from its overseas suppliers. Also, from time to time,
Achim will purchase the products directly from the manufacturer and resell them
to the Company without markup. Achim charges the Company interest on the unpaid
balance of the purchases. As of April 30, 1996, the Company owed an amount of
$2,129,893 in principal and interest under this arrangement. As of December 31,
1996, this sum had increased to $2,524,594.
The Company occupies a warehouse consisting of approximately 54,400
square feet, of which 4,500 square feet are dedicated to office space, located
at 58 Second Avenue, Brooklyn, New York. The property is owned by Sym Holding
which is owned by Isaac Grossman and one of his siblings. Mr. Grossman is the
Company's Vice Chairman, Treasurer and Secretary. The property is leased to
Achim which makes the property available to the Company. Other than the service
fees paid by the Company under the Warehousing Agreement, the Company pays no
rent for the property. See "Certain Relationships and Related Transactions" and
"Management Agreement with Achim Importing Co., Inc."
-18-
<PAGE> 19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) 1. and 2. Financial Statements and Schedules
The financial statements are listed in the Index to Financial
Statements on page F-1 and are filed as part of this annual report.
3. Exhibits
The Index to Exhibits following the Signature Page indicates
the exhibits which are being filed herewith and the exhibits which are
incorporated herein by reference.
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the last quarter of
the fiscal year ended April 30, 1996.
-19-
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
DYNAMIC INTERNATIONAL, LTD.
By: /s/ Marton Grossman
--------------------------------------
Marton Grossman, Chairman and President
Dated: February 3, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below as of February 3, 1997 by the following
persons on behalf of Registrant and in the capacities indicated.
/s/ Marton Grossman
--------------------------------------
Marton Grossman, Chairman and President
/s/ Isaac Grossman
--------------------------------------
Director
/s/ William P. Dolan
--------------------------------------
Vice President-Finance
(Chief Financial and Accounting Officer)
-20-
<PAGE> 21
EXHIBITS
2.01 Agreement of Merger dated July 19, 1996 between the Company
and Dynamic Classics, Ltd.(1)
2.02 Second Amended and Modified Plan of Reorganization dated
February 22, 1996 (the "Plan")(2)
2.03 Errata Sheet and Correction Statement with respect to the Plan
dated May 7, 1996(2)
2.04 Order Confirming the Plan dated May 23, 1996(2)
3.01 Certificate of Incorporation(1)
3.02 By-laws(1)
10.01 License Agreement with Spalding Sports Worldwide dated
April 1, 1994(3)
10.02 License Agreement dated January 8, 1993 with Chrysler
Corporation (3)
10.03 Endorsement Agreement dated December 22, 1994 with Kathy
Ireland (4)*
10.04 Warehousing and Service Agreement dated as of September 1,
1996 with Achim Importing Inc.(4)
16.01 Letter from Hoberman Miller & Co. dated October 23, 1996 (5)
- ----------------------------
(1) Incorporated by reference to the Company's Form 8-B filed October 3,
1996.
(2) Incorporated by reference to the Company's Report on Form 8-K filed
October 3, 1996.
(3) Incorporated by reference to the Annual Report on Form 10-K for 1994
for Dynamic Classics, Ltd. (File No. 0-8376).
(4) Filed herewith.
(5) Incorporated by reference to the Current Report on Form 8-K/A dated
October 23, 1996 1996
* Subject to a request for confidential treatment by the Securities and
Exchange Commission. Specific portions of the document for which confidential
treatment has been requested have been blacked out. Such portions have been
filed separately with the Commission pursuant to the application for
confidential treatment.
-21-
<PAGE> 22
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Reports F-1 to F-2
Consolidated Financial Statements:
Balance Sheets as of April 30, 1996 and 1995 F-3 to F-4
Statements of Operations for the years ended
April 30, 1996, 1995, and 1994 F-5
Statements of Stockholders' Equity for the years ended
April 30, 1996, 1995, and 1994 F-6
Statements of Cash Flows for the years ended
April 30, 1996, 1995, and 1994 F-7 to F-8
Notes to Financial Statements F-9 to F-20
Independent Auditors' Reports on Supplemental Schedule F-21 to F-22
Schedule II - Valuation and Qualifying Accounts F-23
</TABLE>
<PAGE> 23
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
Dynamic International, Ltd.
We have audited the accompanying consolidated balance sheet of Dynamic Classics,
Ltd. (which, subsequent to year end, merged into Dynamic International, Ltd.,
see Note 11) and its subsidiary as of April 30, 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. 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 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 consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides 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 Dynamic
Classics, Ltd. and its subsidiary as of April 30, 1996, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
As discussed more fully in Note 11 to the consolidated financial statements, on
August 23, 1995, the Company filed a voluntary petition requesting relief under
Chapter 11 of the United States Bankruptcy Code. On May 23, 1996, the United
States Bankruptcy Court for the Southern District of New York confirmed the
Company's Amended and Modified Plan of Reorganization dated February 22, 1996.
Moore Stephens, P.C.
Certified Public Accountants
New York, New York
August 30, 1996, except as
to Note 11, for which the
date is October 24, 1996
F-1
<PAGE> 24
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Dynamic Classics, Ltd.
We have audited the accompanying consolidated balance sheet of Dynamic Classics,
Ltd. and Subsidiary as of April 30, 1995, and the related consolidated
statements of operations, shareholders' equity (deficit) and cash flows for each
of the years in the two-year period ended April 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated 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 consolidated
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 financial position of Dynamic Classics,
Ltd. and Subsidiary as of April 30, 1995, and the results of their operations
and their cash flows for each of the years in the two-year period ended April
30, 1995 in conformity with generally accepted accounting principles.
As more fully discussed in Note 11, the Company, on August 23, 1995, filed a
voluntary petition for relief under Chapter 11 of the United States Bankruptcy
Act.
Hoberman, Miller & Co., P.C.
June 26, 1996
F-2
<PAGE> 25
DYNAMIC CLASSICS, LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 30,
--------
1996 1995
---- ----
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 26,515 $ 342,571
Accounts receivable - trade (net of allowance for
doubtful accounts of $167,000 in 1996 and $-0- in 1995) 1,036,927 1,424,809
Due from suppliers 26,760 10,704
Inventory 2,384,469 3,450,290
Prepaid expenses 81,693 250,549
Miscellaneous receivables 135,039 26,858
Prepaid and refundable income taxes 291,146 291,146
----------- -----------
Total Current Assets 3,982,549 5,796,927
----------- -----------
PROPERTY AND EQUIPMENT
Tools and dies 707,939 1,447,257
Furniture and equipment 102,205 900,437
Leasehold improvements -- 111,646
Capitalized equipment leases 576,071 637,589
Patents and trademarks -- 149,982
----------- -----------
1,386,215 3,246,911
Accumulated depreciation (1,156,160) (2,773,359)
----------- -----------
Total Property and Equipment, net 230,055 473,552
----------- -----------
OTHER ASSETS
Due from suppliers 36,142 52,198
Security deposits 4,650 91,508
----------- -----------
Total Other Assets 40,792 143,706
----------- -----------
TOTAL ASSETS $ 4,253,396 $ 6,414,185
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 26
DYNAMIC CLASSICS, LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
APRIL 30,
--------
1996 1995
---- ----
LIABILITIES AND STOCKHOLDERS' DEFICIT
<S> <C> <C>
CURRENT LIABILITIES
Notes payable bank, trade and bankers acceptances payable $ -- $ 8,191,782
Note payable, officer, current portion -- 17,904
Accounts payable and accrued expenses 3,139,141 4,967,856
Capital lease obligations - current 48,731 112,820
Loans payable - related party 557,000 --
Other liabilities 531,561 --
------------ ------------
Total Current Liabilities 4,276,433 13,290,362
------------ ------------
OTHER LIABILITIES
Capital lease obligations 23,965 101,832
Note payable, officer -- 14,292
------------ ------------
Total Other Liabilities 23,965 116,124
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Common stock, par value $.01 per share; authorized
5,000,000 shares; issued 1,744,396 shares 17,444 17,444
Additional paid in capital 590,291 590,291
Accumulated deficit (637,237) (7,582,536)
------------ ------------
(29,502) (6,974,801)
Less: Treasury stock, at cost, 15,000 shares (17,500) (17,500)
------------ ------------
Total Stockholders' Deficit (47,002) (6,992,301)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 4,253,396 $ 6,414,185
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 27
DYNAMIC CLASSICS, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED APRIL 30,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
REVENUES
Sales $ 7,151,715 $ 32,533,097 $ 29,497,353
Other income 98,272 70,638 35,255
------------ ------------ ------------
7,249,987 32,603,735 29,532,608
COST OF SALES 9,480,484 34,761,846 21,398,895
------------ ------------ ------------
GROSS PROFIT (LOSS) (2,230,497) (2,158,111) 8,133,713
------------ ------------ ------------
OPERATING EXPENSES
Research and development 101,992 44,962 35,136
Shipping expenses 738,681 1,198,563 1,005,593
Selling expenses 1,254,006 2,455,493 2,380,774
Advertising and promotion 389,672 346,400 528,927
General and administrative 4,198,800 3,720,998 2,913,960
Interest and bank charges 383,553 1,384,898 852,954
------------ ------------ ------------
7,066,704 9,151,314 7,717,344
------------ ------------ ------------
REORGANIZATION ITEMS:
Bankruptcy administration costs 449,693 -- --
------------ ------------ ------------
449,693 -- --
------------ ------------ ------------
INCOME (LOSS) BEFORE
PROVISION FOR INCOME TAXES (9,746,894) (11,309,425) 416,369
INCOME TAX PROVISION (BENEFIT)
Current -- (396,143) 244,797
Deferred (7,511,000) 314,053 (72,736)
------------ ------------ ------------
(7,511,000) (82,090) 172,061
------------ ------------ ------------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM (2,235,894) (11,227,335) 244,308
------------ ------------ ------------
EXTRAORDINARY ITEM:
Gain of discharge of prepetition liabilities 16,692,193 -- --
Income tax provision 7,511,000 -- --
------------ ------------ ------------
Extraordinary gain, net of income tax 9,181,193 -- --
------------ ------------ ------------
NET INCOME (LOSS) $ 6,945,299 $(11,227,335) $ 244,308
============ ============ ============
INCOME (LOSS) PER SHARE OF
COMMON STOCK:
Income (loss) before extraordinary gain $ (1.28) $ (6.44) $ 0.14
Extraordinary gain $ 5.26 $ -- $ --
------------ ------------ ------------
Earnings per common share $ 3.98 $ (6.44) $ 0.14
============ ============ ============
Weighted average number of common shares 1,744,396 1,744,396 1,744,396
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 28
DYNAMIC CLASSICS, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED APRIL 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Common
Stock Additional Retained Treasury Stockholders'
$.01 par Paid in Earnings Stock Equity
Value Capital (Deficit) at Cost (Deficit)
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
May 1, 1993 $ 17,444 $ 590,291 $ 3,400,491 $ (17,500) $ 3,990,726
Net Income 244,308 244,308
---------- ---------- ------------ ---------- ------------
Balance - April 30, 1994 17,444 590,291 3,644,799 (17,500) 4,235,034
Net Loss (11,227,335) (11,227,335)
---------- ---------- ------------ ---------- ------------
Balance - April 30, 1995 17,444 590,291 (7,582,536) (17,500) (6,992,301)
Net Income 6,945,299 6,945,299
---------- ---------- ------------ ---------- ------------
Balance - April 30, 1996 $ 17,444 $ 590,291 $ (637,237) $ (17,500) $ (47,002)
========== ========== ============ ========== ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-6
<PAGE> 29
DYNAMIC CLASSICS, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED APRIL 30,
----------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) $ 6,945,299 $(11,227,335) $ 244,308
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation 220,400 268,148 260,677
Amortization of deferred interest under
capital leases -- 17,979 18,509
Reserve for bad debts 167,000 -- --
Loss on disposal of property
and equipment 71,030 -- --
Deferred income taxes -- 313,039 18,418
Income on partial discharge of
capital lease obligations (77,403) -- --
Reorganization item:
Gain on discharge of debt (16,692,193) -- --
Changes in operating assets and liabilities:
(Increase) Decrease in operating assets:
Accounts receivable and due
from suppliers 220,882 6,843,636 (3,351,168)
Inventory 1,065,821 3,260,017 (379,281)
Prepaid expenses 168,856 (183,186) 400,241
Miscellaneous receivables (108,179) 51,352 (71,749)
Prepaid income taxes -- (291,146) 346,140
Security deposits 86,858 (3,537) (13)
Increase (Decrease) in operating liabilities:
Prepetition liabilities 8,614,728
Accounts payable and accrued expenses (1,828,715) 1,951,001 1,167,239
Income taxes payable -- (200,770) 200,770
------------ ------------ ------------
Net Cash Provided (Used) by
Operating Activities (1,145,616) 799,198 (1,145,909)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (47,933) (143,995) (93,993)
------------ ------------ ------------
Net Cash Used by Investing Activities $ (47,933) $ (143,995) $ (93,993)
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
<PAGE> 30
DYNAMIC CLASSICS, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED APRIL 30,
-----------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable $ 3,393,628 $ 24,250,741 $ 10,136,006
Repayment of notes payable - (26,460,130) (6,311,012)
Proceeds from loans payable 557,000 -
Proceeds from bankers acceptances 1,118,556 9,321,558 8,853,407
Repayment of bankers acceptances (4,127,139) (7,876,394) (11,068,227)
Repayment of officer's loans payable - (2,373) (8,600)
Repayment of capital lease obligations (64,552) (109,308) (87,830)
------------ ------------ ------------
Net Cash Provided (Used) by
Financing Activities 877,493 (875,906) 1,513,744
------------ ------------ ------------
Net Increase (Decrease) in Cash and
Cash Equivalents (316,056) (220,703) 273,842
Cash and Cash Equivalents, beginning of year 342,571 563,274 289,432
------------ ------------ ------------
Cash and Cash Equivalents, end of year $ 26,515 $ 342,571 $ 563,274
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the periods for:
Interest $ 203,964 $ 1,196,322 $ 807,131
Income tax $ - $ 116,319 $ 7,120
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the years ended April 30, 1995 and 1994 the Company incurred capital
lease obligations of $143,855 and $177,696, respectively, in connection with
lease agreements to acquire equipment.
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
<PAGE> 31
DYNAMIC CLASSICS, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. The Company
Dynamic Classics, Ltd. (the "Company") is engaged in the sale
and distribution of a diverse line of hand exercise and light
exercise equipment, sports bags/luggage and gift products
which are distributed nationwide.
b. Principles of Consolidation
The consolidated financial statements include the accounts of
the Company and its wholly owned inactive subsidiary. All
significant intercompany accounts and transactions have been
eliminated.
c. Cash and Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
d. Inventories
Inventories consist principally of finished goods and are
stated at the lower of cost (last-in, first-out method) or
market.
e. Property, Equipment and Depreciation
Property and equipment are stated at cost. Depreciation is
provided generally by accelerated methods over the estimated
useful lives of the assets. Expenditures for maintenance and
repairs are charged against income. Estimated useful lives
used in calculating depreciation are as follows:
Tools and dies 5 years
Furniture and equipment 5 to 7 years
Leasehold improvements Life of lease
Patents and trademarks 2 years
f. Earnings Per Share
Earnings (loss) per share are based on the weighted average
number of shares outstanding.
F-9
<PAGE> 32
DYNAMIC CLASSICS, LTD. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
g. Reclassification
Certain 1994 account balances have been reclassified to
conform to the 1995 presentation.
h. Use of 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
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
2. INVENTORIES
If the first-in, first-out (FIFO) method of accounting had been used by
the Company, reported net income would have been increased by $263,000
in fiscal 1996. The net loss would have been increased by $246,000 in
fiscal 1995 and the net income would have been decreased by $40,000 in
fiscal 1994. On a FIFO basis, reported year end inventories would have
increased by $318,180 in 1996, $55,000 in 1995 and $428,000 in 1994.
3. CREDIT FACILITIES
Notes payable, bank, trade and bankers acceptances payable consist of
the following:
<TABLE>
<CAPTION>
April 30,
1995
----
<S> <C>
Notes payable, bank (a) $ 766,684
Notes payable, bank (b) 1,107,197
Bankers' acceptances payable (a) 6,317,901
-----------
$ 8,191,782
===========
</TABLE>
a. On April 29, 1994, the Company restructured its then existing
credit facility with a bank, providing for maximum borrowings
of $7,500,000 in the form of notes payable, letters of credit
and bankers' acceptances, expiring on September 30, 1994.
F-10
<PAGE> 33
DYNAMIC CLASSICS, LTD. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
3. CREDIT FACILITIES (cont'd)
The agreement with the bank was extended on a month to month
basis until such time as a new agreement was signed. Advances
were made on a revolving basis based on a percentage of
eligible accounts receivable and inventory, as defined.
Interest was charged at the bank's "base" rate plus 1.25% on
notes payable, the bank's prevailing discount rate plus 2.5%
on time letters of credit and the bank's prevailing discount
rate plus 2% on bankers' acceptances. The base rate and
discount rate were 9.00% and 6.85%, respectively, at April 30,
1995. The agreement also provided for a security interest in
all of the assets of the Company, the personal guarantee of
the Company's president and major shareholder in the amount of
$250,000, the assignment of an existing life insurance policy
to the bank in the name of the president and major shareholder
in the amount of $2,000,000, the maintenance of certificates
of deposit in an amount not less than $350,000 and the
maintenance of compensating balances equal to 6% of the
average monthly outstanding balance of notes payable and
bankers' acceptances. The terms of the agreement also provided
for certain restrictive covenants with respect to borrowing
limitations, maintenance of tangible net worth and working
capital, debt to tangible net worth and inventory ratios.
At April 30, 1995, the Company was not in compliance with
certain of the financial covenants which enabled the bank to
declare the outstanding balances of all amounts due the bank
to be immediately due and payable.
The Company was contingently liable under outstanding letters
of credit in the amount of approximately $242,000 at April 30,
1995.
The Company was also party to various credit arrangements with
certain of the suppliers in the form of letter of credit and
draft acceptance agreements for the purchase of inventory. The
agreements are generally for periods of 90 to 120 days, are
unsecured, and bear interest at rates ranging from 5% to
13.5%.
In July, 1995 the lender bank effectively terminated its relationship
with the Company as it experienced difficulty in complying with the
terms of the loans. As a result, certain collateral was liquidated by
the lender bank. On August 22, 1995, the lender bank sold and assigned
the loan balance of $6.8 million. The assigned loan was secured by a
security interest in substantially all of the Company's assets .
Pursuant to the reorganization as discussed in Note 11, the assignor
was issued 14,880,000 shares of new common stock in consideration of
forgiving the $6.8 million outstanding loan.
F-11
<PAGE> 34
DYNAMIC CLASSICS, LTD. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
4. INCOME TAXES
The provision (benefit) for income taxes for the years ended April 30
are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CURRENT:
Federal $ - $ (401,529) $ 215,513
State and local - 5,386 29,284
----------- ----------- -----------
- (396,143) 244,797
----------- ----------- -----------
DEFERRED:
Federal (5,675,000) 313,039 (68,549)
State and local (1,836,000) 1,014 ( 4,187)
----------- ----------- -----------
(7,511,000) 314,053 (72,736)
----------- ----------- -----------
$(7,511,000) $ (82,090) $ 172,061
=========== =========== ===========
</TABLE>
The deferred income tax assets and liabilities at April 30 consist of
the following:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
DEFERRED TAX ASSETS:
Bad debt reserves $ 75,000 $ -0-
Difference in book and tax treatment
for advertising costs 16,000 59,000
Net operating loss carryforwards 8,783,000 2,448,000
Other deferred tax assets 50,000 -0-
----------- -----------
TOTAL DEFERRED TAX ASSETS 8,924,000 2,507,000
----------- -----------
DEFERRED TAX LIABILITY (ALLOCATED TO
EXTRAORDINARY GAIN):
Gain on discharge of prepetition
liabilities 7,511,000 -0-
----------- -----------
7,511,000 -0-
----------- -----------
Valuation allowance for deferred
tax assets (1,413,000) (2,507,000)
----------- -----------
$ -0- $ -0-
=========== ===========
</TABLE>
F-12
<PAGE> 35
DYNAMIC CLASSICS, LTD. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
4. INCOME TAXES (cont'd)
The reconciliation of the federal statutory income tax to the Company's
effective income tax for the years ended April 30 is as follows:
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
U.S. federal income taxes at statutory rate $(3,845,205) $ 141,565
Losses for which no benefit was provided 982,371 -0-
Change in valuation allowance 2,506,820 -0-
Reversal of previously established tax asset 313,039 -0-
Tax effect of permanent differences 17,035 9,537
Other ( 56,150) 20,959
------------ -----------
$( 82,090) $ 172,061
============ ===========
</TABLE>
The Company had a net operating loss for the year ended April 30, 1995
of approximately $8,400,000 of which $1,200,000 was carried back to
prior years. The Company has filed prior year amended returns to claim
the net operating loss carryback which results in refundable income
taxes of approximately $287,000.
At April 30, 1996, the net operating loss carryforward totaled
approximately $19,500,000 of which approximately $16,700,000 will be
utilized by the Company in its final tax return for the period May 1,
1996 to August 8, 1996 (see Note 11 re: merger into Dynamic
International, Ltd.). Based on ownership changes resulting from the
reorganization (see Note 11), the balance of the net operating loss
carryforward is expected to be limited by the current provisions of
Section 382 of the Internal Revenue Code.
5. COMMITMENTS AND CONTINGENCIES
a. Capital Leases
The Company is the lessee of equipment under capital leases
expiring in various years through 1998.
In September 1995, the lessor of the Company's capital leases
agreed to forgive the balance of the unpaid lease payments
through September 1995 and to accept 60% of the remaining
balance of the lease payments. As a result, the Company
recognized $77,403 of income on the adjustment of the lease
term. Such income is included in other income.
F-13
<PAGE> 36
DYNAMIC CLASSICS, LTD. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
5. COMMITMENTS AND CONTINGENCIES (cont'd)
Minimum future lease payments due under the revised capital
leases in the aggregate are as follows:
<TABLE>
<CAPTION>
Year Ending April 30,
---------------------
<S> <C>
1997 $ 54,943
1998 28,654
--------
$ 83,597
Less: interest portion (10,901)
--------
$ 72,696
========
</TABLE>
b. Operating Leases
Prior to August, 1995 the Company occupied space for its
sales, executive offices, assembly and storage facilities
under long term operating leases expiring August 1998. The
leases provided for additional payments for insurance, taxes
and other charges related to the premises. As part of the
bankruptcy proceeding, the Company was discharged of the
obligations of the leases. In October 1995 the Company
relocated its premises, where the Company is charged
warehousing fees and administration fees based on sales volume
(see Note 6).
Rent expense for the years ended April 30, 1996, 1995, and
1994 was $341,427, $583,596, and $435,209, respectively.
c. Royalty Obligations
The Company has entered into various royalty, licensing, and
commission agreements for products sold by the Company. These
agreements provide for minimum payments and a percentage of
specific product sales, over a period of one to eight years.
Royalty expense for the years ended April 30, 1996, 1995, and
1994 was approximately $275,000, $779,000, and $524,000,
respectively.
d. Defined Benefit Pension Plan
On September 26, 1996, the Defined Benefit Employees
Retirement Plan was terminated under a distress termination
approved by the United States Bankruptcy Court. The defined
benefit pension obligation prior to the termination was
$860,945. As part of the bankruptcy proceeding, the obligation
was settled for $38,743 resulting in a gain of $822,202 which
is reflected in the extraordinary gain on discharge of
prepetition liabilities.
F-14
<PAGE> 37
DYNAMIC CLASSICS, LTD. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
5. COMMITMENTS AND CONTINGENCIES (cont'd)
e. 401(k) Plan
On January 1, 1990, the Company adopted a 401(k) plan. The
plan covers all eligible employees. Eligible employees may
contribute from 1% to 15% of their salaries subject to the
statutory maximum of $9,240 for the 1995 and 1994 calendar
years. The plan also provided matching contributions by the
Company of 25% of the employees' contributions to a maximum
contribution of 1% of the employees' salaries. On May 31,
1996, the plan's summary plan description was modified to make
matching contributions discretionary. No matching
contributions will be made by the Company for the 1996
calendar year.
The 401(K) expense amounted to $2,600, $9,460 and $6,260 for
the years ended April 30, 1996, 1995 and 1994, respectively.
f. Union Pension Plan
Certain union employees participate in a multiemployer
retirement plan sponsored by their union. The Company is
required to pay seven cents ($.07) per hour per employee to
the plan. Pension expense for the union employees for the
years ended April 30, 1996, 1995, and 1994 was $3,745, $1,680,
and $3,957, respectively. The data available from
administrators of the multiemployer plan is not sufficient to
determine the accumulated benefit obligation, nor the net
assets attributable to the multiemployer plan in which Company
employees participate. As of October 1995, the Company no
longer has any union employees.
g. Litigation
In the normal course of its operations, the Company has been
named as a defendant in several product liability lawsuits
that in the opinion of management are not material and are
substantially covered by the Company's product liability
insurance.
6. RELATED PARTY TRANSACTIONS
The Company has an agreement with an entity ("Related Party") owned by
a major shareholder whereby the entity agreed to provide warehousing
and general administrative services to the Company. The agreement is
for a period of two years with automatic year to year renewals.
F-15
<PAGE> 38
DYNAMIC CLASSICS, LTD. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
6. RELATED PARTY TRANSACTIONS (cont'd)
The monthly fee for the warehousing services is 3% of monthly sales.
The fee for general administrative services is payable monthly and is
based on annual sales in percentages ranging from 3% to 4% of invoiced
sales. Total warehousing and administrative expenses charged to
operations for the year ended April 30, 1996 were approximately
$164,000.
The Related Party also purchases inventory for the Company and charges
the Company for the invoiced amount of the inventory.
Interest is chargeable at an annual rate of prime plus 3% of the
balance owing on inventory purchases, warehousing fees, and general
administrative fees and is payable monthly. Total interest charges on
such balances was $115,004 for fiscal 1996.
At April 30, 1996, the balance owed to the Related Party was $2,129,893
and is included in accounts payable and accrued expenses.
The Company also has loans outstanding with the Related Party totaling
$557,000 at April 30, 1996. The loan is secured by all of the Company's
assets. Interest at Citibank prime rate plus three percent is payable
monthly. The prime rate used in fiscal 1996 was 8.5 percent. Interest
charged to operations for the year ended April 30, 1996 was $19,924.
7. MAJOR CUSTOMERS
During the year ended April 30, 1996, sales to three major customers
were approximately 19%, 18%, and 14% of the Company's net sales. During
the year ended April 30, 1995, sales to two major customers were
approximately 26% and 14% of the Company's net sales. During the year
ended April 30, 1994, sales to three major customers were 16%, 16% and
10% of the Company's net sales. The Company sells a limited amount to
foreign customers. There were no material receivables subject to
foreign currency fluctuations.
8. CREDIT RISK/FINANCIAL INSTRUMENTS
Due to the nature of its business and the volume of sales activity, the
Company's cash balance occasionally exceeds the $100,000 protection of
FDIC insurance. At April 30, 1996 and 1995, such excess balances
totaled approximately $207,000 and $398,000, respectively.
The carrying amounts of short-term debt reported in the balance sheets
approximate fair value. The fair value of the Company's long-term debt
(including the current portion) also approximates its carrying amount
in the balance sheets based on the rates currently available to the
Company for similar debt with similar terms.
F-16
<PAGE> 39
DYNAMIC CLASSICS, LTD. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
9. AUTHORITATIVE PRONOUNCEMENTS
a. The Financial Accounting Standard Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", in March of 1995. SFAS
No. 121 establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and
goodwill related to those assets to be held and used, and for
long-lived assets and certain identifiable intangibles to be
disposed of. SFAS No. 121 is effective for financial
statements issued for fiscal years beginning after December
15, 1995. In light of the reorganization as discussed in Note
11, the Company expects to recover the carrying amount of its
long-lived assets and adoption of SFAS No. 121 is not expected
to have a material impact on the Company's financial
statements.
b. The FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" in October of 1995. The Statement establishes
financial options accounting (except for non-employees) and
mandatory proforma reporting standards for stock-based
employee compensation plans and is effective for financial
statements issued for fiscal years beginning after December
15, 1995. The Company does not currently have any stock-based
employee compensation plans, and does not expect to adopt the
optional accounting standards of SFAS No. 123.
c. The FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of
Liabilities" in June of 1996. SFAS No. 125 provides accounting
and reporting standards for transfers and servicing of
financial assets and extinguishment of liabilities. SFAS No.
125 is effective for financial statements issued for fiscal
years occurring after December 31, 1996 and is to be applied
prospectively. SFAS No. 125 is not expected to have an impact
on the Company.
10. SIGNIFICANT RISKS AND UNCERTAINTIES
a. The Company's exercise products compete with products marketed
and sold by a number of companies. The Company's main
competitors in this area possess far greater financial and
other resources, including sales forces, than the Company.
However, the Company believes that as a result of its ability
to use its trademarked names for which it pays royalties, it
will be able to retain its share of the market. Nevertheless,
there can be no assurance that the Company will be able to
effectively compete with these companies as well as with other
smaller entities.
F-17
<PAGE> 40
DYNAMIC CLASSICS, LTD. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
10. SIGNIFICANT RISKS AND UNCERTAINTIES (cont'd)
The Company's luggage products compete with products designed
by a number of the largest companies in the industry. The
Company believes that because of its concentration on the
upscale lifestyle and more specialized leisure market that are
associated with its use of trademarked names, the Company
will be able to continue to grow its luggage business.
Nevertheless, there can be no assurance that the Company will
be able to effectively compete with these companies as well as
with other smaller entities.
b. Most of the Company's exercise products are purchased from
Phillippines, Korea, and Taiwan. The Company believes that, if
necessary, it will be able to obtain its products from firms
located in other countries at little, if any, additional
expense. As a consequence, the Company believes that an
interruption in deliveries by a manufacturer located in a
particular country will not have a material adverse impact on
the business of the Company. Nevertheless, because of
political instability in a number of the supply countries,
occasional import quotas and other restrictions on trade or
otherwise, there can be no assurance that the Company will at
all times have access to a sufficient supply of merchandise.
11. SUBSEQUENT EVENT/MANAGEMENT PLANS
In 1994, the Company added a new line of products consisting primarily
of treadmills and ski machines. Initially, the Company was successful
in marketing these products. However, due to defective products
delivered by the Company's manufacturers, primarily located in the
People's Republic of China, the Company was forced to allow substantial
returns by its customers. Although, pursuant to a written agreement,
the manufactures acknowledged the defects and agreed to pay for returns
and to provide replacement goods at no cost, they breached this
agreement soon thereafter. For the year ended April 30, 1996, the
Company suffered significant losses in the amount of approximately
$3,700,000 from its venture into this line of business.
On August 23, 1995 the Company filed a voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Code. A Plan of
reorganization was filed by the Company on October 30, 1995 and
subsequently amended and modified on February 22, 1996. On April 5,
1996, the creditors voted to accept the amended and modified plan (the
"Plan) and on May 23, 1996, the court confirmed the Plan. The Plan was
substantially consummated in August, 1996.
F-18
<PAGE> 41
DYNAMIC CLASSICS, LTD. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
11. SUBSEQUENT EVENT/MANAGEMENT PLANS (cont'd)
As contemplated by the Plan, a new company, Dynamic International, Ltd.
was formed on July 29, 1996. On August 8, 1996, the Company merged into
Dynamic International, Ltd. The capital structure and the balance sheet
of the combined entity immediately after the merger were substantially
the same as those of the Company prior to the merger. The "new
common stock" as referred to below is the common stock of Dynamic
International, Ltd.
Chapter 11 claims filed against the Company and subsequently allowed in
the bankruptcy proceeding totaled approximately $17.2 million. The Plan
discharged such claims through distributions of cash of approximately
$515,000 and issuance of shares of new common stock. The cash
distributions were paid in August 1996. A total of 15,993,991 shares of
new common stock were issued on July 25, 1996 out of which 14,880,000
shares were issued to one secured creditor (see Note 3), 800,000 shares
were issued to unsecured creditors, and 313,991 shares were issued to
the reconfirmation common stock equity interest holders.
The discharge of claims has been reflected in the April 30, 1996
financial statements. The stock distribution value is based on the
reorganization value of the Company determined by projecting cash flows
over an eleven year period and discounting such cash flows at a cost of
capital rate of 11.5%. Cash distributions and the estimated stock
distribution value totaling $531,561 has been recorded as other
liabilities as of April 30, 1996. The gain of approximately $16.7
million resulting from the excess of the allowed claims over the total
value of the cash and the common stock distributed to the secured and
unsecured creditors has been recorded as an extraordinary gain for the
year ended April 30, 1996.
The eleven year cash flow projection was based on estimates and
assumptions about circumstances and events that have not yet taken
place. Such estimates and assumptions are inherently subject to
significant economic and competitive uncertainties and contingencies
beyond the control of the Company, including, but not limited to those
with respect to the future courses of the Company's business activity.
Accordingly, there will usually be differences between projections and
actual results because events and circumstances frequently do not occur
as expected, and those differences may be material.
As part of the reorganization, the Company will continue to sell hand
exercise, light exercise equipment and luggage and sports bags, all of
which have a proven market acceptance. Management believes it can
increase revenues by increasing its focus on direct response marketing.
Therefore, it intends to develop plans to use infomercials to market
these products. Management believes these increased marketing efforts,
adequate financing through its related entity, Achim Importing,
discontinuance of the unprofitable products, and sustainable gross
profit percentages, can be effectively implemented within the next
twelve months.
F-19
<PAGE> 42
DYNAMIC CLASSICS, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
11. SUBSEQUENT EVENT/MANAGEMENT PLANS
The Company expects to adopt "fresh-start reporting" in accordance with
Statement of Position ("SOP") 90-7 issued by the American Institute of
Certified Public Accountants in preparing its financial statements for
the year ended April 30, 1997. SOP 90-7 calls for the adoption of
"fresh-start reporting" if the reorganization value of the emerging
entity immediately before the date of confirmation is less than the total
of all postpetitition and allowed claims, and if holders of existing
voting shares immediately before confirmation receive less than 50
percent of the voting shares of the emerging entity, both conditions of
which are satisfied by the Company.
The following is a proforma balance sheet of the reorganized Company
based on the projected discounted cash flows as discussed above:
<TABLE>
<CAPTION>
Pre- Debt April 30, Fresh Reorganized
Confirmation Discharge 1996 Start Company
-------------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Current Assets:
Cash $ 26,515 $ 26,515 $ 26,515
Accounts receivable 1,036,927 1,036,927 1,036,927
Inventory 2,384,469 2,384,469 2,384,469
Other current assets 534,638 534,638 534,638
-------------- ------------ -------------
Total Current Assets 3,982,549 3,982,549 3,982,549
Property and equipment 230,055 230,055 230,055
Other Assets 40,792 40,792 40,792
Reorganization value
over recorded amounts 0 0 47,331 47,331
-------------- ------------ ------------ -------------
Total Assets $ 4,253,396 $ 4,253,396 $ 47,331 $ 4,300,727
============== ============ ============ =============
Current liabilities:
Accounts payable and
accrued expenses $ 3,139,141 $ 3,139,141 $ 3,139,141
Prepetition liabilities subject
to compromise 17,223,754 $(17,223,754) 0 0
Other current liabilities 605,735 531,561 1,137,296 $ (15,923) 1,121,373
-------------- ------------ ------------ ------------ -------------
Total Current Liabilities 20,968,630 (16,692,193) 4,276,437 (15,923) 4,260,514
-------------- ------------ ------------ ------------ -------------
Other liabilities 23,965 23,965 23,965
-------------- ------------ -------------
Common stock, par value 17,444 17,444 (1,450) 15,994
Additional paid in capital 590,291 590,291 (590,034) 257
Accumulated deficit (17,329,434) 16,692,193 (637,241) 637,241 0
------------- ------------ ------------ ------------ -------------
(16,721,699) 16,692,193 (29,506) 45,757 16,251
Less: Treasury stock (17,500) (17,500) 17,497 (3)
-------------- ------------ ------------ ------------ -------------
Total Equity (16,739,199) 16,692,193 (47,006) 63,254 16,248
-------------- ------------ ------------ ------------ -------------
Total Liabilities and Equity $ 4,253,396 $ 0 $ 4,253,396 $ 47,331 $ 4,300,727
============== ============ ============ ============ =============
</TABLE>
F-20
<PAGE> 43
INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTAL SCHEDULE
To the Board of Directors and Shareholders
Dynamic International, Ltd.
Our report on the consolidated financial statements of Dynamic Classics, Ltd.
and its subsidiary as of April 30, 1996 and for the year then ended is included
on page F-1 of this Form 10-K. In connection with our audit of such financial
statements, we have also audited the related accompanying financial statement
Schedule II - Valuation and Qualifying Accounts for the year ended April 30,
1996.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
Moore Stephens, P.C.
Certified Public Accountants
New York, New York
August 30, 1996
F-21
<PAGE> 44
INDEPENDENT AUDITOR'S REPORT
ON FINANCIAL STATEMENT SCHEDULES
Board of Directors
Dynamic Classics, Ltd.
We have audited the consolidated financial statements of Dynamic Classics, Ltd.
and Subsidiary as of April 30, 1995 and for each of the years in the two-year
period then ended, referred to in our report dated June 26, 1996, which is
included elsewhere in this annual report on Form 10-K. In connection with our
audits of these financial statements, we audited the financial statement
schedule, listed under Item 14 for each of the years in the two-year period
ended April 30, 1995. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information stated therein, when
considered in relation to the consolidated financial statements taken as a
whole.
HOBERMAN, MILLER & CO., P.C.
New York, New York
June 26, 1996
F-22
<PAGE> 45
DYNAMIC CLASSICS, LTD. AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
For the Years Ended April 30,
-----------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Allowance for doubtful accounts balance - beginning $ -0- $ 578,119 $ 417,760
Additions charged to income 167,000 -0- 156,665
Recovery of uncollectible accounts - net -0- -0- 3,694
Writeoffs of uncollectible amounts -0- (578,119) -0-
---------- ----------- ----------
Allowance for doubtful accounts balance - ending $ 167,000 $ -0- $ 578,119
========== =========== ==========
</TABLE>
F-23
<PAGE> 46
EXHIBIT INDEX
-------------
EXH NO. DESCRIPTION
- ------- -----------
10.03 Endorsement Agreement dated December 22, 1994
with Kathy Ireland.
10.04 Warehousing and Service Agreement dated as of
September 1, 1996 with Achim Importing Inc.
27 Financial Data Schedule
<PAGE> 1
Exhibit 10.03
-22-
<PAGE> 2
ENDORSEMENT AGREEMENT
This Endorsement Agreement ("Agreement") is made and entered
into as of December 22, 1994, by and among the following parties, with respect
to the services of Kathy Ireland ("KI"):
(a) Kathy Ireland, Inc. ("KI Inc."), furnishing
the services of KI, Federal I.D. #953884612, c/o The Sterling/Winters Co., 1900
Avenue of the Stars, Suite #16-10, Los Angeles, California 90067;
(b) The Sterling/Winters Co. ("SW"), 1900
Avenue of the Stars, Suite #640, Los Angeles, California 90067;
(c) Moretz Mills, Inc. ("Moretz"), 514 West 21st
Street, P.O. Box 580, Newton, North Carolina 28658; and
(d) Dynamic Classics, Ltd. ("Dynamic"),
95 Mayhill Street, Saddlebrook, New Jersey 07662.
1. Recitals. Dynamic desires to create a brand of exercise
equipment utilizing the name of KI, which is intended to replace its current
Shapeshop and Flexshop brandnames. The brandname for this new brand of exercise
equipment has yet to be determined but, for purposes of this Agreement, it shall
be referred to as the "KI Brand." Dynamic anticipates that sales of the KI Brand
exercise equipment will reach between $XXXXXX* to $XXXXXX* during the period
commencing 7/1/96 and ending 4/15/97, and $XXXXXX* to $XXXXXX* during the period
commencing 7/1/97 and ending 4/15/98. Dynamic's sales efforts in connection with
the KI Brand exercise equipment will be targeted toward major mass market
retailers, home shopping networks, and other widely-accepted channels of
distribution. KI, Inc. desires to provide the services of KI in connection with
the endorsement of the KI Brand exercise equipment. Therefore, Dynamic hereby
engages the services of KI, and KI Inc. hereby agrees to loan the services of
KI, on all of the terms and conditions set forth herein.
2. Term. The term of this Agreement shall commence
December 22, 1994 and expire on June 30, 1996 ("the Initial Term").
Dynamic is hereby granted the following options to renew the term
of this Agreement:
(a) One option for an additional two-year period
commencing July 1, 1996 and ending June 30, 1998 ("Option Period
#1"); and
- -----------------
* A REQUEST FOR CONFIDENTIAL TREATMENT OF THIS INFORMATION HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
-1-
<PAGE> 3
(b) A second option for an additional two-year
period commencing July 1, 1998 and ending June 30, 2000 ("Option Period #2").
Each option must be exercised by written notice given not less than ninety (90)
days prior to the commencement date of the option period.
3. Endorsement. KI Inc. agrees that KI shall endorse
Dynamic's KI Brand of exercise equipment. KI Inc. shall have the absolute right
to approve the brandname for such line of exercise equipment. The brandname for
such line of equipment, once determined, shall be the joint property of Dynamic
and KI Inc., and Dynamic shall have no right to use such brandname beyond the
term of this Agreement, as lawfully extended pursuant to paragraph 2 hereof.
4. Personal Appearances.
(a) USA Appearance. KI will make one (1)
personal appearance on behalf of Dynamic within the United States, which shall
be at the Dynamic booth for The Super Show, held on February 5, 1995, at
Atlanta, Georgia. Such appearance shall be for the purpose of signing autographs
and shall last for a period of one (1) hour.
(b) Other Appearance. SW, on behalf of KI Inc.
and KI, will grant Dynamic two (2) additional one-half day appearance by KI on
behalf of Dynamic within the United States. It is contemplated that such
appearances will be on home shopping network programs, or other such channels of
distribution as shall be approved by SW on behalf of KI Inc. and KI. Such
appearances shall be (i) requested by Dynamic upon not less than two (2) weeks
prior notice, (ii) subject to KI's preexisting personal and professional
commitments, and (iii) subject to the approval of SW, on behalf of KI, Inc. and
KI.
(c) Travel. Travel expenses of KI in connection
with all scheduled personal appearances under this Agreement, as well the travel
expenses of KI's child's, the child's Nanny and an additional traveling
companion of KI's choosing (collectively referred to as KI's "entourage"), shall
be provided by Dynamic. KI and the members of her entourage shall travel via
first class air and portal to portal limousine ground transportation. In
addition, KI and the members of her entourage shall be lodged in first class
hotel accommodations and all of them shall be reimbursed for all meals and other
incidental expenses in connection with such appearances. All the above travel
expenses of KI and the members of her entourage shall be billed directly to
Dynamic. Notwithstanding the foregoing, if a personal appearance of KI is
conducted jointly by Dynamic and Moretz, then all the above expenses shall be
shared by Dynamic and Moretz on a 50/50 basis, although billed to Dynamic
directly.
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<PAGE> 4
5. Photo Session. KI will participate in one (1) photo
session at a mutually acceptable time and place. Said photo session shall be
scheduled at KI's convenience upon not less than two (2) weeks prior notice, and
shall be subject to KI's convenience upon not less than two (2) week prior
notice, and shall be subject to KI's preexisting personal and professional
commitments. Such photo session shall be two (2) consecutive days in duration,
each day to consist of no more than eight (8) working hours; provided, however,
that if necessary, and at Dynamic's option, such photo session may be extended
to a third consecutive day to consist of no more than eight (8) working hours.
The above photo shoot shall be produced by SW and all images produced from the
photo shoot shall be the property of SW. The parties agree that all images from
such photo session must be retouched at the expense of Dynamic.
6. Videotapes. Dynamic shall have the right to
videotape KI's personal appearances on behalf of Dynamic under this Agreement
and to use the approved videotape or portions thereof only for non commercial,
trade consumer public relations purposes, and for no other purposes. Prior to
the use of such videotape, KI, Inc. shall have the absolute right to approve the
videotape.
7. Name, Photograph and Likeness. Dynamic shall have the
right to use KI's name, photograph, and likeness only in publicity releases,
trade and consumer advertising and packaging relating to the KI Brand exercise
equipment, subject to the terms of this Agreement, and for no other purpose. All
photos, illustrations or other materials involving the name or likeness of KI
which Dynamic desires to use (including all final retouched versions of photos
and the particular negatives which might be used) shall be submitted to SW, care
of Jon Carrasco, at the address set forth above, for approval on behalf of KI
and KI, Inc., prior to any use of such materials. Any such materials submitted
in the foregoing manner shall be approved or rejected within ten (10) days of
its receipt by SW, and if no reply is received from SW within such ten (10) day
period, then Dynamic shall have the right to assume SW's approval and use the
materials submitted. SW agrees not to unreasonably withhold approval of such
materials. Following approval of such materials, Dynamic shall submit three (3)
units of each of such materials to SW upon their completion and printing. SW, on
behalf of KI and KI, Inc., shall have the further absolute right to approve the
content of the releases and advertising containing KI's photograph or likeness.
8. Compensation. KI, Inc. shall be compensated for the
services of KI in the manner set forth on Schedule A of this Agreement, attached
hereto and incorporated herein by this reference.
9. Product Approval. In order to ensure the quality of
the KI Brand of exercise equipment prior to any use of KI's name, photograph or
likeness in connection with any such equipment,
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<PAGE> 5
Dynamic shall submit one (1) product sample of the proposed equipment to Moretz,
care of John Moretz, at the address set forth above, and one (1) sample of such
equipment to SW, care of Jon Carrasco, at the approval or objection to the
sample equipment within a reasonable time following actual receipt of the sample
in question.
10. Account Executive Approval. KI, Inc. shall have the
right to approve the person or persons charged with managing her account with
Dynamic. An, notwithstanding any other provision of this Agreement to the
contrary, if Marvin Cooper of Dynamic should leave Dynamic, KI, Inc. shall have
the right to terminate this Agreement upon ten (10) days notice. If this
Agreement is terminated pursuant to the immediately preceding sentence, all
accrued benefits payable to KI, Inc. under this Agreement shall nevertheless be
paid to KI, Inc. and all royalties due under this Agreement shall be prorated to
the effective date of termination.
11. Insurance. During the term of this Agreement, Dynamic
shall maintain in effect, at its sole cost and expense, a comprehensive general
liability and product liability insurance policy, as well as an errors and
omissions policy covering all advertising, with minimum limits of $1,000,000 for
each occurrence and $2,000,000, in the aggregate, naming KI, Inc. and KI as
additional insureds. The carrier providing such coverage shall at all times
maintain at least a B+ rating according to the A.M. Best rating service. Such
insurance policy shall provide that it cannot be canceled or modified without
the insured first giving KI, Inc. and KI at least thirty (30) days written
notice. At the request of KI, Inc., Dynamic shall provide KI, Inc. with a copy
of the applicable policy and a certificate confirming the existence of said
insurance coverage.
12. Representations of Dynamic and Moretz. Dynamic and
Moretz hereby represent to KI, Inc., that they have been and are in compliance
with all licenses, permits and other governmental authorizations required for
the conduct of their business as now being conducted or proposed to be conducted
for the performance of this Agreement.
13. Additional Endorsers. During the term of this
Agreement, Dynamic shall not utilize the services of any person to endorse,
sell, market, or promote the KI Brand exercise equipment without prior written
approval of SW, on behalf of KI, Inc. and KI.
14. Injunctive Relief. In the event of a breach of this
Agreement, each of the parties shall be entitled to all remedies available to
them at law or equity, including, without limitation, injunctive relief.
15. Accounting.
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<PAGE> 6
(a) For as long as Dynamic is obligated to pay
royalties to KI, Inc., and for a period of one year thereafter, Dynamic shall
keep separate true and accurate books and records in accordance with generally
accepted accounting principles consistently applied in which there shall be
reflected all sales of the products carrying the name and/or likeness of KI (the
"Products(s)"), the gross, wholesale and retail selling price of each Product,
and the amount of the royalty payable to KI, Inc. pursuant to this Agreement.
Such books and records shall contain enough detail so as to enable KI, Inc. to
ascertain the amount of all such royalties.
(b) Dynamic agrees to furnish to KI, Inc.,
within twenty-five (25) days after the end of each month during which royalties
are payable to KI, Inc., a statement, verified by a duly authorized
representative of Dynamic, showing the computation of the royalty payable to KI,
Inc. pursuant to this Agreement.
(c) For the sole purpose of verifying the
figures reported in any statement or report furnished by Dynamic to KI, Inc.
under this Agreement, a representative or representatives of KI, Inc. may,
during the period for which royalties are payable to KI, Inc. and for a period
of one (1) year thereafter, upon three (3) business days advance notice to
Dynamic and not more than twice in any year, examine any or all of the books and
records which Dynamic is required to maintain pursuant to subparagraph (a) of
this paragraph and all other records, documents, and material in the possession
of or under the control of Dynamic relevant to calculating royalties with
respect to the subject matter of this Agreement. Such books of account, records
and inventory records shall be made available to KI, Inc.'s representatives for
examination at the premises of Dynamic during normal business hours.
16. Miscellaneous Provisions.
(a) Merger. This Agreement supersedes any and
all prior written or oral agreements between the parties.
(b) Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the State of California
without regard to conflict of law principles.
(c) Attorney's Fees. The prevailing party in
any proceeding brought to enforce any provision of this Agreement shall be
entitled to recover the reasonable fees and costs of its counsel, plus all other
costs of such proceeding.
(d) Notices. All notices required to be given
and all materials required to be submitted pursuant to this Agreement shall be
made via certified or registered mail, postage prepaid, return receipt
requested, at the addresses set forth in the recitals to this Agreement.
-5-
<PAGE> 7
IN WITNESS WHEREOF, this Agreement has been executed as of the
date first set forth above.
KATHY IRELAND, INC.
By
-----------------------------------
KATHY IRELAND, President
DYNAMIC CLASSICS, LTD.
By
-----------------------------------
MARVIN COOPER
MORETZ MILLS, INC.
By
-----------------------------------
JOHN MORETZ
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<PAGE> 8
SCHEDULE A
COMPENSATION*
* A REQUEST FOR CONFIDENTIAL TREATMENT OF THIS INFORMATION HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
-7-
<PAGE> 1
Exhibit 10.04
-8-
<PAGE> 2
WAREHOUSING AND SERVICE AGREEMENT
WAREHOUSE AND SERVICE AGREEMENT, dated as of September 1,
1996 (the "Agreement") between Achim Importing, Co., Inc. ("Achim")
and Dynamic International, Ltd., ("Dynamic").
W I T N E S S E T H:
WHEREAS, Achim owns and maintains a warehouse located at 58
Second Avenue, Brooklyn, New York (the "Warehouse"); and
WHEREAS, Dynamic desires to retain Achim to provide
warehousing and general administrative services for Dynamic's exercise equipment
and sports bag and luggage importation and distribution business (the
"Business"), and Achim is willing to provide such warehousing and general
services on the terms and conditions set forth in this Agreement; and
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants contained herein, the parties hereto agree as follows:
17. General Services. Achim shall provide to Dynamic during
the term of this Agreement the services described below (the "General Services")
on a basis consistent with the type, and level of such General Services
currently being provided to the Business. Without limiting the generality of the
foregoing, the General Services shall include the following general and
administrative functions and services:
(a) assisting in the maintenance of financial and
accounting books and records of the Business;
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<PAGE> 3
(b) preparation of monthly accounts receivable aging
schedules;
(c) handling of all routine collection matters with
respect to Dynamic's accounts;
(d) maintaining accounts payable and accounts
receivable ledgers (including all necessary accounting and/or paperwork for
sales discounts, chargeback and returns), fixed asset accounts; sales accounts
and inventory accounts;
(e) performing credit checks on customers as requests
for orders are received and informing Dynamic of known credit risks;
(f) providing monthly reports of selling and production
levels, inventory levels, stock status, open purchase order reports, book/ship
reports and sales analysis relating to the Business;
(g) assistance in accordance with the conduct of
Dynamic's books and records;
(h) assistance in connection with the printing and
stationery needs of the Business; and
(i) any other miscellaneous account reconciliations
and computer generated reports reasonably requested by Dynamic.
18. Availability of the General Services. The General Services
shall be furnished during normal business hours. Achim shall devote only so much
time to the General Services as it deems necessary in its sole discretion.
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<PAGE> 4
19. General Services Fee. In consideration for the General
Services, Dynamic shall pay to Achim an annual fee (the "General Services Fee")
equal to the sum of the following:
(i) the percentages of Dynamic "invoiced sales" in each year
to customers and accounts located within the United States, other than with
respect to which payment is to be made by letter of credit, as set forth below:
<TABLE>
<CAPTION>
Percentage Invoiced Sales
---------- --------------
<S> <C> <C>
4.0% less than $30,000,000
3.75% $30,000,000 to $39,999,999
3.5% $40,000,000 to $49,999,999
3.25% $50,000,000 to $59,999,999
3.0% $60,000,000 to or more plus
</TABLE>
(ii) 1.5% of Dynamic's invoiced sales in each year to
customers and accounts located within the United States, with respect to which
payment is to be made by letter of credit; plus
(iii) 1.0% of Dynamic's invoiced sales in each year to
customers and accounts located outside the United States (irrespective of manner
of payments).
The General Services Fee shall be payable monthly within
fifteen (15) days following the date of Achim's invoice thereof. Within ninety
(90) days following the end of each year during the term hereof, Achim shall
submit to Dynamic a statement, in reasonable detail, showing the total General
Services Fee payable by Dynamic with respect to such year, less the total of all
monthly installment paid on account thereof. To the extent that the
-3-
<PAGE> 5
General Services Fee shall exceed the sum of monthly installments previously
paid for such year, the balance shall be payable by Dynamic to Achim within
thirty (30) days thereafter. To the extent that the sum of all monthly
installments previously paid for such year shall exceed the General Services Fee
for such year, Achim shall apply the excess against monthly installments
otherwise payable in respect of the excess to Dynamic within thirty (30) days
thereafter. Upon termination of this agreement, Achim shall pay to Dynamic or
Dynamic shall pay to Achim, as the case may be, within thirty (30) days, any
excess amounts theretofore paid or payable in respect of the General Services
Fee through the date of such termination.
20. Warehousing Services. Achim shall provide to Dynamic
during the term of this Agreement warehousing services for the Business,
including receiving, storing and shipping of all of Dynamic's merchandise from
the Warehouse.
21. Warehouse Fee. In consideration for the Warehouse
Services, Dynamic shall pay to Achim a monthly fee (the "Warehouse Services
Fee") equal to three (3%) percent of Dynamic's invoiced sales.
22. Term. The initial term of this Agreement is for a period
of two (2) years and shall commence on or about September 1, 1996. This
Agreement shall automatically be renewed from year to year thereafter unless
either party shall give written notice to the other at least six (6) months
prior to the commencement of any renewal term of its intention not to renew.
-4-
<PAGE> 6
23. Confidentiality. Achim agrees to accept and use all
books, records and other information relating to the Business furnished to it by
Dynamic solely for the purpose of performing the General Service and the
Warehouse Services (together the "Services") as contemplated herein. All books
and records relating to the Business shall be kept confidential and Achim shall
not intentionally and knowingly communicate such information to any third party
(except as authorized by an appropriate officer of Dynamic or otherwise as
required by law) and Achim shall use the same efforts that it uses to protect
its own confidential information to prevent inadvertent disclosure of any
information relating to the Business to any third party.
24. Illegality and Severability. If application of any one or
more of the provisions of this Agreement shall be unlawful under applicable law
and regulations, then the parties will attempt in good faith to make such
alternative arrangements as may be legally permissible and which carry out as
nearly as practicable the intent of the terms of this Agreement.
25. Relationship. Achim is an independent contractor and
nothing contained herein or done pursuant to this Agreement shall be construed
as creating a partnership, agency or joint venture. Except as may be otherwise
expressly provided in this Agreement, neither party shall become bound by any
representation, act or omission of the other party. Achim is solely responsible
for hiring, maintaining and firing of all of the employees performing the
Services and Achim expressly acknowledges that Dynamic shall have no obligation
whatsoever to any of Achim's employees.
-5-
<PAGE> 7
26. Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective heirs, administrators, executors, legal representatives,
successors and permitted assignee, but neither this Agreement nor any of the
rights, interest or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other party, except by
operation of law.
27. Access to Records/Termination. Dynamic and its
representatives shall have full and complete access during normal business hours
to any and all financial and accounting books and records in Achim's possession
which relate to the Business. Upon the termination of this Agreement and for a
period of one (1) year thereafter, Achim shall permit Dynamic and it's
representatives reasonable access to, and use of, Achim's computerized record
systems, subject however, to Achim's own needs, priorities and reasonable
allocation of computer availability to Achim in order to retrieve any records
relating to the Business.
28. Entire Agreement Amendment. This Agreement, when it
becomes effective, will constitute the entire agreement of the
parties hereto. No amendment or modification hereof shall be valid
or binding unless made in writing and signed by the party against
whom enforcement thereof is sought.
29. Notice. Any notice, approval, consent, or other
communication under this Agreement shall be in writing and shall be considered
given when (a) delivered personally, or (b) mailed by registered or certified
mail, or by overnight mail or courier
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<PAGE> 8
service, in any case, return receipt requested, or (c) received by
telecopy with a confirming copy sent by overnight mail or courier, return
receipt requested the parties at the addresses indicated below (or at such other
address as a party may specify by notice to the other pursuant to the terms of
this Section 11. Notice given by a party's counsel, if any, shall be considered
notice given by that party.
If to Achim Importing Co., Inc.:
Achim Importing Co., Inc.
58 Second Avenue
Brooklyn, NY 11215
(718) 369-2200
(718) 369-2210
If to Dynamic International, Ltd.:
Dynamic International, Ltd.
58 Second Avenue
Brooklyn, NY 11215
(718) 369-4160
(718) 369-4167
30. Waiver. No course of dealing nor any delay on the part
of the Corporation in exercising any rights hereunder shall operate as a waiver
of any such rights. No waiver of any waiver or a waiver of any other breach or
default.
31. Binding Effect. If any clause, paragraph, section or part
of this Agreement shall be held or declared to be void, invalid or illegal, for
any reason, by any court of competent jurisdiction, such provision shall be
ineffective but shall not in any way invalidate or affect any other clause,
paragraph, section or part of this Agreement.
-7-
<PAGE> 9
32. Governing Law. This Agreement and, unless otherwise
provided, all amendments hereof, shall be governed, interpreted and construed in
accordance with the laws of the State of New York applicable to agreements
entered into and to be performed entirely therein, without regard to conflicts
of law and principles thereof.
33. Headings. The headings of the paragraphs of this
Agreement are inserted for convenience only and shall not constitute a part
hereof or affect in any way the meaning or interpretation of this Agreement.
IN WITNESS HEREOF, the parties hereto duly executed this
Agreement the day and year first above written.
ACHIM IMPORTING CO., INC.
By:
-------------------------
DYNAMIC INTERNATIONAL, LTD.
By:
-------------------------
-8-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> APR-30-1994 APR-30-1995 APR-30-1996
<PERIOD-START> MAY-01-1993 MAY-01-1994 MAY-01-1995
<PERIOD-END> APR-30-1994 APR-30-1995 APR-30-1996
<EXCHANGE-RATE> 1 1 1
<CASH> 0 342,571 26,515
<SECURITIES> 0 0 0
<RECEIVABLES> 0 1,424,809 1,036,927
<ALLOWANCES> 0 0 167,000
<INVENTORY> 0 3,450,290 2,384,469
<CURRENT-ASSETS> 0 5,796,927 3,982,549
<PP&E> 0 3,246,911 1,386,215
<DEPRECIATION> 0 2,773,359 1,156,160
<TOTAL-ASSETS> 0 6,414,185 4,253,396
<CURRENT-LIABILITIES> 0 13,290,362 4,276,433
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 0 17,444 17,444
<OTHER-SE> 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 0 6,414,185 4,253,396
<SALES> 29,497,353 32,533,097 7,151,715
<TOTAL-REVENUES> 29,532,608 32,603,735 7,249,987
<CGS> 21,398,895 34,761,846 9,480,484
<TOTAL-COSTS> 21,398,895 34,761,846 9,480,484
<OTHER-EXPENSES> 7,717,344 9,151,314 7,066,704
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 852,954 1,384,898 383,553
<INCOME-PRETAX> 416,369 (11,309,425) (9,746,894)
<INCOME-TAX> 172,061 (82,090) (7,511,000)
<INCOME-CONTINUING> 244,308 (11,227,335) (2,235,894)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 9,181,193
<CHANGES> 0 0 0
<NET-INCOME> 244,308 (11,227,335) 6,945,299
<EPS-PRIMARY> .14 (6.44) 3.98
<EPS-DILUTED> .14 (6.44) 3.98
</TABLE>
