SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.20549
FORM 1O-KSB
X Annual report pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934
For the Fiscal Year Ended: December 31, 1999
Commission File No. 000-26446
DYNAMIC IMAGING GROUP, INC.
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(Exact name of small business issuer in its charter)
Florida 66-090385
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(State of Incorporation) (IRS Employer Identification No.)
3418 North Ocean Blvd.
Fort Lauderdale, FL 33008
- --------------------------------------------------------------------------------
(Address of principal executive offices) (zip code)
Issuer's Telephone No. (954) 564-1133
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
Check 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 past 12
months (or such shorter period that the Registrant was required to file such
reports); and, (2) has been subject to such filing requirements for the past 90
days.
Yes X No
--- ---
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. X
---
State issuer's revenues for twelve months ended December 31, 1999: $454,982.
<PAGE>
The aggregate market value of the voting stock held by non-affiliates of the
Registrant based upon the average bid and asked prices of such stock, at April
3, 2000 was $0, since the Registrant's stock is not currently trading.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 5,959,085 shares of common stock, as
of April 3, 2000.
Documents
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Incorporated by Reference
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NONE
Transitional Small Business Disclosure Format: No
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
-----------------------
BACKGROUND
Dynamic Imaging Group, Inc. was incorporated under the laws of the
State of Florida in January 1999. Through our wholly-owned subsidiary, Dynamic
Imaging Group, Inc., a Colorado corporation, we are engaged in the sale and
rental of portable show displays, accessories and graphics, all of which are
used in the trade show and trade exhibition industry.
During January 1999, all of the issued and outstanding common stock of
Dynamic Imaging Group, Inc. (Colorado) was exchanged for all of the issued and
outstanding common stock of Dynamic Imaging Group, Inc. (Florida). Dynamic
Imaging Group, Inc. (Colorado) was incorporated under the laws of Colorado in
March 1998. The purpose of the stock exchange was to have the parent company
organized under Florida laws.
Fiscal year 1999 net revenue was comprised of approximately 76% display
sales, 4% display rental income, and 20% revenues graphic sales. As expected,
fourth quarter 1999 rental income increased to 18% of net revenues, while direct
sales, comprised of popup displays and large format graphics, represented 82% of
net revenues. To maximize revenue in fiscal year 2000, we intend to restructure
our organization to focus on increasing rental sales. Our program RAMP, Retail
Account Management Program, takes into account such factors as customer dollar
volume, new account calls, and merchandise standards.
THE TRADE SHOW AND EXHIBITION INDUSTRY
Our market analysis shows that during the past decade companies have
realized the importance of displaying their products through trade shows,
conventions and company meetings. As a result, our management believes that the
show and exhibition display industry has substantial growth potential both
domestically and internationally.
The show and exhibition display system and accessory market is a
rapidly growing industry, both domestically and internationally. Between 1980
and 1989, the exhibition industry reportedly grew at a rate of 72%. In 1989
there were a total of 3,289 shows. In 1996, this number increased to 4,400 with
an average annual growth rate to year 2000 of 4.1%. The customer base for rental
of the show display systems was 5% of the direct exhibit design dollars spent in
1996. By 2001, the average exhibition is projected to span 131,900 net square
feet of exhibit space, draw 470 exhibiting firms and 27,560 attendees. Over 500
new shows are expected to be launched by the end of 2001. Management believes
the growth in the trade show and exhibits industry has created a significant
demand for companies to either invest in their own show display or rent a
display through convention centers or local show display companies.
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<PAGE>
THE SHOW DISPLAY MARKET
Recently, several companies have commenced manufacturing portable show
displays and marketing the displays directly to the end user. Analysis conducted
by our management revealed that the average company would use a show display
only two to three times a year and that in some cases, it was cost prohibitive
to purchase, transport and assemble its own show displays. Also, our analysis
indicated that most companies participated in one trade show lasting three to
four days per year, placing a burden on them as they incurred an initial
purchase cost and additional follow-up storage charges. We also determined that
many companies will pass up the opportunity to participate in smaller regional
shows and exhibitions due to the prohibitive cost of transporting and assembling
the display systems.
Based on these findings, we created a new approach: renting show
displays. We believe we can cater to the trade show participant who does not
want the burden of purchasing, shipping and assembling its own display units.
Our proprietary methods enable us to price our rental units below the current
daily rental market price, which we believe promotes repeated rentals. We
anticipate favorable pricing based on our ability to locate exhibitors through
our own network of distributors who can secure rentals from other exhibitors on
a periodic basis.
We believe the market for these rental units includes both large and
small companies. For the smaller company, renting a display system should be far
more economical than purchasing a display system, especially if the company
participates in exhibits once or twice a year. For the larger company
experienced in exhibiting in large trade shows, renting a display system
facilitates its participation in small and medium sized trade shows. The smaller
shows may have been uneconomical to participate in due to the size and costs of
shipping and assembling inherent in the company's system, which is typically a
bulky and elaborate system reserved for major shows.
DYNAMIC IMAGING'S SHOW DISPLAYS AND GRAPHICS
Dynamic Imaging's name brand displays are manufactured for us by Jemco
Displays. Our displays are lightweight and can be easily assembled without tools
in approximately 15 minutes. The display system is an aluminum frame structure
which is designed to expand to an overall width of 100 inches by a height of 89
inches. Our frame includes a self-aligning magnetic set of plastic bars designed
to attach to the frame for handing the center and radius end caps. The three
center panels of our frame are approximately 27" wide and 89" high and are made
of plastic with a fabric covering. The radius end caps are approximately 29"
wide by 89" high. The center panels and end caps are attached to the frame by
plastic panel hooks and magnetic strips. The display's frame also supports
lighting, shelves, signage and various other interchangeable lightweight
products.
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<PAGE>
Dynamic Imaging produces large format photographic imaging on the Durst
Lambda system, a specialized processing system. Our clients include wholesalers,
resellers and advertising agencies. Our photo images are produced not only for
use on our trade show display systems, but are also used for wall advertisements
and lightbox fixtures for permanent usage, as well as book covers and handouts
associated with these displays.
Fabric, photo panels and various graphics, which are also supplied by
us, easily attach to the display's frame by magnetic strips strategically
located on the panels. Our graphics available for use with our displays are
laser generated, true photographic, continuous tone process, which create the
capability to transform a 24" by 24" poster into a 10' X 10' foot mural while
keeping the image sharp and clear. Management believes this process improves on
the inkjet and electrostatic process at a much-reduced cost and turnaround time.
The displays come with molded plastic shipping cases with built-in wheels for
easy transporting. The shipping cases convert to a matching podium table for the
display.
WARRANTIES
Dynamic Imaging warrants to the purchaser, on a no time limit basis, to
repair or replace (at our option), the frame provided. This warranty is provided
only with sales and not with rentals. All electrical parts and components are
covered for a period of one year from the date of purchase. The conditions of
the warranty are that the unit shall have been employed under conditions of
normal use and service, there can be no evidence of tampering and improper
handling and that other relevant information relating to the unit be provided to
Dynamic Imaging. Graphics are excluded from our warranty. Our primary supplier
of frame displays is Jemco Displays, which provides us and our customers with a
comparable product warranty. Other display suppliers provide similar warranties.
In view of the sturdy nature of the materials provided, we do not believe that
full replacement would be necessary for a majority of circumstances as repairs
could be handled by either us, our distribution personnel or Jemco Display or
other suppliers. We intend to have up to five support outlets strategically
located in the United States for quick 24-hour turnaround repair service as
required. To date, we have not received requests for any returns to date or
requests under our warranty.
DISTRIBUTION
We distribute our goods and services through our network of authorized
dealers which have franchise affiliations with Speedy Sign*A*Rama, USA, Inc.,
referred to in this registration statement as SignARama. SignARama has
approximately 400 franchised dealers in North America. In April 1998, we entered
into a co-marketing agreement with SignARama which provides that we and
SignARama shall jointly market and promote our exhibit products worldwide. This
agreement provides that SignARama is obligated to encourage its franchisees to
lease, sell and distribute our display systems. Our display systems are
exclusively marketed through SignARama's franchisees to the retail sign industry
without any minimum leasing, selling or distribution requirements placed on the
franchisees. The term of this agreement is for one year, renewable automatically
for one year terms unless 30 days' written notice of termination is received by
either party at least 30 days prior to the expiration of the term.
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<PAGE>
We will jointly participate in trade shows, conventions and other activities and
will co-brand our advertising in various media. We are to bear all costs of
marketing under this agreement. We are also to cooperate with SignARama in the
areas of sales and training. Eight percent (8%) of all gross revenues received
by us for sales to SignARama's franchisees are to be earmarked to fund a
national advertising campaign of SignARama franchises. In addition, SignARama
has affiliations in Australia, New Zealand, Puerto Rico, United Kingdom,
Venezuela, Guam, Canada, Dominican Republic, Portugal, Northern Island, Uruguay
and China.
In addition, we have oral distribution arrangements with independent
distributors for the sale of our products in Argentina, Bolivia and Peru, which
are intended to be exclusive (except where pre-empted by our co-marketing
agreement with SignARama). We will engage solely in direct sales for
international operations outside of North America, and direct sales and leasing
for North America.
Display products to be sold will be either manufactured to order or
shipped from available inventory directly to the dealer. Display products
subject to rental will be supplied from inventory and shipped to the dealer for
the term of the rental. Upon the conclusion of the rental term, the display will
be picked up and returned to inventory.
MARKETING PHILOSOPHY AND STRATEGY
We intend to focus our show display marketing efforts on smaller
companies which participate in major trade shows, conventions, grand openings,
weddings and company meetings. We also will gear our operations to local
companies with display needs and small trade shows that cater to individuals, as
well as to create product awareness to enhance sales and rentals through our
existing distribution network.
We market the sales of our display systems through telemarketing. We
market rentals of our display systems through worldwide retail outlets that
presently cater to the equipment rental, printing and graphics and trade show
markets. Convention centers, hotels and civic centers are also a major source of
rentals for the display systems. Each display system we rent through our
authorized dealers result in a fee or commission paid to the authorized dealer
on a per unit basis.
Dynamic Imaging has its own public relations division that reaches over
21,000 potential clients through mass mailing, telemarketing and direct contact.
Management believes that in-house public relations is a reliable way to market
the Dynamic Imaging brand but will evaluate opportunities to contract with
outside public relation firms.
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<PAGE>
COMPETITION
We estimate that there are approximately 15 major manufacturers of
pop-up display systems worldwide. Our leading competitors are Skyline, Nomadic,
Abex and Expo Design, all of which are engaged in direct sales. We believe that
there are presently no national competitors offering rental service only than
independent local competitors scattered throughout the United States in local
areas.
The traditional method of marketing trade show displays and graphics
has included the following: direct sales by the manufacturer, exhibitions at
trade shows and conventions, national and local advertising. National and local
advertising includes direct mail, trade and industry-specific magazines and
regional yellow pages. Additionally, company-owned stores in major cities and
wholesale and retail distributors have been successfully used as marketing
vehicles.
Historically, the display system industry has been fragmented, largely
because companies within it cater to distinct customer bases with specialized
needs. We believe that Dynamic Imaging is one of the first companies to
standardize its product line so that it can be marketed to a broader customer
base throughout the United States as well as in international markets. We also
believe that Dynamic Imaging is one of the few suppliers of display systems and
accessories which offers a national marketing network to bring products and
related services to the public. Smaller entities, on the other hand, do not have
this marketing network capability and must rely upon their own local, limited
marketing methods. We believe that our distribution system provides us with
cost-efficiencies as well as convenience and ease of use for our customers.
Our strengths include our efficient network of dealers and outlets
which makes our products and services available to the consumer in a broad range
of geographic markets. In addition, we believe that departmental arrangements
allow us to provide a broader range of services as well as cost-efficiencies to
our customers. In our judgment, the greater challenge we face is the
unpredictable fluctuation in demand for rental or direct purchases of display
systems. This unpredictability imposes a strain on our ability to maintain an
adequate inventory to satisfy the needs of the marketplace especially during
peak periods.
EMPLOYEES
Dynamic Imaging currently has 12 employees, eight of whom are involved
in sales and clerical and four of whom are involved in management.
YEAR 2000 DISCLOSURE
Dynamic Imaging has investigated the potential impact the Year 2000
could have on its internal software and operating systems. This potential
problem will result from computers and computer systems' inability to recognize
the year 2000 due to their coding. We believe that Dynamic Imaging's operating
system is Year 2000 compliant. Additional, integral software that will be
purchased will be Year 2000 compliant. Dynamic Imaging has made efforts to
determine its vulnerability should any of its vendors experience Year 2000
difficulties. Should certain vendors become materially unable to meet Dynamic
Imaging's needs, production could be interrupted, which would in turn adversely
affect operations. Dynamic Imaging has identified multiple vendor sources for
product to limit our exposure to vendor's Year 2000 problems. We believe that
the anticipated costs of our Year 2000 initiative will not be material. While we
believe that every effort is being taken to address all Year 2000 concerns, we
cannot guarantee that the systems of other companies will be compliant and will
not have a material adverse effect on Dynamic Imaging. As of the date hereof we
have not experienced any Year 2000 disruptions.
ITEM 2. DESCRIPTION OF PROPERTY
-----------------------
Dynamic Imaging maintains its executive office, sales and warehouse
facility at 3418 North Ocean Boulevard, Fort Lauderdale, Florida 33308. Dynamic
Imaging leases its executive offices, sales facility and warehouse facility at
the rate of $3,400 per month, $1,200 per month and $800 per month, respectively.
The lease extends to 2001.
ITEM 3. LEGAL PROCEEDINGS
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There are no material legal proceedings filed, or to Dynamic Imaging's
knowledge, threatened against it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
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None.
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<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND OTHER STOCKHOLDER MATTERS
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There is currently no public trading market for Dynamic Imaging's
common stock. As of April 3, 2000, there were 126 holders of record of our
Common Stock.
Dynamic Imaging has never paid cash dividends on its common stock and
presently intends to retain future earnings, if any, to finance the expansion of
business. Dynamic Imaging does not anticipate that any cash dividends will be
paid in the foreseeable future. The future dividend policy will depend on our
earnings, capital requirements, expansion plans, financial condition and other
relevant factors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General Overview
Dynamic Imaging Group, Inc. (the Company) was formed in March 1998 and is
engaged in the sale, marketing and rental of portable show displays, accessories
and graphics through an independent network of outlets though out the United
States and through the opening of retail stores. The Company maintains its
principal business operations in Fort Lauderdale, Florida.
Management believes through acquisitions and the continuing development of new
areas of expertise will position the Company to increase its revenue base and
move toward its goals of becoming a leading display and graphics company through
the continued offering of expanded products and services to a larger customer
network.
Results of Operations
Year ended December 31, 1999 compared to period ended December 31, 1998.
Net sales for the year ended December 31, 1999 were $454,982 as compared to net
sales for the period from inception (March 29, 1998) to December 31, 1998 of
$209,779. The increase in sales of trade show displays and graphics was
principally attributable to a full year of sales and the addition of new clients
secured during 1999 resulting from the Company's continuing initiatives focused
on client expansion.
Cost of goods sold consists primarily of product costs and freight charges. Cost
of sales were $297,077 or 65.3% of net sales for the year ended December 31,
1999 as compared to cost of sales for the period from inception (March 29, 1998)
to December 31, 1998 of $68,370 of 23.5% of net sales.
Net sales and gross profits depend in part on the volume and mix of display
sales, graphic sales and rental sales. Graphic products have a higher gross
margin with a relatively lower sales transaction amount per customer, while
display sales have a comparably lower gross profit margin with a relatively
higher sales transaction amount per customer.
Consulting fees were $54,902 for the year ended December 31, 1999. The increase
is primarily attributable to investment banking and other fees incurred in
connection with the Company's stock sales.
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<PAGE>
Contract labor expenses include costs and commissions related to the Company's
sales force that is comprised of both direct employees of the Company (included
in salaries) and independent sales representatives. Contract labor also includes
costs of certain individuals related to administration and purchasing who are
engaged on a contractual basis. The increase in contract labor is attributable
to Company's growth and need to support the existing products and service
business of the Company as well as to provide the infrastructure for future
growth.
Professional fees were $112,814 for the year ended December 31, 1999 as compared
to $34,378 for the period ended December 31, 1998. The increase is attributable
to an increase in accounting and auditing fees, and legal fees primarily
attributable to the Company's private placement and SEC filings.
Rent expense was $72,618 for the year ended December 31, 1999 as compared to
$25,465 for the period ended December 31, 1998. The increase was directly
attributable to the expansion of operations into additional facilities and the
fact that the Company was in operations for a full year.
Salaries were $471,826 for the year December 31, 1999 as compared to $300,000
for the period ended December 31, 1998. The increase was directly attributable
to the Company's head count growth and need to support the existing products and
as well as the fact that the Company was in operations for a full year.
Other selling, general and administrative expenses, which include travel and
entertainment, insurance, auto, telephone and other expenses, were $378,271 for
the year ended December 31, 1999 as compared to $75,992 for the period ended
December 31, 1998. The increase is primarily attributable to increased sale and
marketing efforts as well as the fact that the Company was in operations for a
full year.
Interest expense includes costs associated with working capital indebtedness.
As a result of the foregoing factors, the Company incurred losses of
approximately $1,193,000 or ($.22) per share for the year ended December 31,
1999 as compared to a loss of approximately $297,000 or ($.06) per share for the
period ended December 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had a stockholders' deficiency of
approximately $166,853. Since its inception, it has incurred losses of
approximately $1,500,000. The Company's operations and growth have been funded
by the sale of common stock with gross proceeds of approximately $808,000 and
working capital borrowings amounting to $50,000. These funds were used for
working capital and capital expenditures.
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<PAGE>
The Company has no other material commitments for capital expenditures. The
Company believes that it has sufficient liquidity to meet all of its cash
requirements for the next twelve months through cost reductions and increased
marketing efforts together with additional proceeds from common stock sales. A
key element of the Company's strategy is to continue to expand its sales force
and to evaluate opportunities to expand through acquisition of companies engaged
in similar and related complementary businesses. Any such acquisitions will
require additional capital, although there can be no assurances that any
acquisitions will be completed. Also the Company believes that additional
funding will be necessary to expand its market share.
Net cash used in operations in the 1999 period was $717,521 compared to cash
provided by operations of $38,733 in the 1998. The difference is primarily
attributable to the loss from operations in 1999.
Net cash used in investing activities in the 1999 period was $819,675 compared
to net cash used in investing activities of $33,686 in the 1998 period. This
difference was attributable to the acquisitions of trade show displays to be
used in the Company's display rental business.
Net cash provided by financing activities in the 1999 period was $852,175 as
compared to net cash provided by financing activities of $5,000 in the 1998
period. The difference was attributable to the sale of common stock and proceeds
from a note payable.
FORWARD-LOOKING STATEMENTS
This report contains "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. There are certain important factors that could
cause the Company's actual results to differ materially from those included in
such forward-looking statements. When used in this report, the words "intends,"
"believes," "anticipates" and similar words are used to identify these forward
looking statements. Some of the important factors which could cause actual
results to differ materially from those projected include, but are not limited
to: the Company's ability to continue to identify and complete strategic
acquisitions to enter new markets and expand existing business; continued
availability of financing to provide additional sources of funding for future
acquisitions; capital expenditure requirements investments; the effects of
competition on products, pricing, and, growth and acceptance of new product
lines through the Company's sales and marketing programs; changes in material
prices from suppliers; uncertainties regarding accidents or litigation which may
arise in the ordinary course of business; and the effects of, and changes in the
economy, monetary and fiscal policies, laws and regulations, inflation and
monetary fluctuations as well as fluctuations in interest rates.
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<PAGE>
ITEM 8. FINANCIAL STATEMENTS
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The financial statements are filed herewith following the signatures.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
The Company replaced Millard & Company as its independent auditor with
Feldman Sherb Horowitz & Co., P.C. This change was approved by our Board of
Directors. Millard & Company resigned our account in January 2000 and Feldman
Sherb Horowitz & Co., P.C. was engaged in March 2000. This change of auditors
was not due to any disagreement with Millard & Company. Millard's report on our
financial statements did not contain an adverse opinion or disclaimer of opinion
and was not modified as to uncertainty, audit scope, or accounting principals
except a modification as to our ability to continue as a going concern. Feldman
Sherb Horowitz's report also contains this modification.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CORPORATE PERSONS;
---------------------------------------------------------------
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
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The following table sets forth the names, ages and positions with
Dynamic Imaging and ages of our executive officers and directors. Directors will
be elected at our annual meeting of shareholders and serve for one year or until
their successors are elected and qualify. Officers are elected by the board of
directors and their terms of office are, except to the extent governed by
employment contract, at the discretion of the board of directors.
NAME AGE POSITIONS HELD
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Gary R. Morgan 55 Chief Executive Officer, Chairman
of the Board, Treasurer and Secretary
Roland L. Breton 50 President and director
GARY R. MORGAN has served as Chairman of the Board and Treasurer since
inception in March 1998 and Chief Executive Officer since December 1998. Between
July 1996 and March 1998, Mr. Morgan served as Chief Executive Officer of
Olympus Ventures, Inc., a garment contractor and manufacturing company. Between
March 1994 and July 1996, Mr. Morgan served as President of Horizon
International Associates, Inc., a pre-owned aircraft marketing company.
ROLAND L. BRETON has served as President and director since March 1998.
Between September 1996 and December 1998 Mr. Breton served as Director and
President of Olympus Ventures, Inc. Between November 1995 and September 1996,
Mr. Breton was President of Olympus Mills, Inc., the manufacturing division of
Olympus Ventures, Inc. Between October 1993 and November 1995 he served as
Executive Vice President of Madison Group Associates, Inc., an entertainment and
fitness company.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who beneficially own more than 10% 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 and are required to
furnish copies to the Company. To the best of the Company's knowledge, all
reports required to be filed were timely filed in fiscal year ended December 31,
1999.
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ITEM 11. EXECUTIVE COMPENSATION
----------------------
The following table sets forth information relating to the compensation
paid by Dynamic Imaging during the past fiscal year (Dynamic Imaging was not in
existence during any other fiscal year) to its Chief Executive Officer and
President. Each of the executives agreed to waive his salary and, consequently,
did not earn any compensation during the fiscal year ended December 31, 1998 and
1999.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- --------------------------- ------- ------------------------------- ----------------------------------- -----------
Annual Compensation Long-Term Compensation
--------- --------- ----------- -------------------------- --------
Awards
------------ ------------- --------
Securities
Other Under-
Annual Restricted Lying All Other
Name and Principal Compen- Stock Options/ LTIP Compen-
Position Year Salary Bonus sation Award(s) SARs Payouts sation
($) ($) (#) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- --------------------------- ------- --------- --------- ----------- ------------ ------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gary Morgan, Chief 1998 $ 100,000 -0- -0- -0- 1,500,000 -0- -0-
Executive Officer
and Treasurer 1999 120,000
- --------------------------- ------- --------- --------- ----------- ------------ ------------- -------- -----------
Roland Breton, President 1998 $ 100,000 -0- -0- -0- 1,500,000 -0- -0-
- --------------------------- ------- --------- --------- ----------- ------------ ------------- -------- -----------
1999 $ 120,000
- --------------------------- ------- --------- --------- ----------- ------------ ------------- -------- -----------
- --------------------------- ------- --------- --------- ----------- ------------ ------------- -------- -----------
- --------------------------- ------- --------- --------- ----------- ------------ ------------- -------- -----------
</TABLE>
EMPLOYMENT AGREEMENTS
In February 1998, each of Messrs. Morgan and Breton entered into five
year employment agreements with Dynamic Imaging, which entitled each of them to
receive an annual base salary of $120,000 plus a bonus equal to 2.5% of Dynamic
Imaging's total revenues for each year of the agreement with a maximum of 10% of
gross profit. Each of the employment agreements also provides for the grant of
options to purchase an aggregate of 1,500,000 shares at an exercise price of
$.80 per share in five equal annual installments each year of employment
commencing February 28, 2000 (for an aggregate of 3,000,000 shares). The options
expire seven years from their date of vesting. Each of the employment agreements
also provide for an expense allowance equal to 10% of the base salary. The
agreements further provide for an increase of at least 10% per year in the base
salary amounts, and include non-compete and confidentiality provisions. Each of
the executive officers agreed to waive his salary for the period from February
1998 to February 1999.
In October 1999, Howard Storfer resigned as an executive officer of
Dynamic Imaging. All contractual obligations owed by and to Mr. Storfer
regarding Dynamic Imaging terminated in September 1999. Mr. Storfer is presently
rendering consulting services to Dynamic Imaging.
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<PAGE>
<TABLE>
<CAPTION>
STOCK OPTIONS
OPTION/SAR GRANTS IN LAST FISCAL YEAR
- ---------------------------------------------------------------------------------------------------- --------------
Individual Grants Potential Realizable Alternative
Value At To
Assumed Annual Rates Of (f) and (g):
Stock Grant Date
Price Appreciation For Value
Option
Term
- -----------------------------------------------------------------------------
Percent of
Number Of Total
Securities Options/
Underlying SARs Granted Exercise Of Grant Date
Options/SARs To Employees Base Price Expiration Present
Name Granted (#) In Fiscal (S/Sh) Date 5% ($) 10% ($) Value $
(a) (b) Year (d) (e) (f) (g) (h)
(c)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gary Morgan 1,500,000 33.33% .80 2005/2010 N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------
Roland Breton 1,500,000 33.33% .80 2005/2010 N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Each of these individuals were granted options to purchase an aggregate
amount of 1,500,000 shares of Dynamic Imaging's common stock pursuant to
employment agreements. The options are exercisable at $.80 per share, and vest
in five equal annual installments of 300,000 shares beginning on February 28,
2000 and are exercisable for a period of seven years from the date of vesting.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the exercise
of options to purchase shares of common stock during the fiscal year ended
December 31, 1999, of each person named in the summary compensation table and
the unexercised options held as of the end of the 1999 fiscal year.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
- --------------------------------------------------------------------------------------------------------------------
Number of Value Of
Securities Unexercised
Underlying In-The-Money
Unexercised Options/SARs
Options/SARs At Fiscal Year-
Shares At Fiscal Year-End End
Acquired On Value Exercisable/ Exercisable/
Exercise Realized Unexercisable Unexercisable
Name
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gary Morgan, Chief Executive N/A N/A 0/1,500,000 N/A
Officer, Treasurer, Secretary
- --------------------------------------------------------------------------------------------------------------------
Roland Breton, President N/A N/A 0/1,500,000 N/A
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
-12-
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The following table sets forth information as of April 3, 2000, with
respect to the beneficial ownership of shares of common stock by (i) each
officer and director, (ii) each person or entity known by Dynamic Imaging to be
the owner of more than 5% of the outstanding shares of common stock, or to be
and (iii) all officers and directors as a group. The address of each person is
c/o Dynamic Imaging Group, Inc., 3418 North Ocean Boulevard, Fort Lauderdale,
Florida 33308. There were 5,959,085 shares of Dynamic Imaging's common stock
issued and outstanding as of April 3, 2000.
Approximate
Percentage of
No. of Outstanding Shares
Name Shares Beneficially Owned
- ---- ------ ------------------
Gary R. Morgan 578,000 9.7%
Roland L. Breton 2,730,000 45.8%
Howard Storfer 800,000 13.5%
========= ====
All Officers and Directors 4,108,000 69%
as a Group (2 persons)
- -------------------
Gary Morgan is Chief Executive Officer and Chairman of the Board of
Dynamic Imaging. Includes 278,000 shares of common stock held by DIGI Partners,
Inc., a corporation which Mr. Morgan serves as President. Also includes options
to purchase 300,000 shares of common stock exercisable at a purchase price of
$.80 per share, which options become exercisable February 28, 2000. Does not
include options to purchase an aggregate of 1,200,000 shares of common stock,
exercisable at $.80 per share, which vest in four equal annual installments
commencing February 28, 2001 and are exercisable for a period of seven years
from the date of vesting.
Roland Breton is President and director. Includes 500,000 shares of
common stock held by his spouse and 1,930,000 shares of the Company's common
stock held by A.R. Fortune, a corporation controlled by his spouse. Mr. Breton
disclaims beneficial ownership of the shares owned by his spouse and A.R.
Fortune. Also includes options to purchase 300,000 shares of common stock
exercisable at a purchase price of $.80 per share, which options become
exercisable February 28, 2000. Does not include options to purchase an aggregate
of 1,200,000 shares of common stock, exercisable at $.80 per share, which vest
in four equal annual installments commencing February 28, 2001, and are
exercisable for a period of seven years from the date of vesting.
-13-
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The Company advances funds to Messrs. Morgan and Breton. The advances
are non-interest hearing and are payable on demand. At December 31, 1999,
advances to these officers amounted to $45,691.
The company advanced funds to a company affiliated with Mr. Morgan and
Mr. Breton, directors and officers of the Company. The advances are non-interest
bearing and are payable on demand. At December 31, 1999, advances to this
company amounted to $43,450.
The Company had sales to a company owned partially by Mr. Morgan
amounting to approximately 920,000 for the year ended December 31, 1999. In
addition, the related company advanced funds to the Company for operations. At
December 31, 1999, the Company owed this related company $11,297. These amounts
are non-interest bearing, non-collaterized, and are payable on demand.
-14-
<PAGE>
PART III
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS DESCRIPTION OF DOCUMENT
- -------- -----------------------
3.1 Articles of Incorporation of Dynamic Imaging Group, Inc.*
3.2 Bylaws of Dynamic Imaging Group, Inc.*
10.1 Employment Agreement between Dynamic Imaging Group, Inc. and Gary
Morgan dated March 2, 1998.
10.2 Employment Agreement between Dynamic Imaging Group, Inc. and Roland
Breton dated March 2, 1998.*
10.4 Lease Agreement between Dynamic Imaging Group, Inc. and Patricia
Cheris dated June 1998.*
10.5 Lease Agreement between Dynamic Imaging Group, Inc. and
Luisa Certain and Maria Certain dated November 19, 1998.*
10.6 Lease Agreement between Dynamic Imaging Group, Inc. and Luisa
Certain and Maria Certain dated May 1, 1998.*
10.7 Co-Marketing Agreement with Sign*A*Rama USA, Inc.*
23. Subsidiaries.*
* Incorporated by reference to this Exhibit No. on Registrants
Registration Statement on Form 10-SB.
27. Financial Data Schedule.
* Previously filed.
Reports on Form 8-K
None.
-15-
<PAGE>
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DYNAMIC IMAGING GROUP, INC.
April 3, 2000 By: /s/ Gary R. Morgan
--------------------
Gary R. Morgan
Chairman
In accordance with the Exchange Act, this Report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
April 3, 2000 By: /s/ Gary R. Morgan
----------------------
Gary R. Morgan
Director
April 3, 2000 By: /s/ Roland L. Breton
----------------------
Roland L. Breton
Director and President
-16-
<PAGE>
DYNAMIC IMAGING GROUP, INC.
FINANCIAL STATEMENTS
For the Year Ended December 31, 1999 and
For the Period from Inception (March 27, 1998) to
December 31, 1998
<PAGE>
DYNAMIC IMAGING GROUP, INC.
FINANCIAL STATEMENTS
For the Year Ended December 31, 1999 and
For the Period from Inception (March 27, 1998) to
December 31, 1998
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Report of Independent Certified Public Accountants ............... F-2
Financial Statements:
Balance Sheet .................................................. F-3
Statements of Operations ....................................... F-4
Statement of Stockholders' Equity (Deficit) .................... F-5
Statements of Cash Flows ....................................... F-6
Notes to Financial Statements .................................... F-7-13
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders
Dynamic Imaging Group, Inc.
Fort Lauderdale, Florida
We have audited the accompanying balance sheet of Dynamic Imaging Group, Inc. as
of December 31, 1999 and the related statements of operations, stockholders'
equity (deficit), and cash flows for the year ended December 31, 1999 and for
the period from inception (March 27, 1998) to December 31, 1998. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Dynamic Imaging Group, Inc. as
of December 31, 1999, and the results of its operations and its cash flows for
the year ended December 31, 1999 and for the period from inception (March 27,
1998) to December 31, 1998, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming Dynamic
Imaging Group, Inc. will continue as a going concern. As discussed in Note 1 to
the financial statements, the Company's need to generate cash from operations
and obtain additional financing raises substantial doubt about its ability to
continue as a going concern. Management's plans as to these matters are
discussed in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Feldman Sherb Horowitz & Co., P.C.
Certified Public Accountants
New York, New York
March 21, 2000
F-2
<PAGE>
DYNAMIC IMAGING GROUP, INC.
BALANCE SHEET
December 31, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash $ 3,350
Accounts Receivable 18,622
Subscriptions Receivable 38,000
Inventories 5,463
-----------
Total Current Assets 65,435
PROPERTY AND EQUIPMENT - Net 125,771
DUE FROM RELATED PARTIES 89,141
SECURITY DEPOSITS 2,990
-----------
Total Assets $ 283,337
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Note Payable $ 50,000
Accounts Payable and Accrued Expenses 298,954
Accrued Salaries 72,500
Customer Deposits 17,439
Due to Related Party 11,297
-----------
Total Current Liabilities 450,190
STOCKHOLDERS' DEFICIT:
Preferred Stock (No Par Value; 5,000,000 Shares
Authorized; No Shares Issued and Outstanding)
Common Stock ($.001 Par Value; 50,000,000 Shares Authorized;
5,757,085 Shares Issued and Outstanding) 5,757
Additional Paid-in Capital 1,317,443
Accumulated Deficit (1,490,053)
-----------
Total Stockholders' Deficit (166,853)
-----------
Total Liabilities and Stockholders' Deficit $ 283,337
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
DYNAMIC IMAGING GROUP, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Period
from Inception
For the Year (March 27, 1998)
Ended December to December 31,
31, 1999 1998
-------- ----
<S> <C> <C>
NET SALES $ 454,982 $ 209,779
COST OF SALES 297,077 68,370
----------- -----------
GROSS PROFIT 157,905 141,409
----------- -----------
OPERATING EXPENSES:
Consulting Fees 54,902 --
Contract Labor 206,335 --
Depreciation 16,206 560
Professional Fees 112,814 34,378
Rent 72,618 25,465
Salaries 471,826 300,000
Other Selling, General and Administrative 378,271 75,992
----------- -----------
Total Operating Expenses 1,312,972 436,395
----------- -----------
LOSS FROM OPERATIONS (1,155,067) (294,986)
OTHER EXPENSES:
Interest Expense 40,000 --
----------- -----------
LOSS BEFORE PROVISION FOR INCOME TAXES (1,195,067) (294,986)
----------- -----------
PROVISION FOR INCOME TAXES:
Current -- --
Deferred (1,620) 1,620
----------- -----------
(1,620) 1,620
----------- -----------
NET LOSS $(1,193,447) $ (296,606)
=========== ===========
BASIC AND DILUTED:
Net Loss Per Common Share $ (0.22) $ (0.06)
=========== ===========
Weighted Common Shares Outstanding 5,421,575 5,000,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
DYNAMIC IMAGING, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the Year Ended December 31, 1999
For the Period from Inception (March 27, 1998) to December 31, 1998
<TABLE>
<CAPTION>
Common Stock
Preferred Stock $.001 Par Value
--------------- ---------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares Issued to Shareholders at Inception $ - $ - 5,000,000 $ 5,000
Recognition of Officers Compensation on Donated Services - - - -
Net Loss for the Period from Inception (March 27, 1998) to
December 31, 1998 - - - -
------ ---- --------- -------
Balance at December 31, 1998 - - 5,000,000 5,000
Recognition of Officers Compensation on Donated Services - - - -
Share Issued in Connection with Private Placement - - 529,660 530
Shares Issued in Connection with Sale of Restricted Stock - - 45,000 45
Shares Issued in Connection with Note Payable - - 50,000 50
Shares Issued in Exchange for Services - - 132,425 132
Net Loss for the Year Ended December 31, 1999 - - - -
------ ---- --------- -------
Balance at December 31, 1999 $ - $ - $ 5,757,085 $ 5,757
===== ===== =========== =======
(RESTUBBED)
Total
Additional Accumulated Stockholders'
Paid-in Capital Deficit Equity (Deficit)
--------------- ------- ----------------
<C> <C> <C>
Shares Issued to Shareholders at Inception $ - $ - $ 5,000
Recognition of Officers Compensation on Donated Services 300,000 - 300,000
Net Loss for the Period from Inception (March 27, 1998) to
December 31, 1998 - (296,606) (296,606)
-------- ------- --------
Balance at December 31, 1998 300,000 (296,606) 8,394
Recognition of Officers Compensation on Donated Services 60,000 - 60,000
Share Issued in Connection with Private Placement 777,145 - 777,675
Shares Issued in Connection with Sale of Restricted Stock 29,955 - 30,000
Shares Issued in Connection with Note Payable 39,950 - 40,000
Shares Issued in Exchange for Services 110,393 - 110,525
Net Loss for the Year Ended December 31, 1999 - (1,193,447) (1,193,447)
-------- ------- --------
Balance at December 31, 1999 $ 1,317,443 $(1,490,053) $ (166,853)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
DYNAMIC IMAGING GROUP, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period
from Inception
For the Year (March 27, 1998)
Ended December to December 31,
31, 1999 1998
-------- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(1,193,447) $ (296,606)
Adjustments to Reconcile Net Loss to Net Cash Flows
Provided by (Used in) Operating Activities:
Depreciation 16,206 560
Recognition of Officers Compensation on Donated Services 60,000 300,000
Common Stock Issued for Services 110,525 --
Interest Expense 40,000 --
(Increase) Decrease in:
Accounts Receivable (14,115) (4,507)
Inventories (5,463) --
Due from Related Parties (89,141) --
Security Deposits (1,400) (1,590)
Increase (Decrease) in:
Accounts Payable and Accrued Expenses 267,106 31,848
Accrued Salaries 72,500 --
Customer Deposits 17,439 --
Deferred Income Taxes (1,620) 1,620
Due to Related Party 3,889 7,408
----------- -----------
Net Cash Flows Provided by (Used in) Operating Activities (717,521) 38,733
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Property and Equipment (108,851) (33,686)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Note Payable 50,000 --
Proceeds from Issuance of Common Stock 769,675 5,000
----------- -----------
Net Cash Flows Provided by Financing Activities 819,675 5,000
----------- -----------
Net Increase (Decrease) in Cash (6,697) 10,047
Cash - Beginning of Period 10,047 --
----------- -----------
Cash - End of Period $ 3,350 $ 10,047
=========== ===========
SUPPLEMENTAL INFORMATION:
Cash Paid During Year for:
Interest and Taxes $ -- $ --
=========== ===========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock for subscription receivable $ 38,000 $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
DYNAMIC IMAGING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Dynamic Imaging Group, Inc. (the "Colorado Company") was incorporated on March
27, 1998 under the laws of the State of Colorado. The Colorado Company is
authorized to issue 5,000,000 shares of its no par common stock
Dynamic Imaging Group, Inc. (The "Florida Company") was organized under the law
of the State of Florida during January 1999. The Florida Company's articles of
incorporation provide for the issuance of 5,000,000 shares of its $.001 par
value common stock and 5,000,000 shares of its no par value preferred stock.
During January 1999, all of the issued and outstanding stock of the Colorado
Company was exchanged for all of the shares of the issued and outstanding common
stock of the Florida Company. The accompanying financial statements give
retroactive effect to the exchange of common stock. The Colorado Company and the
Florida Company are hereinafter referred to collectively as the Company.
The Company is engaged in the sale, marketing and rental of portable show
displays, accessories and graphics through an independent network of outlets
throughout the United States. The Company maintains its principal business
operations in Fort Lauderdale, Florida.
Revenue Recognition
Revenues from display sales are recognized upon shipment to the customer.
Revenues from graphic sales are recognized upon job completion. The Company
records revenues from display rentals when the rentals are completed and billed.
Fair Market Value of Financial Instruments
The carrying amount reported in the balance sheet for cash, accounts
receivables, accounts payable, and accrued liabilities approximates fair market
value due to the immediate or short-term maturity of these financial
instruments.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period to prepare these consolidated financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates and assumptions.
Cash and Cash Equivalents
For the purpose of the balance sheet and statement of cash flows, the Company
considers all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents.
F-7
<PAGE>
DYNAMIC IMAGING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
Inventories
Inventories, consisting of displays and display accessories, is stated at the
lower of cost or market utilizing the first-in, first-out method.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Going Concern
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. At December 31, 1999, the Company had a
working capital deficiency of $384,755 and losses since inception of $1,490,053.
These conditions raise substantial doubt about the ability of the Company to
continue as a going concern.
Management's plans include developing operating efficiencies and additional
revenue sources. The Company also needs financing to complete its plans and will
pursue obtaining funding through private placements of debt or equity offerings.
However, there is no assurance that the aforementioned events will occur and be
successful.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. The Company provides for depreciation on a straight-line basis
over the estimated useful lives of equipment, furniture and fixtures, and rental
displays of 5 to 7 years. Leasehold costs are being amortized on a straight-line
basis over a ten-year period, the lease term.
When assets are retired or otherwise disposed of, the costs and accumulated
depreciation are removed from the respective accounts and any related gain or
loss is recognized. Maintenance and repair costs are charged to expense as
incurred, and renewals and improvements that extend the useful lives of assets
are capitalized.
Income Taxes
The Company utilizes the asset and liability method of accounting for deferred
income taxes. Under this method, deferred tax assets and liabilities are
established based on the differences between financial statement and income tax
bases of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse.
The Company provides a valuation allowance against deferred tax assets if, based
on the weight of available evidence, it is more likely than not that some or all
of the deferred tax assets will not be realized.
Loss per Common Share
Basic earnings per share is computed by dividing net loss by weighted average
number of shares of common stock outstanding during each period. Diluted loss
per share is computed by dividing net loss by the weighted average number of
shares of common stock, common stock equivalents and potentially dilutive
securities outstanding during each period. Diluted loss per common share is not
presented because it is anti-dilutive.
F-8
<PAGE>
DYNAMIC IMAGING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock-Based Compensation
The Company uses SFAS No. 123, "Accounting for Stock-Based Compensation," which
permits entities to recognize as expense over the vesting period the fair value
of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also
allows entities to continue to apply the provisions of APB Opinion No. 25 and
provide pro forma net income and pro forma earnings per share disclosures for
employee stock option grants as if the fair-value-based method defined in SFAS
No. 123 has been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions
of SFAS No. 123.
Recent Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133 -
"Accounting for Derivative Instruments and Hedging Activities" which is
effective for fiscal quarters beginning after June 15, 1999. This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. This statement amends SFAS No. 52 - "Foreign Currency
Translation", and supersedes SFAS No. 80 - "Accounting for Future Contracts",
No. 105 - "Disclosure of Information about Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentration of Credit
Risk", No. 107 - "Disclosure about Fair Value of Financial Instruments". The
Company adopted SFAS No. 133 in fiscal 2000. Management believes that the impact
of SFAS No. 133 will not be significant to the Company.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements, ("SAB 101""). SAB 101 requires that four
basic criteria must be met before revenue can be recognized: (1) persuasive
evidence that an arrangement exists, (2) delivery has occurred or services have
been rendered, (3) the fee is fixed and determinable, and (4) collectibility is
reasonably assured. The Company is required to comply with SAB 101 transactions
entered into on or after February 1, 2000, but does not expect it to have a
material impact on the Company's financial position or results of operation.
NOTE 2 - PROPERTY AND EQUIPMENT
At December 31, 1999, property and equipment and related accumulated
depreciation consisted of the following:
Furniture and fixtures $ 12,036
Machinery and Equipment 17,899
Displays 103,679
Leasehold Improvements 8,923
---------------
142,537
Less: Accumulated depreciation (9,560)
---------------
Total $ 132,977
===============
F-9
<PAGE>
DYNAMIC IMAGING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
For the year ended December 31, 1999 and for the period from inception (March
27, 1998) to December 31, 1998, depreciation expense amounted to $16,207 and
$560, respectively.
NOTE 3 - NOTE PAYABLE
The Company has a note payable to an unaffiliated third party. The note is
non-interest bearing, non-collateralized, and is payable on demand. As of
December 31, 1999, the note payable to this third party amounted to $50,000. In
connection with this note payable, the Company issued 50,000 restricted common
shares. The value of the consideration, $40,000 based on the fair value price
per share of $.80, was reflected as interest expense and charged to operations
in the year ended December 31, 1999.
NOTE 4 - INCOME TAXES
Current income taxes are computed at statutory rates on pretax income. Deferred
taxes would be recorded based on differences in financial statements and taxable
income. At December 31, 1999, the Company had elected to carry forward net
operating losses for federal and state income tax purposes of approximately
$680,000 that are available to reduce future taxable income through 2014. As
utilization of such operating losses for tax purposes is not assured, the
deferred tax asset has been fully reserved through the recording of a 100%
valuation allowance. These operating losses may be limited to the extent an
"ownership change" occurs.
The provision (benefit) for income taxes differs from the amounts computed by
applying the statutory federal income tax rate to income (loss) before provision
for income taxes is as follows:
<TABLE>
<CAPTION>
1999 1998
-------------- ---------
<S> <C> <C>
Tax benefit computed at statutory rates $ (262,000) $ -
Income tax benefit not utilized 262,000 -
-------------- --------
Net income tax benefit $ - $ -
============== ========
</TABLE>
The components of the deferred tax asset as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
1999
--------------
<S> <C>
Deferred Tax Asset:
Net Operating Loss Carryforward $ 262,000
Less: Valuation Allowance (262,000)
--------------
Net Deferred Tax $ -
==============
</TABLE>
F-10
<PAGE>
DYNAMIC IMAGING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1999
NOTE 5 - RELATED PARTY TRANSACTIONS
Due from Related Parties
The Company advanced funds to certain officers of the Company. The advances are
non-interest bearing and are payable on demand. At December 31, 1999, advances
to these officers amounted to $45,691.
The Company advanced funds to a company affiliated through common officers. The
advances are non-interest bearing and are payable on demand. At December 31,
1999, advances to this company amounted to $43,450.
Due to Related Party
The Company had sales to a company related through common ownership amounting to
approximately $20,000 for the year ended December 31, 1999. In addition, the
related company advanced funds to Company for operations. At December 31, 1999,
the Company owed this related company $11,297. These amounts are non-interest
bearing, non-collateralized, and are payable on demand.
NOTE 6 - STOCKHOLDERS' EQUITY
Preferred Stock
The Company is authorized to issue 5,000,000 shares of Preferred Stock with such
designations, rights and preferences as may be determined from time to time by
the Board of Directors.
Common Stock
During March 1998, the Company issued 5,000,000 shares of its $.001 par value
common shares for $5,000.
During March 1998, the Company granted options to three officers to acquire an
aggregate of 4,500,000 restricted shares of common stock at an exercise price of
$.80 per share. The options have been granted to these officers at a price equal
to the market value of the shares at date of grant, become exercisable in five
annual installments of 900,000 shares beginning on February 28, 2000, and expire
not more than seven years after the date of grant. The fair value of the option
grant was estimated on the date of grant using the Black-Scholes option-pricing
model with the following assumptions: dividend yield of 0%; expected volatility
of 100%; risk-free interest rate of 5.5%, and an expected live of 7 years. The
fair value of options granted was minimal.
For the period ended December 31, 1998, the Company recorded officers'
compensation expense of $300,000 relating to services donated to the Company.
During January 1999, the Company issued 250,300 shares of common stock at a
price of $0.50 per share in accordance with Rule 504 under Regulation D
promulgated under the Securities Act of 1933 for net proceeds of $125,150 to be
used for the operations of the Company.
F-11
<PAGE>
DYNAMIC IMAGING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1999
NOTE 6 - STOCKHOLDERS' EQUITY (Continued)
During February and March 1999, the Company issued 279,360 and 13,000 shares of
common stock at a fair value price of $2.50 per share in accordance with Rule
504 under Regulation D promulgated under the Securities Act of 1933 for net
proceeds of $614,525 used for the operations of the Company and services
amounting to $32,500, respectively. As of December 31, 1999, the Company had a
subscription receivable amounting to $38,000 of which the balance was collected
subsequent to the period.
During the year ended December 31, 1999, the Company recorded officers'
compensation expense of $60,000 relating to services donated to the Company.
During March 1999, the Company issued 12,000 shares of restricted common stock
in exchange for professional services rendered. These shares were valued at
approximately $.50 per share, the fair values, and charged to operations.
During June 1999, the Company issued 20,000 shares of restricted common stock in
exchange for professional services rendered. These shares were valued at
approximately $.10 per share, the fair values, and charged to operations.
During July 1999, the Company issued 40,000 shares of restricted common stock
for proceeds of $25,000.
During November 1999, the Company issued 5,000 shares of restricted common stock
for proceeds of $5,000.
During December 1999, the Company issued 87,425 shares of restricted common
stock in exchange for professional and employee services rendered. These shares
were valued at approximately $.80 per share, the fair values, and charged to
operations.
During December 1999, the Company issued 50,000 shares of restricted common
stock in connection with a note payable. These shares were valued at
approximately $.80 per share, the fair values.
NOTE 7 - COMMITMENTS
Employment Agreements
During February 1998, the Company entered into five (5) year employment
agreements with two officers and an employee of the Company. The agreements
provide for (i) an annual base salary of $120,000, plus a discretionary expense
account equal to 10% of the base pay and (ii) a bonus equal to 2.5% of the
Company's gross receipts for each year of the agreement, to a maximum of 10% of
the gross profits. The base salary shall increase not less than 10% of the
previous years base salary. The officers agreed to waive their respective
salaries until February 27, 1999. Additionally, these officers were granted
options to acquire 300,000 shares of common stock of the Company per calendar
year in each year of employment at an exercise price of $.80 per share (See Note
6).
F-12
<PAGE>
DYNAMIC IMAGING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1999
NOTE 7 - COMMITMENTS (Continued)
Operating Lease
The Company leases office space in Fort Lauderdale, Florida pursuant to
operating leases. The leases generally provide for fixed monthly rental payments
aggregating approximately $4,800 plus sales tax through July 2001. The Company
has the option of renewing these leases for up to three years. For the year
ended December 31, 1999 and for the period from inception (March 27, 1998) to
December 31, 1998, rent expense amounted to $72,618 and 25,465, respectively.
At December 31, 1999, the future minimum annual rental payment under the
non-cancelable operating lease is as follows:
Year
2000 $ 57,600
2001 21,450
--------------
$ 79,050
==============
NOTE 8 - SUBSEQUENT EVENT
During January and February 2000, the Company issued 63,000 shares of restricted
common stock in exchange for professional services rendered. These shares were
valued at approximately $.80 per share, the fair values, and charged to
operations.
During January 2000, the Company issued 33,000 shares of restricted common stock
at a fair value price of $.80 in exchange for 100% of the outstanding shares of
Digi of Fort Lauderdale, Inc., a company related through common ownership.
During January 2000, the Company issued 80,000 shares of restricted common stock
for $40,000 in cash and marketable equity securities with a fair market value of
$24,000.
During January 2000, the Company authorized the issuance of 300,000 shares of
common stock to a third party at a fair value price of $.50 per share. As of
March 31, 2000, the shares had not been issued although the Company collected
funds toward the purchase of these shares amounting to $107,300.
During March 2000, the Company issued 10,000 shares of restricted common stock
for proceeds of $10,000.
F-13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
DYNAMIC IMAGING GROUP, INC.S FORM 10-KSB FINANCIAL STATEMENTS FOR THE
YEAR ENDED DECEMBER 31, 1999
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,350
<SECURITIES> 0
<RECEIVABLES> 18,622
<ALLOWANCES> 0
<INVENTORY> 5,463
<CURRENT-ASSETS> 65,435
<PP&E> 142,537
<DEPRECIATION> (9,560)
<TOTAL-ASSETS> 283,337
<CURRENT-LIABILITIES> 450,190
<BONDS> 0
0
0
<COMMON> 5,757
<OTHER-SE> (172,610)
<TOTAL-LIABILITY-AND-EQUITY> 283,337
<SALES> 454,982
<TOTAL-REVENUES> 454,982
<CGS> 297,077
<TOTAL-COSTS> 297,077
<OTHER-EXPENSES> 1,312,972
<LOSS-PROVISION> (1,155,067)
<INTEREST-EXPENSE> 40,000
<INCOME-PRETAX> (1,195,067)
<INCOME-TAX> (1,620)
<INCOME-CONTINUING> (1,193,447)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,193,447)
<EPS-BASIC> (0.22)
<EPS-DILUTED> (0.22)
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