FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended July 31, 2000 Commission File Number 0-21475
DYNAMIC INTERNATIONAL, LTD.
---------------------------
(Exact Name of Registrant As Specified In Its Charter
Nevada 93-1215401
------------ ------------
(State or other jurisdiction of I.R.S. employer
incorporation or organization) identification no.)
C/O Emergent Management Co. LLC
375 Park Avenue,36th Flr.,NY,NY 10152
------------------------------- ----------
(Address of principal executive office) (Zip Code)
212-813-9700
--------------
(Registrant's telephone no.)
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 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 days.
Yes _X_ No ___
As of September 15, 2000, 44,172,420 shares of the Registrant's common stock par
value $.001 were issued and outstanding.
<PAGE>
FORM 10-Q FQE 7/31/00 Dynamic International, Ltd.
DYNAMIC INTERNATIONAL, LTD.
FORM 10-Q
TABLE OF CONTENTS
PART I. Page
Item 1. Consolidated Condensed Financial Statements. 3
Consolidated Condensed Balance Sheets as of July 31, 2000
and April 30, 2000 3
Consolidated Condensed Statements of Operations for the
Three Months Ended July 31, 2000 and July 31, 1999 4
Consolidated Condensed Statements of Cash Flows for the
Three Months Ended July 31, 2000 and July 31, 1999 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Item 3. Quantitative and Qualitative Disclosure About Market Risk 12
PART II.
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures. 14
2
<PAGE>
FORM 10-Q FQE 7/31/00 Dynamic International, Ltd.
PART I
ITEM 1
Consolidated Condensed Balance Sheets
<TABLE>
<CAPTION>
July 31, 2000 April 30, 2000
------------- --------------
(Unaudited)
<S> <C> <C>
Current Assets
Cash and Cash Equivalents $ 114,757 $ 38,833
Accounts Receivable - (Net of allowance for
doubtful accounts of $505,511) 1,223,714 1,480,510
Receivable From Bollinger Industries (Note 5) 359,094
Inventory 2,071,027 3,338,360
Prepaid Marketing Costs 417,521 342,521
Other Current Assets 24,071 71,471
---------- ----------
Total Current Assets 4,210,184 5,271,695
Fixed Assets Net Of Accumulated
Depreciation 51,619 55,608
Security Deposits 1,000 1,000
---------- ----------
Total Assets $4,262,803 $5,328,303
========== ==========
Liabilities and Shareholders' Equity
Current Liabilities
Banker's Acceptances $ 0 $ 600,000
Accounts Payable & Accrued Expenses, 856,364 1,031,746
Amounts Due Affiliated Company 2,953,168 3,243,035
---------- ----------
3,809,532 4,874,781
Commitment and Contingencies -- --
Shareholders' Equity
Preferred Stock -- --
Common Stock 4,419 4,419
Additional Paid-In Capital 4,869,796 4,869,796
Accumulated Deficit (4,420,941) (4,420,690)
---------- ----------
Totals 453,274 453,525
Less Treasury Stock (3) (3)
---------- ----------
Total Shareholders' Equity 453,271 453,522
---------- ----------
Total Liabilities & Shareholders' Equity $4,262,803 $5,328,303
========== ==========
</TABLE>
See Accompanying Notes to Consolidated Condensed Financial Statements.
3
<PAGE>
FORM 10-Q FQE 7/31/00 Dynamic International, Ltd.
Consolidated Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three For the Three
Months Ended Months Ended
July 31, 2000 July 31, 1999
-------------- -------------
<S> <C> <C>
Net Sales $3,466,412 $2,362,567
Other Income 105 78
---------- ----------
3,466,517 2,362,645
Cost of Sales 2,679,300 1,593,463
---------- ----------
Gross Profit 787,217 769,182
Selling, General and Administrative Expenses 775,879 685,005
Interest 11,589 19,743
---------- ----------
787,468 704,748
---------- ----------
(Loss) Income Before Tax (251) 64,434
Provision for Income Taxes 0 25,774
---------- ----------
Net (Loss) Income $ (251) $ 38,660
========== ==========
Basic and Diluted (Loss) Income per Common Share 0.00 0.01
Weighted Average Number of Common Shares
Outstanding 4,418,258 4,418,258
Cash Dividends per Common Share None None
</TABLE>
See Accompanying Notes to Consolidated Condensed Financial Statements.
4
<PAGE>
FORM 10-Q FQE 7/31/00 Dynamic International, Ltd.
Consolidated Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Three For the Three
Months Ended Months Ended
July 31, 2000 July 31, 1999
------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities
Net (Loss) Income $ (251) $ 38,660
Adjustments to Reconcile Net (Loss) Income
to Net Cash Provided (Used In) Operating Activities
Depreciation 3,989 6,897
Changes in Operating Assets and Liabilities:
(Increase) decrease in:
Accounts Receivable 256,796 ( 36,191)
Inventory 396,024 169,819
Prepaid Expenses (75,000) (244,237)
Other Current Assets 47,400 (3,822)
Security Deposits 0 11,812
Increase (decrease) in:
Accounts Payable and Accrued Expenses (175,382) (188,583)
Income Taxes Payable 0 25,775
---------- ----------
Net Cash - Operating Activities 453,576 (219,870)
Investing Activities:
Purchase of Property and Equipment 0 (1,475)
Net Proceeds from the Sale of Exercise Inventory - Bollinger 512,215
---------- ----------
Net Cash Investing Activities 512,215 (1,475)
Financing Activities:
Repayments of Banker's Acceptances (600,000)
Amounts Due From Affiliated Company (289,867) 210,879
---------- ----------
Net Cash - Financing Activities (889,867) 210,879
---------- ----------
Net Increase (decrease) in Cash and Equivalents 75,924 (10,466)
Cash and Cash Equivalents, Beginning of Periods 38,833 109,514
---------- ----------
Cash and Cash Equivalents, End of Periods $ 114,757 $ 99,048
========== ==========
</TABLE>
See Accompanying Notes to Consolidated Condensed Financial Statements.
5
<PAGE>
FORM 10-Q FQE 7/31/00 Dynamic International, Ltd.
Notes to Consolidated Condensed Financial Statements
1. BASIS OF PRESENTATION
The Consolidated Condensed Balance Sheet as of July 31, 2000 and the
related Consolidated Condensed Statements of Operations and Cash Flows
for the three-month periods ended July 31, 2000 and 1999 are unaudited.
In the opinion of management, the unaudited consolidated condensed
financial statements include all adjustments (which include only normally
recurring adjustments) necessary to present fairly the financial position
of the Company as of July 31,2000 and the results of their operations for
the three months ended July 31,2000 and 1999.
The April 30, 2000 Balance Sheet data was derived from audited financial
statements but does not include all disclosures required by generally
accepted accounting principles. The interim consolidated condensed
financial statements and notes thereto should be read in conjunction with
the consolidated financial statements and notes included in the Company's
latest annual report on Form 10-K. The results of operations for the
three-month period ended July 31, 2000 are not necessarily indicative of
the operating results for the entire year or any future interim periods.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed by the Company are set forth in Note 2
to the Company's consolidated financial statements included in the
Company's form 10-K for the year ended April 30,2000.
3. DEBT FINANCING
On April 30, 1998 the Company entered into a credit agreement with Chase
Manhattan Bank ("Chase") for maximum borrowing of $1,500,000 in the form of
letters of credit and bankers acceptances. The agreement also provided for
a security interest in the inventory and notes and accounts receivables of
the Company. In addition, the agreement provided for the personal guarantee
of the President and major shareholder of the Company for the entire
balance. The credit agreement has been discontinued and there will be no
further activity after all banker's acceptances and letters of credit have
been paid by the Company. [See Going Concern Note 7]
4. SUBSEQUENT EVENT
On August 31, 2000, the Company issued an aggregate of 39,755,178 shares of
its common stock, representing a 90% equity interest in the Company
immediately subsequent to such issuance, to the several members of Emergent
Ventures, LLC ("Emergent Ventures"), a Delaware limited liability company
that had theretofore engaged in the business of acquiring equity interests
in technology businesses with significant Internet features and
applications, in exchange for all of the then outstanding membership
interests in Emergent Ventures (collectively, the "Equity Transfer
Transaction"), all pursuant to an Equity Transfer and Reorganization
Agreement dated as of August 10, 2000 (the "Agreement") by and among the
Company, Marton B. Grossman, Isaac Grossman, Emergent Management Company,
LLC ("Emergent Management") and the several holders of membership interests
in Emergent Ventures.
Upon consummation of the Equity Transfer Transaction, Emergent Management,
which had theretofore owned an approximately 57% equity interest in
Emergent Ventures, became the beneficial owner of 22,718,383 shares of the
Company's common stock, representing an approximately 51% equity interest
in the Company. Daniel Yun and Mark Waldron beneficially own all of the
outstanding equity interests in Emergent Management.
6
<PAGE>
FORM 10-Q FQE 7/31/00 Dynamic International, Ltd.
Prior to the consummation of the Equity Transfer Transaction, the Company,
pursuant to and in accordance with the Agreement, transferred all of its
assets (which related to the design, marketing and sale of luggage
products) to a newly-formed corporation that was wholly-owned by the
Company ("Dynamic International, Inc.") and Dynamic International, Inc.
assumed all of the liabilities of the Company (other than outstanding bank
debt in the amount of $250,000). Immediately following such transfer of
assets and assumption of liabilities and immediately prior to the
consummation of the Equity Transfer Transaction, the Company transferred to
its stockholders, on a pro-rata basis, all of the issued and outstanding
shares of common stock of Dynamic International, Inc..
As a result of the Equity Transfer Transactions, the Company has become the
owner of all of the outstanding equity interests in Emergent Ventures and,
accordingly, for legal purposes, the Company has acquired the business and
assets of Emergent Ventures. This transaction for accounting purposes,
Emergent Ventures has acquired Dynamic, therefore it will be treated as a
recapitalization of Emergent. The assets of Emergent Ventures are comprised
of significant equity interests in early stage technology companies.
Emergent Ventures had previously focused on the acquisition of equity
interests in technology businesses with significant Internet features and
applications. The Company will continue to focus on such Internet
businesses, as well as upon a broad range of other technology-oriented
businesses. The Company intends to promote the development of these
businesses by offering business development services that cover core
management disciplines such as strategic consulting, finance, business
development and public relations. In addition, the Company will seek to
apply the experience of both its new management team and their affiliates
and advisors to, among other matters, review and formulate business models,
create performance benchmarks, provide introductions to strategic partners,
and advise on, and facilitate the completion of, additional rounds of
financing for their network companies.
5. SETTLEMENT WITH BOLLINGER INDUSTRIES
On June 2, 2000, the Company finalized a settlement for a patent
infringement on three patents. As part of the settlement, the Company
agreed to sell its inventory of hand held exercise products to Bollinger
Industries at cost less a 20% settlement and agreed to a five year
non-compete. A reserve equal to 20% of the hand held inventory was recorded
as of April 30, 2000 to account for the settlement.
The following reflects how the transaction was recorded during the quarter
ended July 31, 2000.
Sale to Bollinger at Cost $1,089,137.54
Settlement amount (20% of Cost) $ (217,828.00)
-------------
Net sales amount $ 871,309.54
Cost of goods sold (871,309.54)
Gross profit $ (0.00)
The Company received $512,215 from Bollinger Industries and the balance of
$359,094 was owed as of July 31, 2000.
7
<PAGE>
FORM 10-Q FQE 7/31/00 Dynamic International, Ltd.
6. Related Party Transactions
Pursuant to a Warehouse and Service Agreement dated as of September 1, 1996
[the "Warehousing Agreement"] between the Company and a related party [the
"Entity"] wholly owned by a major stockholder, the Entity provides occupancy
space and performs certain administrative services on behalf of the Company.
Under the Warehousing Agreement, the Entity assists, among other things, in
the maintenance of financial and accounting books and records, in the
preparation of monthly financial accounts receivable aging schedule and
other reports and in the performance of credit checks on the Company's
customers. In consideration for these services, the Entity receives an
annual fee, payable monthly, calculated at a percentage of the Company's
invoiced sales originating at the warehouse ranging from 4% of the invoiced
sales under $30 million to 3% of sales of $60 million or more. For sales not
originating at the warehouse, the Entity 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%
if such customers and accounts are located outside the United States,
irrespective of manner of payment. In addition, under the Warehousing
Agreement, the Entity provides warehousing services consisting of receiving,
shipping, and storage of the Company's merchandise. The Company pays the
Entity a monthly fee 3% of its invoiced sales originating at the warehouse
in connection with these warehousing services performed by the Entity under
the Warehousing Agreement. As part of the Warehousing Agreement, the Company
applies an offset for certain shared expenses.
The Warehousing Agreement had a term of two-years and was renewed on
September 1, 1998 for another one year period. This agreement will
automatically renew from year to year unless written notice of termination
is given at least six months prior to the commencement of a renewal period.
Total warehousing and administrative expenses charged to operations for the
three months ended July 31, 2000 were $159,263 with a balance due of
$878,246 as of July 31, 2000 for the year ended April 30, 2000 were $410,382
with a balance due of $718,983 at April 30, 2000, for the year ended April
30, 1999 were $289,415, with a balance due of $308,601 at April 30, 1999 and
for the year ended April 30, 1998 were $183,095 of which $19, 186 was the
balance due at April 30, 1998.
The related party has purchased inventory for the Company and has charged
the Company for the invoiced amount of the inventory. In addition, pursuant
to an unwritten understanding, the related party arranges for the issuance
by its financial lender of letters of credit in favor of the Company's
oversea supplier thereby enabling the Company to finance the purchases of
its inventory.
Other amounts payable to the related party totaled $2,074,921, $2,524,052
and $282,828, respectively, at July 31, 2000, April 30, 2000 and 1999. Such
amounts represent unpaid inventory purchases, working capital advances, and
various fees due to the related party.
7. GOING CONCERN
The Company's financial statements are prepared in conformity with general
accepted accounting principles, which contemplates the realization of assets
and settlements of liabilities in the normal course of business and
continuation of the Company as a going concern. The Company has incurred
significant net losses for the years ended April 30, 2000 and 1999. This
factor creates uncertainty whether the Company can continue as a going
concern. The Company's plans to mitigate the effects of uncertainties are to
attain its projected positive cash flows from operations as a result of an
improved profitability which is projected as a result of anticipated revenue
growth with large customers along with implementing its plan on cutting
operational expenses. In addition, as a result of the terminated credit
arrangement with Chase Manhattan Bank of 2000, the Company may need to
continue its economic dependency in borrowings from an affiliated company
until alternative funding is arranged.
Management believes that these plans can be effectively implemented in the
next twelve months. The Company believes it will achieve profitability and
positive cash flow in the next twelve months. The Company's ability to
continue as a going concern is dependent on the implementation and success
of these plans. There can be no assurance that management's plans to reduce
operating losses will be successful. The financial statements do not
include any adjustments relating to the recoverability and classification
of recorded assets, or the amounts and classification of liabilities that
might be necessary in the event the Company cannot continue in existence.
8
<PAGE>
FORM 10-Q FQE 7/31/00 Dynamic International, Ltd.
Item 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Three Months Ended July 31, 2000
as Compared to Three Months Ended July 31, 1999
GENERAL
The following discussion should be read in conjunction with the
Consolidated Financial Statements and related notes thereto of the Company
included elsewhere herein.
SUBSEQUENT EVENT
On August 31, 2000, the Company issued an aggregate of 39,755,178 shares of
its common stock, representing a 90% equity interest in the Company
immediately subsequent to such issuance, to the several members of Emergent
Ventures, LLC ("Emergent Ventures"), a Delaware limited liability company
that had theretofore engaged in the business of acquiring equity interests
in technology businesses with significant Internet features and
applications, in exchange for all of the then outstanding membership
interests in Emergent Ventures (collectively, the "Equity Transfer
Transaction"), all pursuant to an Equity Transfer and Reorganization
Agreement dated as of August 10, 2000 (the "Agreement") by and among the
Company, Marton B. Grossman, Isaac Grossman, Emergent Management Company,
LLC ("Emergent Management") and the several holders of membership interests
in Emergent Ventures.
Upon consummation of the Equity Transfer Transaction, Emergent Management,
which had theretofore owned an approximately 57% equity interest in
Emergent Ventures, became the beneficial owner of 22,718,383 shares of the
Company's common stock, representing an approximately 51% equity interest
in the Company. Daniel Yun and Mark Waldron beneficially own all of the
outstanding equity interests in Emergent Management.
Prior to the consummation of the Equity Transfer Transaction, the Company,
pursuant to and in accordance with the Agreement, transferred all of its
assets (which related to the design, marketing and sale of luggage
products) to a newly-formed corporation that was wholly-owned by the
Company ("Dynamic International, Inc.") and Dynamic International, Inc.
assumed all of the liabilities of the Company (other than outstanding bank
debt in the amount of $250,000). Immediately following such transfer of
assets and assumption of liabilities and immediately prior to the
consummation of the Equity Transfer Transaction, the Company transferred to
its stockholders, on a pro-rata basis, all of the issued and outstanding
shares of common stock of Dynamic International, Inc.
As a result of the Equity Transfer Transactions, the Company has become the
owner of all of the outstanding equity interests in Emergent Ventures and,
accordingly, for legal purposes, the Company has acquired the business and
assets of Emergent Ventures. This transaction for accounting purposes,
Emergent Ventures has acquired Dynamic, therefore it will be treated as a
recapitalization of Emergent. The assets of Emergent Ventures are comprised
of significant equity interests in early stage technology companies.
Emergent Ventures had previously focused on the acquisition of equity
interests in technology businesses with significant Internet features and
applications. The Company will continue to focus on such Internet
businesses, as well as upon a broad range of other technology-oriented
businesses. The Company intends to promote the development of these
businesses by offering business development services that cover core
management disciplines such as strategic consulting, finance, business
development and public relations. In addition, the Company will seek to
apply the experience of both its new management team and their affiliates
and advisors to, among other matters, review and formulate business models,
create performance benchmarks, provide introductions to strategic partners,
and advise on, and facilitate the completion of, additional rounds of
financing for their network companies.
9
<PAGE>
FORM 10-Q FQE 7/31/00 Dynamic International, Ltd.
RESULTS OF OPERATIONS
Statements contained herein which are not historical facts are forward
looking statements. Forward-looking statements involve a number of risks
and uncertainties including, but not limited to, general economic
conditions, the Company's ability to complete development and then market
its products and competitive factors and other risk factors detailed
herein.
Sales for the three months ended July 31, 2000, increased by $1,103,000 or
46.7% to $3,466,000 from $2,363,000 for the three months ended July 31,
1999. During the three months ended July 31, 2000, sales to Sears Roebuck &
Co. increased by $328,000. Under an agreement dated in June of 2000,the
Company agreed to sell its inventory of hand held exercise products to
Bollinger Industries Inc for approximately $871,000, included in the
$3,466,000.
The Company's gross profit percentage decreased by 9.8% to 22.7%
from 32.5% for the quarter ended July 31,1999.Sales allowances given to
customers increased sales by 5.75% to 7.66% of gross sales from 1.91% of
gross sales for the quarter ended July 31,1999.The increase in sales
allowances of approximately $240,000 for the quarter ended July 31,2000 was
primarily the result of increased sales allowances given to Kohl's
Department Stores, K Mart, BJ'S Department Stores and Sears of
$104,000,$32,000 ,$10,000 and $19,000,respectivley. In addition to the
increased sales allowances the sale of the hand held exercise line to
Bollinger Industries ,during the quarter ended July 31,2000,did not
contribute to the gross profit as the sale of $871,000 was approximately
equal to the cost of the merchandise sold. On June 2, 2000, the Company
finalized a settlement for a patent infringement on three patents. As part
of the settlement, the Company agreed to sell its inventory of hand held
exercise products to Bollinger Industries at cost less a 20% settlement and
agreed to a five year non-compete. A reserve equal to 20% of the hand held
inventory was recorded as of April 30, 2000 to account for the settlement.
The following represents the transaction as recorded during the quarter
ended July 31, 2000.
Sale to Bollinger at Cost $1,089,137.54
Settlement amount (20% of Cost) $ (217,828.00)
-------------
Net sales amount $ 871,309.54
Cost of goods sold (871,309.54)
Gross profit $ (0.00)
Operating expenses, exclusive of interest expense, for the three months
ended July 31, 2000 were $90,000 higher than the three months ended July
31, 1999. This increase is represented approximately by changes in the
following expenses:
Increase
(Decrease)
Royalties $65,000
Shipping Fees $62,000
Sales Commissions $13,000
Patents & Trademarks ($22,000)
Office Salaries ($19,000)
Insurance ($10,000)
10
<PAGE>
FORM 10-Q FQE 7/31/00 Dynamic International, Ltd.
Royalties, shipping fees and sales commissions increased due to the
increased sales volume. Patents and Trademark costs decreased by $22,000
due to reduced expenditures for the Company's hand held exercise products.
Office salaries decreased by $19,000 due to the elimination of a position.
Insurance expense decreased by $10,000 due to decreased premium costs.
Interest expense for the three months ended July 31, 2000 decreased by $
8,000 due to decreased borrowing on the Company's bank credit line.
The following table sets forth the result of operations for the periods
discussed above.
Three Months Three Months
Ended Ended
July 31, 2000 July 31, 1999
Net Sales $3,466,000 $2,363,000
Other Income 0 0
---------- ----------
3,466,000 2,363,000
Cost of Goods Sold 2,679,000 1,593,000
---------- ----------
Gross Profit 787,000 769,000
Operating Expenses 775,000 685,000
Interest 12,000 20,000
---------- ----------
787,000 705,000
---------- ----------
Pretax Income 0 64,000
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended July 31, 2000, cash provided by operating
activities amounted to $454,000. This was the result of decreases in
accounts receivable and inventory of $257,000 and $396,000 which were
offset by a decrease of $176,000 in accounts payable and accrued expenses.
With the sale of the exercise equipment line, management has focused its
marketing efforts toward the sale and distribution of the sports
bags/luggage products. During the prior year, the product line has
demonstrated continuing sales growth. Management has projected a business
plan which it believes is realistic, and which, could generate sales growth
combined with necessary cost containment measures. Management believes that
this business plan could enable the Company to restore its operations to a
profitable level. No assurance can be given that any of these anticipated
improved results will actually be achieved.
Financing activities used cash of $890,000. Cash was used to repay banker's
acceptances and amounts due to affiliated company of $600,000 and $290,000
respectively. Proceeds from the sale of exercise inventory provided cash of
$512,215 (Note 5) and is reflected as an investing activity.
RELATED PARTY TRANSACTIONS
Pursuant to a Warehouse and Service Agreement dated as of September 1, 1996
[the "Warehousing Agreement"] between the Company and a related party [the
"Entity"] wholly owned by a major stockholder, the Entity provides
occupancy space and performs certain administrative services on behalf of
the Company. Under the Warehousing Agreement, the Entity assists, among
other things, in the maintenance of financial and accounting books and
records, in the preparation of monthly financial accounts receivable aging
schedule and other reports and in the performance of credit checks on the
Company's customers. In consideration for these services, the Entity
receives an annual fee, payable monthly, calculated at a percentage of the
Company's invoiced sales originating at the warehouse ranging from 4% of
the invoiced sales under $30 million to 3% of sales of $60 million or more.
For sales not originating at the warehouse, the Entity 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% if such customers and accounts are located outside the United
States, irrespective of manner of payment. In addition, under the
Warehousing
11
<PAGE>
FORM 10-Q FQE 7/31/00 Dynamic International, Ltd.
Agreement, the Entity provides warehousing services consisting of receiving,
shipping, and storage of the Company's merchandise. The Company pays the
Entity a monthly fee 3% of its invoiced sales originating at the warehouse
in connection with these warehousing services performed by the Entity under
the Warehousing Agreement. As part of the Warehousing Agreement, the Company
applies an offset for certain shares expenses.
The Warehousing Agreement had a term of two-years and was renewed on
September 1, 1998 for another one year period. This agreement will
automatically renew from year to year unless written notice of termination
is given at least six months prior to the commencement of a renewal period.
Total warehousing and administrative expenses charged to operations for the
three months ended July 31, 2000 were $159,263 with a balance due of
$878,246 as of July 31, 2000 for the year ended April 30, 2000 were $410,382
with a balance due of $718,983 at April 30, 2000, for the year ended April
30, 1999 were $289,415, with a balance due of $308,601 at April 30, 1999 and
for the year ended April 30, 1998 were $183,095 of which $19,186 was the
balance due at April 30, 1998.
The related party has purchased inventory for the Company and has charged
the Company for the invoiced amount of the inventory. In addition, pursuant
to an unwritten understanding, the related party arranges for the issuance
by its financial lender of letters of credit in favor of the Company's
oversea supplier thereby enabling the Company to finance the purchases of
its inventory.
Other amounts payable to the related party totaled $2,074,921, $2,524,052
and $282,828, respectively, at July 31, 2000, April 30, 2000 and 1999. Such
amounts represent unpaid inventory purchases, working capital advances, and
various fees due to the related party.
SEASONALITY AND INFLATION
The Company's business is highly seasonal with higher sales typically in the
second and third quarter of the fiscal year as a result of shipments of
exercise equipment and sports bags/luggage 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 on prices of
material or other operating costs or in the selling price of its products
and services that will materially affect the Company's profits. Statements
contain1d herein which are not historical facts are forward-looking
statements. Forward-looking statements involve a number of risks and
uncertainties including, but not limited to, general economic conditions,
the Company's ability to complete development and then market its products
and competitive factors and other risk factors detailed herein.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are not exposed to financial market risks from changes in foreign
currency exchange rates or changes in interest rates and do not use
derivative financial instruments. A substantial majority of our revenue and
capital spending is transacted in U.S. dollars. However, in the future, we
may enter into transactions in other currencies. An adverse change in
exchange rates would result in a decline in income before taxes, assuming
that each exchange rate would change in the same direction relative to the
U.S. dollar. In addition to the direct effects of changes in exchange rates,
such changes typically affect the volume of sales or foreign currency sales
price as competitors' products become more or less attractive.
12
<PAGE>
FORM 10-Q FQE 7/31/00 Dynamic International, Ltd.
PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
On July 29,1999,Bollinger Industries filed a complaint in the US District Court
for the Northern District of Texas. The complaint alleged infringement of three
patents by the Company with respect to one of its exercise steps. Under a
settlement agreement dated June 2,2000, in exchange for Bollinger's agreement to
dismiss the complaint, the Company agreed to sell its inventory of exercise
products, excluding the Spalding Rotaflex, and entered into an agreement not to
sell any product that would compete with the items sold for a period of five
years. The sale of the inventory occurred on June 12, 2000 and the Bollinger
complaint against the Company was dismissed on June 12, 2000.
ITEM 6. Exhibits and Reports on Form 8-K
Exhibit 27 - Financial data Schedule
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<PAGE>
FORM 10-Q FQE 7/31/00 Dynamic International, Ltd.
Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
DYNAMIC INTERNATIONAL, LTD.
Date 9/19/00 By /s/ Daniel Yun
-------------
Daniel Yun
14
