U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS UNDER
SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
DYNA-CAM ENGINE CORPORATION
(Name of Small Business Issuer in Its Charter)
Commission File Number: ____________
Nevada 86-0965692
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
23960 Madison Avenue, Torrance, California 90505
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number: (310) 791-4642
Securities to be registered under Section 12(b) of the act: None
Securities to be registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
(Title of class)
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PART I
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, this Form 10-SB
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "SECURITIES ACT") and Section 21E of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"). Dyna-Cam
Engine Corporation ("DYNA-CAM") intends that such forward-looking statements be
subject to the safe harbors created by these statutes to the extent they apply.
Forward-looking statements involve risks and uncertainties and include, but
are not limited to, statements of future events and Dyna-Cam's plans and
expectations. We may make additional written or oral forward-looking statements
from time to time in filings with the Securities and Exchange Commission
("SEC"), through press releases or otherwise. Wherever possible, we have
identified these forward-looking statements by words such as "believes,"
"anticipates," "contemplates," "expects," "intends," "projects," "plans,"
"forecasts," "estimates" and similar expressions. These statements reflect our
current views about future events and financial performance or operations and
are applicable only as of the date the statements are made. Our actual results
may differ materially from such statements. Factors that may cause or contribute
to such differences include, but are not limited to, those discussed in
"DESCRIPTION OF BUSINESS - Factors Affecting Future Performance" and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS," as well as those
discussed elsewhere in this Form 10-SB and in the exhibits attached.
Although we believe that the assumptions underlying the forward-looking
statements in this Form 10-SB are reasonable, any of the assumptions could prove
inaccurate. There can be no assurance that the results contemplated in such
forward-looking statements will be realized. In addition, as disclosed under
"DESCRIPTION OF BUSINESS - Factors Affecting Future Performance," the business
and operations of Dyna-Cam are subject to substantial risks which increase the
uncertainties inherent in the forward-looking statements included in this Form
10-SB.
The inclusion of such forward-looking information should not be regarded as
a representation by Dyna-Cam or any other person that the future events, plans
or expectations contemplated by Dyna-Cam will be achieved. We disclaim any
obligation to subsequently revise forward-looking statements to reflect any
change in our expectations or due to the occurrence of unanticipated events.
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
We are in the business of developing and intend to manufacture, market and
sell our unique, axial cam-drive, free piston design, internal combustion
engine, which we believe offers a number of significant advantages over
conventional piston engines. Although originally designed for use in aircraft,
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we believe the Dyna-Cam Engine has numerous additional potential uses,
particularly in marine, industrial, heavy automotive and military applications.
The initial model of the Dyna-Cam Engine (the "DC375") is ready for production
and we intend to initially target the kitbuilt segment of the experimental
aircraft market with this model. We plan to develop other sizes and variations
of the Dyna-Cam Engine, and we hope to target other markets and industries in
the future as well.
BACKGROUND
Dyna-Cam Aero Engine Corporation was incorporated as a California
corporation in 1993 and later changed its name to Dyna-Cam Engine Corporation
("DCEC"). TSI Handling, Inc. ("TSIH") was incorporated in Nevada in July 1999.
Effective March 31, 2000, TSIH acquired substantially all of the assets of DCEC
in exchange for shares of common and Series A Preferred stock and the assumption
of certain liabilities. Subsequent to this transaction, TSIH amended its
Articles of Incorporation to change its name to Dyna-Cam Engine Corporation and
DCEC, which is in the process of liquidation, was renamed DC Engine Corporation.
Prior to March 31, 2000, TSIH had been controlled by Chasseur Holdings,
Inc. ("CHASSEUR"). Chasseur is the successor to Technical Systems Integrators,
Inc. ("TSI"). TSI filed for protection under Chapter 11 of the Bankruptcy Code
in April 1999. TSI's Plan of Reorganization was confirmed in November 1999,
which provided, in part, for the merger of TSI into Chasseur. Also, as part of
TSI's Plan of Reorganization, shares of common stock and warrants of TSIH were
distributed to creditors of TSI. Upon completion of the reorganization, TSIH
initially planned to engage in the business of designing handling applications
for integrated circuit manufacturing. TSIH's management determined the
acquisition of DCEC's assets would be in the best interest of its shareholders
and provide TSIH with more attractive business operations. As a result of the
acquisition, TSIH divested its handling business at its original acquisition
cost.
THE DYNA-CAM ENGINE
We believe the Dyna-Cam Engine is the most significant design innovation in
piston engine technology in more than 50 years. We have produced several
prototypes of the Dyna-Cam Engine and we believe it offers significant
advantages over conventional piston engines in use today. Our prototype Dyna-Cam
Engine is smaller, much lighter and less noisy, generates more torque, causes
less vibration, achieves greater fuel efficiency and has lower emissions than
comparable conventional engines. We believe the Dyna-Cam Engine will be more
durable and require less maintenance than conventional engines in the same power
class. The Dyna-Cam Engine also has 50% fewer parts than a conventional piston
aircraft engine, which is anticipated to reduce maintenance costs and favorably
impact our costs of manufacturing.
The Dyna-Cam Engine is a unique axial cam-drive, twelve-cylinder, free
piston engine. Our design replaces conventional crankshaft and piston rod design
with two cylindrical engine blocks, each containing six cylinders arranged
around a central main shaft. Our prototype Dyna-Cam Engine produced more than
twice the torque ratio of a V-8 car engine with comparable horsepower rating,
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but with less than one-half the size, one-half the weight and less than
one-fourth the number of parts.
The following table compares some of the technical features of a 200
horsepower Dyna-Cam Engine with other conventional piston engines of equivalent
horsepower in use today:
DYNA-CAM LEADING V-8 CAR
FEATURE PROTOTYPE AIRCRAFT ENGINE ENGINE
------- --------- --------------- ------
Size (Width) 13" 32" 31"
Maximum Torque Produced 650 foot-pounds 380 foot-pounds 300 foot-pounds
Weight 265 pounds 295 pounds 500 pounds
Part Count 1,000 2,600 + 4,300 +
Time Between Overhauls 2,000 hours 1,800-2,000 hours 1,000 hours
Man-hours to Rebuild 18 hours 30 hours 40 hours
Torque, as is "horsepower" ("HP"), is a measurement of an engine's power.
Torque, measured in foot-pounds, refers to the strength of the rotational
movement and serves as a measurement of an engine's ability to overcome a load -
in other words, it represents the true ability of an engine to do work.
An equally important measurement for both torque and HP is the number of
revolutions per minute (or "RPM"), at which an engine delivers the desired level
of power. The prototype 200 HP Dyna-Cam Engine produced a very high ratio of 650
foot-pounds of torque at a very low 1,200 RPM and 525 foot-pounds at 2,000 RPM.
This torque output is comparable to that of a 3,000 pound diesel truck engine.
By comparison, a standard 500 pound V-8 car engine produces only approximately
300 foot-pounds of torque at 3,500 RPM.
We believe the advantage of the Dyna-Cam Engine is that it produces higher
torque with less weight and smaller size than conventional piston engines. We
anticipate that the Dyna-Cam Engine will be ideal for applications where high
strength (torque) is needed in the low RPM range for acceleration and for
getting a load moving, and where weight and size are factors.
The research and development on the DC375 model has been completed and we
are beginning production of this engine. In addition to the DC375, we anticipate
producing both larger and smaller engines capable of producing the greater or
lower torque and HP required for different applications and targeted markets. We
are also evaluating development of Dyna-Cam Engines that will run on jet fuel,
diesel fuel, compressed natural gas and propane, all of which we believe will
require relatively minor modifications to the existing Dyna-Cam Engine design.
POTENTIAL MARKETS
Diesel Progress Magazine (June 1999) stated that the market size for
gasoline piston engines in the size range where we intend to compete (the 101 to
300 HP range) is approximately $69.8 billion annually. This market includes
several major segments, including aircraft, marine, industrial, heavy-duty
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vehicles and others. Our initial focus will be on the aircraft market, but we
believe there is great potential for the Dyna-Cam Engine in other markets as
well.
AIRCRAFT
The Dyna-Cam Engine was originally designed for the general aviation market
and we anticipate that it will offer substantial advantages over conventional
engines in this segment. We believe current airplane engine manufacturers have
been slow to adopt new engine developments due to their established leadership
position in the market. The basic design of the gasoline piston engine in use
today has not changed in over 50 years. We believe this stagnation creates a
strong opportunity to introduce a new engine and that the aviation market will
be receptive to a new alternative to existing technology.
We expect that the Dyna-Cam Engine will increase fuel efficiency and reduce
maintenance costs, which should be of particular interest to customers in the
aviation industry. In this industry, the characteristics of the Dyna-Cam Engine
should offer unique collateral advantages. We believe the reduced vibration of
the Dyna-Cam Engine will provide a smoother and quieter ride, which should also
reduce wear on the aircraft. Reduced vibration also reduces pilot fatigue. The
Dyna-Cam Engine's anticipated increased fuel efficiency and power should reduce
operating costs and increase the speed and range of an aircraft. We anticipate
that aircraft utilizing the Dyna-Cam Engine will have reduced noise levels
allowing these aircraft more accessibility to airports where noise levels are
controlled.
The aircraft engine business is a worldwide market that has had very few
technical advancements relative to other industries. The United States aircraft
market is the largest in the world. We believe the total market for Federal
Aviation Administration ("FAA") certified and experimental aircraft engines is
approximately $500 million per year.
We have received FAA certification for the DC375 (Type Certificate No.
293), which, although not required in the experimental market, we anticipate
will provide an additional marketing advantage for this engine. In order to
produce FAA certified engines for use in aircraft requiring certification, we
must also receive an FAA Production Certificate which certifies our
manufacturing process and facilities. While we will likely seek an FAA
Production Certificate for our engines at some point in the future, the
certification process can be expensive and time-consuming. Until production
certification is achieved, we intend to produce and sell Dyna-Cam Engines into
the experimental market.
EXPERIMENTAL AIRCRAFT. While we believe the potential market for the DC375
in particular, and Dyna-Cam Engines in general, is widespread, we intend to
focus initially on the experimental aircraft engine market and to target the
kitbuilt segment of this market.
In the United States, any person ("owner/builder") may build an airplane,
helicopter or any number of other aircraft. If proper procedures are followed,
the homebuilt airplane may be licensed by the FAA in the Experimental,
Amateur-Built category. Upon satisfactory completion of testing, the
owner/builder may receive a permanent airworthiness certificate from the FAA.
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With the permanent airworthiness certificate, the aircraft may be operated
similar to factory-built aircraft, but can not be used to fly "for hire" or for
similar commercial service.
In order to qualify as an experimental aircraft, at least 51% of the
assemblage of the aircraft must be completed by the owner/builder. In order to
tap into the experimental/homebuilt market, manufacturers have produced kits
that provide certain pre-assembled components, but allow the owner/builder to
qualify for the 51% assemblage test.
Kitbuilt aircraft make up one of the fastest growing aviation market
segment today. According to a 1999 survey of kit manufacturers conducted by Kit
Planes Magazine, more than 7,260 kitbuilt planes were expected to be purchased
in 1999 and 8,600 were projected for 2000. Engines for these planes cost an
average of $15,000 to $20,000, resulting in the total piston engine market for
new kitbuilt aircraft being approximately $160 million annually. According to
the General Aviation Manufacturers Association ("GAMA"), existing kitbuilts
total about 14,680 aircraft, of which approximately one-fifth (or 2,600) are in
need of engine replacements or overhauls annually. This approximates to a $40
million annual market.
We believe the kitbuilt aircraft market is the best market to initially
target due to the lack of regulatory requirements and its potential size.
Engines in this class are not currently required to be certified by the FAA. FAA
certification is required for nearly all other aircraft engines and Coast Guard
certification is required for nearly all marine engines.
FAA CERTIFIED ENGINES. The Dyna-Cam Engine has been certified by the FAA
for use in helicopters and may be used in fixed wing aircraft with Supplemental
Type Certification. FAA certification has been accomplished by only a few other
piston engine manufacturers during the last forty years. To achieve this
certification, an engine must surpass a 150 hour running test under specified
loads and adverse conditions while maintaining integrity of its parts as "new."
We estimate that it will cost approximately $1,000,000 and take
approximately six months to receive FAA Production Certification approval for a
manufacturing facility. Depending on our success in the kitbuilt market
segments, we may decide that producing and selling FAA certified engines is not
cost effective and we may elect not to obtain such certification and instead
focus on markets where it is not required.
MARINE
We believe the DC375 is ideally suited for the marine engine market. A
prototype of the engine has been installed and tested in a 20-foot stern drive
speedboat where it was able to efficiently turn a high-thrust 25-inch pitch
propeller over a broad range of RPM levels because of the high torque output of
the engine. A Dyna-Cam Engine installed in the test boat was very throttle
responsive and provided rapid acceleration. Based on test performance, we
believe the Dyna-Cam Engine will accelerate "to plane" in half the time required
by conventional engines with equal HP, even with a heavy load of passengers,
cargo or water-skiers. The Dyna-Cam Engine is smaller than conventional V-8
engines with similar output which increases the usable space within a boat.
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According to the National Marine Manufacturers Association, the overall
market for inboard, stern drive and jet-boats in the United States was
approximately $5.2 billion in 1997.
INDUSTRIAL, MILITARY AND HEAVY VEHICLE MARKET
We expect that the Dyna-Cam Engine will also be particularly well suited
for many industrial, military, motor home, truck and fleet vehicle markets where
high levels of torque are required.
After we commence our marine engine marketing strategy, we plan to focus on
the recreational vehicle and motor home markets because manufacturers of these
vehicles typically purchase engines and chassis separately. These larger and
heavier vehicles generally need much larger engines to pull the weight, but much
like boats, usable space is at a premium in recreational vehicles. The Dyna-Cam
Engine should provide the high torque output needed for these vehicles while
taking up less space than conventional engines. According to a market survey by
the Recreational Vehicle Industry Association, there were approximately 224,000
motor homes sold in 1999. This represented a retail market value of $1.68
billion in 1999.
According to the June 1999 issue of Diesel Progress Engine Yearbook, there
were 1.2 million engines sold in 1999 in the size and power range suitable for
medium to heavy duty trucks. An average selling price of $12,000 puts that
market at about $14.8 billion.
The Dyna-Cam Engine also has potential application in numerous other types
of vehicles. Virtually any large heavy vehicle, and even smaller vehicles where
increased torque is desirable, could benefit from this technology. We believe
other potential markets could include school buses, motor coaches, city commuter
buses, industrial and construction vehicles and military applications. As we
develop new Dyna-Cam Engines delivering varying power levels and utilizing
alternative fuels, we believe these potential markets will increase.
SPECIALTY AND RACING MARKETS
We believe the specialty and racing markets are also a potential market for
high performance, lighter weight power plants such as the Dyna-Cam Engine. This
market is particularly attractive because customers are generally willing to pay
higher prices for engines while production quantities are low. High performance
requirements are found in many racing and specialty applications. We do not
intend to actively pursue this market in the near-term, but may pursue this
market in the future.
COMPETITION
Competition in the engine business generally is very intense. The market is
segmented with major manufacturers generally dominating each segment. Although
the Dyna-Cam Engine is radically different than existing engine technology, our
new engine will be competing with established companies producing established
products.
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We believe the barriers to entry into the engine market generally are very
high, primarily due to the capital required to produce engines in high enough
volumes to compete in the industry. The barriers are also very high in the
aircraft engine industry, due to the cost and time involved in obtaining FAA
certification. We have internally estimated the cost to develop a new aircraft
engine today would be in excess of $50 million.
We believe we have a competitive advantage in this market because the
development costs for the Dyna-Cam Engine have already been expended and this
engine has received FAA certification. In addition, in our initial target market
FAA certification is not required, which will allow us to penetrate the segment
with our product and begin to build name recognition in the aircraft engine
business generally.
CERTIFIED AIRCRAFT. The primary manufacturers of certified aircraft engines
today are Textron Lycoming Corporation ("LYCOMING") and Teledyne Continental
Aircraft Engines ("CONTINENTAL"). Both of these companies have been
manufacturing engines for over 50 years. These two manufacturers account for
more than 90% of the certified aircraft piston engine market. Both companies are
well established and have very strong name and brand recognition in the aircraft
industry.
The current market for new aircraft sales for which Lycoming and
Continental compete is only about 1,500 engine sales a year. In addition, there
is a large fleet of general aviation aircraft, estimated to be about 170,000
planes, that need engine replacements approximately every five to ten years.
This equates to an average of approximately 25,000 to 30,000 engine replacements
or overhauls per year. It does not appear that the major aircraft engine
companies have targeted or are aggressively selling into these markets. Delivery
time for a new engine may be up to a one year period.
We believe we will be able to effectively compete for several reasons. In
addition to the power performance advantage described above, our engine runs
with less vibration and is water cooled. In the aeronautic market, our water
cooled engine eliminates "shock cooling," which results from extreme altitude
changes and can severely damage an engine. Less vibration results from the
engine design which is also an operational advantage positively affecting engine
and airframe life. Our engine design has less moving parts, which should result
in more economical maintenance and longer engine life.
Although price is not the primary factor for aircraft engine purchasers, we
believe our initial price and the expected lower costs of operation will make
our engine cost competitive.
KITBUILT AIRCRAFT. In addition to certified aircraft engines, automobile
engine manufacturers compete in the kitbuilt aircraft market. Although not
actively targeted to this market, automobile engines are frequently utilized in
kitbuilt aircraft, often because the initial price is perceived to be lower.
Automotive engines generally require fairly extensive (and expensive)
modifications to make them suitable for use in aircraft. In addition, automobile
engines do not have the necessary long-term endurance and reliability when
operated at the higher power levels required for aircraft. Automobile engines
also require more frequent servicing and can weigh up to 200 pounds more than
even a conventional aircraft engine.
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To date the only new automotive engines in our HP class that have received
FAA certification are the Porsche 911 and Toyota Lexus engines, and neither of
these is currently being targeted to the kitbuilt market. We believe the
advantages of the Dyna-Cam Engine, including its expected reduced long-term
operating and maintenance expenses, will allow us to effectively compete in this
market.
MARINE AND VEHICLE APPLICATIONS. Competition in the marine and vehicle
markets will come from current manufacturers of comparably powered V-6 and V-8
engines. We will target those segments of the market where the Dyna-Cam Engine's
significant advantages in power, weight and size are particularly suited to the
needs of the user. These include boating and heavier vehicles such as rapid
transit buses, motor homes, trucks and military vehicles. We expect the Dyna-Cam
Engine can be priced competitively for this market when production quantities
are comparable to conventional engines.
Our strongest competition in this market segment is likely to come from
diesel engine manufacturers. Diesel engines can deliver torque and HP comparable
to the Dyna-Cam Engine, and the technology is more widely accepted. However, the
Dyna-Cam Engine remains competitive because it can deliver similar performance
with far less weight and noise, among the other advantages discussed above.
PRODUCTION
Our plan of operations anticipates that we produce five engines per month
commencing in June 2001 until we have completed the final analysis of our
manufacturing and quality control processes and completed all operating,
maintenance and overhaul manuals and documentation. At that point, we expect to
increase production to ten engines per month or more as needed to support sales.
We expect to deliver engines for retail sale by June 2001. By December
2001, we anticipate beginning actively seeking one or more major manufacturing
strategic partners to facilitate large-scale production. We believe we can
contract with a major engine manufacturing plant to help fulfill any large
engine production orders that are received during our initial years.
Production and assembly operations will initially be at our facility
adjacent to the Torrance Airport near Los Angeles. We currently have the ability
to fabricate and test nearly all parts for our engine. In addition to components
we manufacture at our plant, the Dyna-Cam Engine utilizes parts that can be
obtained from numerous suppliers and are not unique to our engine design (e.g.,
starters, spark plugs, cooling systems, etc.). As production levels increase, we
expect to utilize subcontractors to supply components and assembled subsystems
for installation in our engines. We anticipate continuing the machining on most
of the engine's major components in our production plans.
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MARKETING AND SALES
We expect to directly market the Dyna-Cam Engine in the first two years of
operations and may establish a dealership network in the future, if warranted.
We plan to promote the Dyna-Cam Engine initially through displays and
demonstrations at air and trade shows. In addition, we intend to advertise in
specialty magazines targeted to the markets we hope to reach and on our Web site
(www.dynacam.com).
We have received publicity through articles in various specialty magazines
targeting the aircraft industry. The Dyna-Cam Engine has been featured in such
publications as AOPA PILOT, HELICOPTER WORLD, POPULAR MECHANICS, GENERAL
AVIATION NEWS & FLYER, SCIENCE AND MECHANICS, MACHINE DESIGN, PRIVATE PILOT, KIT
PLANES and SPORT AVIATION.
We hope to penetrate our target markets by using the existing media, making
air and trade show appearances and developing an Internet presence. There are
many aviation organizations, specialty publications, more than 450 air shows
annually and an increasing number of Web sites focusing on aviation and flying
that may be targeted to publicize our entrance into the aircraft engine market.
INTELLECTUAL PROPERTY
Certain aspects of the current version of our Dyna-Cam Engine are patented
in the United States. We own U.S. Patent No. 4,492,188, issued in 1985 to Dennis
C. Palmer. The current patent will expire in January 2003. We have submitted a
new patent application on various improvements identified and made to the
Dyna-Cam Engine since the original patents were obtained and have received
"patent pending status" on this application. We intend to file additional
patents domestically as well as internationally. The original developer of the
technology patented certain key components, such as the cam and piston design,
which may limit future patent protection on these components.
We have also developed manufacturing processes and component designs that
are considered "trade secrets," which we believe would make the engine difficult
to produce by other manufacturers and still be competitive. As research and
development continues to advance the Dyna-Cam Engine technology, new features,
trade secrets and patents will be pursued to provide additional barriers to
competition. We have agreements with our officers and key employees which
require them to assign any new features, trade secrets and patents developed in
the future.
FACILITIES
We currently lease a 6,000 square foot facility adjacent to the Torrance
Airport in Torrance, California, near Los Angeles. This facility will be
suitable in the early stages of production, but we may need additional space in
the near term. We believe additional space will be available in or near our
existing facility and we do not expect any difficulty finding larger and more
suitable space as needed.
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EMPLOYEES
We currently have four full-time employees. We expect to hire additional
engineers, machinists and other employees in the near future.
FACTORS AFFECTING FUTURE PERFORMANCE
DEVELOPMENT STAGE COMPANY. There is no meaningful operating or financial
history to evaluate our prospects for successful operations. We have entered
into a new line of business with the acquisition of the DCEC assets and
operations. DCEC just recently completed the final manufacturing plan for
producing the first production engine, the DC375. Previously, DCEC conducted
research and development of the Dyna-Cam Engine and built and tested several
prototypes. We are just commencing our first larger scale manufacturing efforts
of the Dyna-Cam Engine. DCEC incurred operating losses and had negative cash
flow since incorporation in 1993. We anticipate future losses.
Our operations will be subject to all of the risks inherent in the
establishment of a new business enterprise, particularly one that is dependent,
initially, on the ever-changing small aircraft industry. The likelihood of our
success must be considered in light of the problems, expenses, difficulties,
complications and delays frequently encountered in connection with establishing
a new business, including uncertainty as to production capabilities, market
acceptance, marketing methods, expenses and competition. We may not be
successful in our proposed new business activities.
ADDITIONAL CAPITAL REQUIREMENTS. Our proposed plan of operations, even if
successful, may not result in cash flow sufficient to finance the continued
expansion of our new business. We need funds to acquire materials, components
and additional tooling to assemble and manufacture the initial production
Dyna-Cam Engines and to implement sales, marketing and promotional activities.
We will also require substantial additional capital for our operations and
anticipated expansion. There can be no assurance we will be successful in
obtaining any additional equity capital or other financing or, if obtained, that
such capital will be obtained at a reasonable cost.
ACCEPTANCE OF THE DYNA-CAM ENGINE. If the Dyna-Cam Engine does not receive
consumer or industrial acceptance as we anticipate, our revenues and operating
results will likewise not reach the levels we anticipate. Our entry into the
engine manufacturing industry is a new line of business in which we have no
prior experience. Our Dyna-Cam Engine has no brand name recognition as do our
competitors' engines. The Dyna-Cam Engine is based on a design that is not
currently produced. Actual performance of production engines may not match test
results of our prototype engines. If actual performance of an engine is not
substantially better than performance of conventional engines, our Dyna-Cam
Engine may not attain the market acceptance we anticipate. Acceptance of our
Dyna-Cam Engine by both individual and industrial users will be critical to the
success of our business.
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We intend at this time to manufacture one product, the Dyna-Cam Engine.
Consumer and industrial acceptance of this engine will be critical to our
success because we intend to only manufacture and distribute engines and do not
intend to have a diversified product line. While we intend to vary the sizes of
engines manufactured, we will initially only manufacture one size engine, which
will also limit potential market acceptance.
MANUFACTURING. We intend to engage in the engine manufacturing business.
This business is labor and capital intensive and subject to many risks. Some of
these risks include lack of supply of raw materials or component parts,
increasing prices of materials, components and equipment, warranty and product
liability claims, work stoppages, strikes or other labor difficulties, and
changes in governmental regulations. The occurrence of any one of these factors
could increase our costs of production or otherwise adversely affect our
operations.
Because the Dyna-Cam Engine has only been produced on a prototype basis, we
have no experience in mass production of these engines. We do not know if we
will be able to control production and quality control issues once manufacturing
begins. Defects in our manufacturing process or the engines produced would cause
our costs to exceed those projected and could result in substantial warranty or
product liability claims and harm our industry reputation, which would diminish
acceptance of our engines in targeted markets.
While we have projected manufacturing costs for production and believe that
we can manufacture the Dyna-Cam Engine and sell it profitably, our projections
may prove inaccurate due to many factors. It is also possible that while
Dyna-Cam Engine manufacturing may be profitable at certain levels, our sales may
never reach such levels or, due to capital constraints, we may be unable to
achieve optimum levels of manufacturing. If our costs of manufacturing or other
costs associated with warranty or liability claims exceed our projected costs,
our projected margins may not be realized and we may never achieve profitable
operations.
DEPENDENCE ON SUPPLIERS AND SUBCONTRACTORS. In order to control costs and
scheduling, we expect to perform most of the machining of the Dyna-Cam Engine
internally. However, we also expect to use subcontractors to supply components
and assembled subsystems for installation in our engines. For instance, we
expect to purchase castings, forgings and bearings from outside suppliers such
as Alcoa Aluminum, Torrington and Timken Bearing. Because we have not yet
manufactured production engines, we have a limited basis upon which to judge the
performance of subcontractors. We have had discussions with certain
subcontractors and intend to obtain written agreements following an evaluation
of initial subcontractor performance. Our inability to obtain timely delivery
from our subcontractors or to locate alternate sources of supply could cause a
loss of customer orders. Failure to satisfy market demand could result in
failure to achieve our sales objectives.
DEPENDENCE ON KEY PERSONNEL. We will be dependent on the continued services
of our management team, Patricia J. Wilks and Dennis C. Palmer, our President
and our Executive Vice President and Chief Engineer, respectively. While we have
no assurance that our current management will produce successful operations, the
loss of such personnel could have an adverse effect on meeting our production
and financial performance objectives. We have employment agreements in place
with Ms. Wilks and Mr. Palmer and intend to purchase key man life insurance on
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Mr. Palmer, if reasonably available. However, we have no assurance that we will
not lose the services of these or other key personnel and may not be able to
timely replace any personnel if we do lose their services.
COMPETITION. We intend to initially target the experimental aircraft engine
market. This area is highly competitive and dominated by two manufacturers with
financial, operating, promotional and other resources far in excess of ours. We
will also compete with other well established engine manufacturers in this
market. We may not be able to compete successfully with current products or new
technology that is introduced by existing manufacturers or others that may enter
this market in the future.
LIMITED INTELLECTUAL PROPERTY PROTECTION. Dyna-Cam is relying heavily on
its patent, trade secret, nondisclosure, confidentiality and non-competition
rights to protect its limited intellectual property rights. The current patent
of the Dyna-Cam Engine design has only two years remaining before the design is
in the public domain. We have developed numerous modifications to the original
design, which we believe to be patentable, and we have filed an additional
patent application in the U.S. We expect to file for patents internationally as
required. There is no assurance that any patents will be issued and if issued
that such patents will not be challenged. It is also possible that claims that
the Dyna-Cam Engine is in the public domain will be made. Even if our patents
and other intellectual property rights are valid and enforceable, the cost of
defending any claims may be substantial. We may also face the prospect of
infringement by others. Any defense or prosecution of a claim of patent or other
infringement will be extremely expensive and would utilize capital that is
projected for use in other activities. Accordingly, we may not be able to bear
the costs of any defense or prosecution of claims related to our intellectual
property rights.
PRODUCT LIABILITY. We intend to initially target the small aircraft
business for sales of our Dyna-Cam Engine. Small aircraft are more prone to
crashes than larger, commercial aircraft. If an aircraft with one of our engines
is involved in a crash, a product liability lawsuit would be likely. If any such
claim were successful, our industry reputation and financial condition could be
severely damaged. Liability insurance may not be available or may be too
expensive to be economically justifiable to insure against the risk of product
liability claims.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
INTRODUCTION
Except for historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. These forward-looking statements include, but are not limited to,
statements regarding future events and our plans and expectations. Our actual
results could differ materially from those discussed. Factors that could cause
or contribute to differences include, but are not limited to, those discussed
elsewhere in this Form 10-SB, or incorporated by reference. See "SPECIAL NOTE ON
FORWARD-LOOKING STATEMENTS" at the beginning of this Form 10-SB.
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Dyna-Cam Engine Corporation ("DCEC") was originally incorporated in the
State of California in 1993. Effective March 31, 2000, TSI Handling, Inc., a
Nevada corporation ("TSIH"), acquired substantially all of the operating assets
and liabilities of DCEC for 30,000,000 shares of TSIH common stock and 200,000
shares of newly designated Series A Preferred stock were issued for settlement
of DCEC debt. Immediately following the transaction, the stockholders of DCEC
held approximately 85.7% of the outstanding shares of common stock of TSIH.
Subsequent to this transaction, TSIH amended its Articles of Incorporation to
change its name to Dyna-Cam Engine Corporation. DCEC is in process of
liquidating.
For accounting purposes, the acquisition of the assets of DCEC has been
treated as a recapitalization of DCEC with DCEC as the acquirer. Accordingly,
the historical financial statements have been restated after giving effect to
the March 31, 2000 acquisition of DCEC. The financial statements included in
this Form 10-SB have been prepared to give retroactive effect to the acquisition
completed on March 31, 2000 and represent the historic operations of DCEC. All
of DCEC's assets, liabilities and accumulated deficit are reflected at their
combined historical cost (as the accounting acquirer) and the pre-existing
outstanding shares of TSIH (the accounting acquiree) are reflected at their net
asset value which was not material. The acquisition is treated as an issuance of
shares for net assets of DCEC by TSIH and is recorded under the purchase method.
TSIH had no significant operations, assets or liabilities prior to its
transaction with DCEC.
The following discussion provides information that we believe will help you
understand our financial statements, and should be read along with these
financial statements and related notes. We have continued as a development stage
company during the fiscal quarter ended September 30, 2000.
PLAN OF OPERATIONS
We are in the business of developing and intend to manufacture, market and
sell our unique, axial cam-drive, free piston, internal combustion engine, which
we believe offers a number of significant advantages over conventional piston
engines. Although originally designed for use in aircraft, we believe the
Dyna-Cam Engine has numerous additional potential uses, particularly in marine,
industrial, heavy automotive and military applications. We intend to initially
target the kitbuilt segment of the experimental aircraft market with our DC375
model. We plan to develop other sizes and variations of the Dyna-Cam Engine, and
we hope to target other markets and industries in the future as well.
There is no meaningful operating or financial history to evaluate our
prospects for successful operations. Previously, our predecessor, DCEC,
conducted research and development of the Dyna-Cam Engine and built and tested
several prototypes. DCEC incurred operating losses and had negative cash flow
since its incorporation in 1993. Future losses for our operations are
anticipated. We have just recently completed the final manufacturing plan for
producing the DC375, our first production engine.
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Our operations will be subject to all of the risks inherent in the
establishment of a new business enterprise, particularly one that is dependent,
initially, on the ever-changing small aircraft industry. The likelihood of our
success must be considered in light of the problems, expenses, difficulties,
complications and delays frequently encountered in connection with establishing
a new business, including uncertainty as to production capabilities, market
acceptance, marketing methods, expenses and competition. In addition, until we
sell engines, our operations will not result in cash flow sufficient to finance
the continued expansion of our new business. A substantial portion of our
capital will be applied to the acquisition of materials, components and
additional tooling, assembly and labor to manufacture the initial Dyna-Cam
Engines and to implement sales, marketing and promotional activities. Even after
production and sales commence, we may require substantial additional capital for
assembly or manufacturing activities, for purchase of additional engine
components or for marketing and advertising activities. We anticipate
substantial additional capital will be required for these operations.
If the Dyna-Cam Engine does not receive consumer or industrial acceptance
as we anticipate, our revenues and operating results will likewise not reach the
levels we anticipate. Our Dyna-Cam Engine has no brand name recognition as do
our competitors' engines and the Dyna-Cam Engine is based on a design that is
not currently produced. Actual performance of production engines may not match
the test results of our prototype engines. We believe that if the actual
performance of our engine is not substantially better than the performance of
conventional engines, our Dyna-Cam Engine may not attain the market acceptance
we anticipate.
We are relying heavily on our patent, trade secret, nondisclosure,
confidentiality and non-competition rights to protect our limited intellectual
property rights. The current patent covering the Dyna-Cam Engine design has only
two years remaining before the design is in the public domain. The original
developer of the technology patented certain key components, such as the cam and
piston design, and this may limit future patent protection. We have submitted a
new patent application on various improvements identified and made to the
Dyna-Cam Engine since the original patents were obtained and have received
"PATENT PENDING STATUS" on this application. We intend to file additional
patents domestically as well as internationally.
RESULTS OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED) AS COMPARED TO THE SIX
MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED). We had no revenues during either
the six months ended September 30, 2000 or the six months ended September 30,
1999. Our net loss for the six months ended September 30, 2000 was $352,254 as
compared a net loss for the six months ended September 30, 1999 of $110,816.
An increase in general and administrative expenses and research and
development expenses accounted for substantially all of the increase in the net
loss in the six months ended September 30, 2000. General and administrative
expenses increased from $30,901 in the six months ended September 30, 1999 to
$204,694 in the six months ended September 30, 2000. During the six months ended
September 30, 2000, we incurred expenses for the audit for the year ended March
31, 2000 and for outside financial management services of Aztore Holdings, Inc.
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("AZTORE") for audit preparation, corporate restructuring, and assistance in the
private placement. Costs associated with these activities amounted to $140,000
during the six months ended September 30, 2000. Aztore, a Phoenix,
Arizona-based, investment and consulting company, holds various interests in
companies and specializes in corporate restructuring and consulting services. We
engaged Aztore to provide financial consulting services related to our financial
reporting, internal accounting, capital raising and stock trading activities at
the rate of $150 per hour for the services of its personnel. Effective June 1,
2000, we modified this arrangement to a fixed $15,000 per month fee.
There will be future costs estimated at approximately $100,000 during the
remainder of the fiscal year ending March 31, 2001 for filings with the
Securities and Exchange Commission (the "SEC") and other agencies. These costs
include continuing accounting, legal and business consulting expenses related to
these activities.
In addition to Aztore's fees, legal and professional fees, audit fees and
various regulatory filing fees, our expenses for management salaries increased
from $26,250 in the six months ended September 30, 1999 to $60,000 in the six
months ended September 30, 2000. This was a result of our entering into
employment agreements with Patricia J. Wilks, our President, and Dennis C.
Palmer, our Chief Engineer, commencing April 1, 2000. We also hired two
additional employees during the current period. Our management started to
receive their first monetary compensation pursuant to these employment
contracts. During the fiscal years ending March 31, 1999 and 2000, Ms. Wilks and
Mr. Palmer received no cash compensation and had accepted common stock in DCEC
in settlement of all unpaid services rendered. See "ITEM 6. EXECUTIVE
COMPENSATION."
Research and development costs increased from $3,011 in the six months
ended September 30, 1999 to $35,371 in the six months ended September 30, 2000
due to increases in tooling and machining expenses as we produce more engine
parts in-house. Mr. Palmer's salary for the six months ending September 30, 2000
($30,000) was charged to research and development costs or to work-in-process
inventory.
Depreciation and amortization increased from $17,532 in the six months
ended September 30, 1999 to $37,445 in the six months ended September 30, 2000
due to an increase in machinery and equipment purchased between the two periods.
Monthly depreciation is approximately $6,500 per month and is not expected to
materially increase for the remainder of the fiscal year.
Interest expense increased considerably, as expected, from $15,467 in the
six months ended September 30, 1999 to $45,796 in the six months ended September
30, 2000. The increase was due principally to the increased borrowings from
Aztore under a Note and Share Purchase Agreement that DCEC entered into in March
2000. Under the terms of this agreement, Aztore agreed to loan us up to $350,000
to provide us with operating capital to settle significant old liabilities in
default and to allow a ramp up to production activities. This commitment was
fully advanced by Aztore as of June 30, 2000 and later fully repaid from
proceeds derived from the private placement of our Series A Preferred.
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FISCAL YEAR ENDED MARCH 31, 2000 COMPARED TO FISCAL YEAR ENDED MARCH 31,
1999. We had no revenues during either the fiscal year ended March 31, 2000 or
the fiscal year ended March 31, 1999. Our net loss for the fiscal year ended
March 31, 2000 amounted to $152,990 as compared to net loss for the fiscal year
ended March 31, 1999 of $202,052. Total operating expenses for fiscal year ended
March 31, 2000 amounted to $292,403 as compared to total operating expenses for
the fiscal year ended March 31, 1999 of $187,281. The following table presents
operating expenses for the respective fiscal years:
MARCH 31, 2000 MARCH 31, 1999
----------------- -----------------
AMOUNT % AMOUNT %
-------- ----- -------- -----
Legal and professional fees $ 49,899 17.1 $ 12,768 6.8
Research and development 63,892 21.9 42,067 22.5
General and administrative 113,506 38.7 99,807 53.3
Depreciation and amortization 65,106 23.3 32,639 17.4
-------- ----- -------- -----
Total operating expenses $292,403 100.0 $187,281 100.0
Legal and professional fees increased by approximately $37,000 in the
fiscal year ended March 31, 2000. The increase was related to outside legal fees
associated with the acquisition of the DCEC assets and the placement of our
Series A Preferred stock.
Research and development costs increased by approximately $21,800 in the
fiscal year ended March 31, 2000 compared to the fiscal year ended March 31,
1999 due to increases in tooling and machining expenses as we commenced
producing more of the engine parts in-house.
There was no single contributing factor to the approximate $13,700 increase
in general and administrative expenses during fiscal 2000. The largest increases
of general and administrative expenses were for facility rent, telephone and
office supplies.
Depreciation and amortization increased from $32,639 in the fiscal year
ended March 31, 2000 to $65,106 in the fiscal year ended March 31, 2000 due to
an increase in machinery and equipment purchased between the two periods. Our
capitalized machinery and equipment increased by approximately $251,000 during
the period which was primarily paid from proceeds of an SBA loan obtained in May
1999 ($144,841) and by financing under capitalized lease obligations ($106,186).
Monthly depreciation is approximately $6,500 per month and is not expected to
materially increase during the next fiscal year.
Other income (expense) consisted of the following items:
MARCH 31, 2000 MARCH 31, 1999
AMOUNT AMOUNT
--------- --------
Interest expense $ (50,636) $(63,899)
Interest income 370 --
Other income 189,679 49,128
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Interest expense decreased slightly in the fiscal year ended March 31,
2000. The decrease was due principally to the reduction in principal on our
outstanding debt. We settled these debts at discounts, which resulted in an
extraordinary gain on debt extinguishment of $189,679 for the year ended March
31, 2000. The decrease in interest expense was offset by increased borrowings on
our SBA loan and the bridge borrowings from Aztore under a Note and Share
Purchase Agreement entered into in March 2000. The gain resulting from the debt
reduction resulted in non-operating income for this period.
LIQUIDITY AND CAPITAL RESOURCES
SEPTEMBER 30, 2000 COMPARED TO SEPTEMBER 30, 1999. From inception through
September 30, 2000, we have been a development stage company. No products have
been available for sale. Financing in the past has been from both equity and
loan arrangements. At September 30, 2000, we were operating principally on new
equity financing obtained from the private placement of our Series A Preferred.
Prior to funds being available from the placement, Aztore loaned us $350,000,
which was fully funded by June 30, 2000. The funding allowed us to payoff two
notes payable, aggregating $205,000, both of which were in default at March 31,
2000. The Aztore loan was fully repaid by September 30, 2000 from proceeds of
the Series A placement.
We obtained $1,050,000 of new funding from the Series A placement. These
proceeds were used as follows:
Placement fees and expense reimbursement $136,500
Payoff the bridge note to Aztore 350,000
Payoff Aztore's management fee note 41,400
Interest on the Aztore notes 20,200
Acquire a Cessna 337 Skymaster twin-engine engine airplane 80,320
Working capital for general and administrative services 231,880
We have approximately $189,700 of cash remaining from this placement held as a
working capital reserve. We anticipate another private placement of our Series A
Preferred will provide additional capital for our operations.
During the quarter ending September 30, 2000, we modified our arrangement
with Aztore to pay a fixed $15,000 per month fee. Aztore's aggregate fee under
the old fee structure totaled $69,000 as of May 31, 2000. Aztore accepted 27,600
shares of Series A Preferred stock in lieu of $27,600 in cash. Aztore was issued
a note for the balance of $41,400 and this was paid proceeds from the Series A
placement.
Except for the acquisition of some minor equipment ($4,850) and a vehicle
financed through a dealership finance company ($24,000), we had no significant
expenditures on capital equipment during the quarter ending September 30, 2000.
On November 7, 2000, we acquired a Cessna 337 Skymaster twin-engine engine
airplane for $80,320. Riley Super Skyrocket, one of the premier airplane
modifiers in the country, will be installing our Dyna-Cam Engine in this
Skymaster and assist us with extensive in-flight testing and regulatory filings.
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At September 30, 1999, our liquidity was provided by an increase in
long-term debt borrowings of approximately $179,000 from our SBA loan. The
balance borrowed on the SBA loan increased from $114,582 as of March 31, 1999 to
approximately $293,000 as of September 30, 1999. With this increased borrowing,
we acquired additional machinery and equipment totaling approximately $172,696.
MARCH 31, 2000 COMPARED TO MARCH 31, 1999. From inception through March 31,
2000, we have been a development stage company. No products have been available
for sale. Financing in the past has been from both equity and loan arrangements.
At March 31, 2000, our liquidity was provided by an increase in total borrowings
on our note payable and long-term debt obligations of approximately $405,000 to
a total of $745,880. These included net takedowns of $210,000 on our SBA loan,
borrowings of $30,000 from an individual, $90,000 from principals of DCEC and
new borrowings of $75,000 received from Aztore.
We also had expenditures on capital equipment during the fiscal year ending
March 31, 2000 totaling $144,841, which were primarily financed under new
capitalized lease obligations totaling $106,186. The machinery and equipment
financed under capitalized leases were $70,974 for a CNC lathe, options and
accessories and $35,212 for a Victor lathe, mill, saw and accessories. As
additional funds are available, we will acquire materials, components and
additional tooling and equipment. Additional proceeds will also be used for
assembly and manufacture of the initial Dyna-Cam Engines and implementation of
sales, marketing and promotional activities.
Repayments on our notes payable obligations and principal repayments on the
capitalized leases totaled approximately $100,000. At March 31, 2000, although
we were in default on two of our notes payable obligations, these notes were
settled and the settlement amounts were paid subsequent to March 31, 2000 from
the additional Aztore borrowings.
ITEM 3. DESCRIPTION OF PROPERTY
We currently lease a 6,000 square foot facility adjacent to the Torrance
Airport in Torrance, California, near Los Angeles. The term of the lease is
month-to-month and the monthly rental payment is $2,800. This facility will be
suitable in the early stages of production, but we may need additional space in
the near term. We believe additional space will be available in or near our
existing facility and we do not expect any difficulty finding larger and more
suitable space as needed.
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ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of our common stock
as of November 10, 2000 by the officers and directors and by persons holding
more than 5% of our outstanding stock:
NAME AND ADDRESS SHARES HELD(1) PERCENTAGE(1)
---------------- -------------- -------------
Patricia J. Wilks (2) 10,616,876 27.31%
23960 Madison Avenue
Torrance, California 90505
Dennis C. Palmer (2) 10,096,887 25.97%
23960 Madison Avenue
Torrance, California 90505
Ambrose D. Hope 757,219 1.95%
23960 Madison Avenue
Torrance, California 90505
Michael S. Williams (3) 5,727,686 14.73%
3710 East Kent Drive
Phoenix, Arizona 85044
Claude Palmer 3,028,865 7.79%
23960 Madison Avenue
Torrance, California 90505
Jack E. Dahl -- --
19801 Marilla Street
Chatsworth, CA 91311
Lanny R. Lang (3) 5,727,686 14.73%
3536 E. Saltsage Drive
Phoenix, Arizona 85048
Aztore Holdings, Inc. (4) 5,727,686 14.73%
3710 E. Kent Drive
Phoenix, AZ 85044
Chasseur Holdings, Inc. 4,000,000 10.29%
2117 S. 48th Street, Suite 105
Tempe, AZ 85282-1016
Total officers and directors 27,198,668 69.96%
as a group (6 persons)
(1) AMOUNTS AND PERCENTAGES BASED ON A TOTAL OF 38,876,232 "AS CONVERTED"
SHARES OF COMMON STOCK OUTSTANDING, INCLUDING 35,014,635 SHARES OF COMMON
STOCK ISSUED AND OUTSTANDING AND 1,287,199 SHARES OF SERIES A PREFERRED
STOCK ISSUED AND OUTSTANDING, WHICH CONVERT INTO 3,861,597 SHARES OF COMMON
STOCK. AMOUNTS AND PERCENTAGES DO NOT INCLUDE THE 4,000,000 UNVESTED
EMPLOYEE STOCK OPTIONS ISSUED AND OUTSTANDING, HELD 2,000,000 EACH BY MS.
WILKS AND MR. D. PALMER, NOR THE POTENTIAL EXERCISE OF ANY OF THE COMMON
STOCK PURCHASE WARRANTS ISSUED AND OUTSTANDING.
(2) EXCLUDES SHARES OF COMMON STOCK HELD BY ADULT FAMILY MEMBERS OF MS. WILKS,
MR. D. PALMER OR MR. C. PALMER NOT UNDER THEIR DISPOSITIVE CONTROL.
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(3) AMOUNTS AND PERCENTAGES INCLUDE 1,727,686 "AS CONVERTED" SHARES OF COMMON
STOCK HELD BY AZTORE AND 4,000,000 SHARES OF COMMON STOCK HELD BY CHASSEUR.
MR. WILLIAMS IS THE CHIEF EXECUTIVE OFFICER AND CHIEF PORTFOLIO OFFICER AND
MR. LANG IS THE CHIEF FINANCIAL OFFICER OF AZTORE AND CHASSEUR. MR.
WILLIAMS AND MR. LANG ARE DEEMED THROUGH THEIR DIRECT AND INDIRECT
OWNERSHIP OF AZTORE AND CHASSEUR TO HAVE VOTING CONTROL OF ALL SHARES HELD
BY THESE COMPANIES. MR. WILLIAMS AND MR. LANG DISCLAIM ANY OWNERSHIP OTHER
THAN AS BENEFICIALLY HELD THROUGH THEIR DIRECT AND INDIRECT OWNERSHIP OF
AZTORE AND CHASSEUR.
(4) AMOUNTS AND PERCENTAGES INCLUDE 1,644,886 SHARES OF COMMON STOCK AND 27,600
SHARES OF SERIES A PREFERRED STOCK, WHICH WOULD CONVERT INTO 82,800 SHARES
OF COMMON STOCK. ALSO INCLUDES 4,000,000 SHARES OF COMMON STOCK HELD BY
CHASSEUR. AZTORE OWNS CONTROLLING INTEREST IN CHASSEUR AND IS DEEMED
THROUGH THIS OWNERSHIP TO HAVE VOTING CONTROL OF ALL SHARES HELD BY
CHASSEUR.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Our executive officers, directors and key employees are:
NAME AGE POSITION
---- --- --------
Patricia J. Wilks 57 President and Director
Dennis C. Palmer 50 Executive Vice President, Chief Engineer,
Treasurer and Director
Ambrose Hope 71 Director of Research and Development and
Director
Michael S. Williams 53 Chairman of the Board (initial Series A
Board member)
Jack E. Dahl 67 Director
Lanny R. Lang 42 Secretary
PATRICIA J. WILKS. Ms. Wilks was appointed President of Dyna-Cam in March
2000 following consummation of the DCEC acquisition. She had been the President
of DCEC since its incorporation in December 1993. Ms. Wilks co-founded the
Palmer Group Partnership in 1987, which became DCEC in 1993. Ms. Wilks was
awarded the Entrepreneurial Seed Capital Loan Award from the Economic
Development Corporation of Los Angeles County as a result of efforts with the
Dyna-Cam Engine project. From 1970 to 1985, Ms. Wilks held positions at Rockwell
International Space, Vomar Products, and Electronic Memories Systems and was
involved in office management, engineering, sales, marketing and industrial
development. Ms. Wilks is a licensed pilot and has had experience in the
aircraft engine industry and the Dyna-Cam Engine project since 1980. Ms. Wilks
graduated from California State University, Los Angeles in 1969 with a Bachelor
of Arts degree in Art and Graphics Design.
DENNIS C. PALMER. Mr. Palmer has been the Executive Vice President and
Chief Engineer of Dyna-Cam since March 2000 following consummation of the DCEC
acquisition. Mr. Palmer held these same positions with DCEC since 1993. He,
along with Ms. Wilks, co-founded DCEC's predecessor, the Palmer Group
Partnership in 1987. From 1987 until 1990, he was Sales Engineer for Petrolane
(Propane Gas Systems) where he specialized in truck and automotive conversions
from gas and diesel to propane fuel usage for reduced costs and emissions
reduction. From 1985 until 1987, Mr. Palmer was a Territory Sales Manager for
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Detroit Diesel Engines, a major manufacturer and distributor of engines and
engine parts. At Detroit Diesel, he set up dealerships, distributors and sold
engines to trucking and bus companies on a direct basis. From 1973 to 1983, Mr.
Palmer held engineering and technical sales positions with ITT and Plast-O-Matic
and became Western Regional Manager for Hayward Industries, an industrial valve
and piping company with responsibilities over eleven western states.
Mr. Palmer was the developer of the designs for the most recent patent
pending on the Dyna-Cam Engine. Mr. Palmer is a member of the Society of
Automotive Engineers, an organization devoted to engine design and development.
Mr. Palmer received a Bachelor of Science Degree in Mechanical Engineering from
California Polytechnic University at Pomona in 1973 with an emphasis in internal
combustion engines.
Patricia J. Wilks and Dennis C. Palmer are brother and sister.
AMBROSE D. HOPE. Mr. Hope has been a director of Dyna-Cam since March 2000
and a consultant with Dyna-Cam, DCEC and its predecessors since 1987. Mr. Hope
directed the installation of the Dyna-Cam Engine into an aircraft testbed. From
1990 to 1997, Mr. Hope managed the wind tunnel and space research and
development model work for companies such as Boeing, McDonnell Douglas,
Rockwell, Lockheed, LTV, Israel Aircraft, Convair and Ryan. From 1985 to 1990,
he was employed by Spacecraft Machine Shop, an aerospace machine shop, as a
quality control engineer. From 1974 to 1985, Mr. Hope was Supervisor of Research
and Development at Rockwell International directing 150 technicians and
machinists plus eight engineers. His main responsibilities were wind tunnel
model design, development and fabrication. Projects he supervised included the
models of the X-15, XB70 Delta Wing, T-39 Saberliner and the B1-A and B1-B, and
space shuttle model design and testing.
MICHAEL S. WILLIAMS. Mr. Williams has been a director of Dyna-Cam since its
formation in June 1999. Mr. Williams was the President of Dyna-Cam from its
incorporation in June 1999 until the DCEC acquisition, effective March 31, 2000.
Since 1995, Mr. Williams has been the Chief Executive Officer and Chief
Portfolio Officer of Aztore Holdings, Inc., a Phoenix, Arizona-based investment
and management consulting company. He devotes full-time to Aztore's affairs and
Portfolio Companies. Since 1999, Mr. Williams has also been the Chief Executive
Officer and Chief Portfolio Officer of Chasseur Holdings, Inc., a company
similar to Aztore. From November 1993 to December 1995, Mr. Williams formed and
was a Managing Director of Bulldog Investment Company, L.L.C., a private
investment company with a business plan similar to Aztore's. From November 1990
to November 1993, Mr. Williams was the sole principal in Bucher & Williams, a
private investment and consulting company. Mr. Williams has an MBA degree in
Strategic Planning and Corporate Finance from the Wharton Graduate School of the
University of Pennsylvania in 1974 and a Bachelor of Arts degree in both History
and Political Science from Pennsylvania State University in 1969.
Mr. Williams holds various officer and director positions in the many of
Aztore's Portfolio Companies, some of which are in extended financial condition
which has included bankruptcy.
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JACK E. DAHL. Mr. Dahl was appointed as a director of Dyna-Cam on November
3, 2000. Since 1994, Mr. Dahl served as the Chief Financial Officer and on the
board of directors of Genetec Inc. an emerging power plant technology company.
Between 1990 and April 2000, he worked with Veritec Inc., first as a consultant,
and in October 1995 when Veritec was petitioned into an involuntary bankruptcy
proceeding, as the President and Chief Executive Officer. The bankruptcy
proceeding was initially a Chapter 7 proceeding and was converted to Chapter 11
Bankruptcy in April 1996. Upon approval of a plan of reorganization for Veritec,
Mr. Dahl continued as a financial consultant until April 2000 when he resigned.
In October, 1999, Veritec's final decree dismissing the bankruptcy was granted.
From 1984 to 1989, Mr. Dahl was the President, Chief Executive Officer and a
director of U.S. Pump & Turbine Company. From 1980 to 1984, he was President and
a director of Elixir Industries, Inc. Earlier in his career, Mr. Dahl served in
executive officer and director positions with companies such as Energy Systems
International, Inc., E&S Management Company, Carolina International, Inc., City
Investing Company, Guerdon Industries, Inc., Alma Plastics Company, Lichter Duo
Rest, R.C. Allen, Fleetwood Enterprises, Inc. and Arthur Andersen, Westbridge
Research Products and Sytar International, Inc. Mr. Dahl received a BS degree in
Accounting from the University of Utah.
LANNY R. LANG. Mr. Lang has been the Secretary of Dyna-Cam since its
formation in June 1999. Mr. Lang had been a Director and Treasurer of Dyna-Cam
from its formation until the DCEC acquisition effective March 31, 2000 when he
resigned. Since 1995, Mr. Lang has been the Chief Financial Officer, Secretary
and Treasurer of Aztore. He devotes full-time to Aztore's affairs and Portfolio
Companies. Since 1999, Mr. Lang has also been the Chief Financial Officer,
Secretary and Treasurer of Chasseur Holdings, Inc., a company similar to Aztore.
From November 1991 to December 1995, Mr. Lang, along with Mr. Williams, formed
and was a Managing Director of Bulldog Investment Company, LLC, a private
investment company with a business plan similar to Aztore's. From November 1991
to November 1993, Mr. Lang was the sole principal of Lang Financial Services,
Inc., a private investment and consulting company. From 1980 to 1985, Mr. Lang
was employed in the Audit Department of Price Waterhouse in Minneapolis,
Minnesota. Mr. Lang received a BA degree in Accounting from the University of
Northern Iowa.
Mr. Lang holds various officer and director positions in the many of
Aztore's Portfolio Companies, some of which are in extended financial condition
which has included bankruptcy.
ITEM 6. EXECUTIVE COMPENSATION
The following table reflects all forms of compensation for the fiscal years
ended March 31, 2000, 1999 and 1998 for the President and Executive Vice
President/Chief Engineer. No other person received salary or bonus in excess of
$100,000 for any of these fiscal years.
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SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------ ------------
OTHER STOCK
FISCAL ANNUAL OPTIONS
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION (SHARES)
--------------------------- ---- ------ ------------ --------
Patricia J. Wilks 2000 -- $25,000(2) 2,000,000(1)
1999 -- $30,639(2) --
1998 $5,635 -- --
Dennis C. Palmer 2000 -- $27,500(3) 2,000,000(1)
1999 -- $30,639(3) --
1998 $4,456 -- --
(1) THE OPTIONS HAVE NOT YET VESTED AND HAVE BEEN ALLOTTED PURSUANT TO AN
OPTION PLAN WITH REQUISITE VESTING REQUIREMENTS TO BE ACHIEVED.
(2) MS. WILKS WAS ISSUED 6,000,000 AND 5,000,000 SHARES AS COMPENSATION FOR THE
YEARS ENDED MARCH 31, 1999 AND 2000. THE SHARES WERE ISSUED AT A VALUE OF
$0.0067 PER SHARE.
(3) MR. PALMER WAS ISSUED 6,000,000 AND 5,000,000 SHARES AS COMPENSATION FOR
THE YEARS ENDED MARCH 31, 1999 AND 2000. THE SHARES WERE ISSUED AT A VALUE
OF $0.0067 PER SHARE.
OPTION GRANTS
The following table sets forth information regarding the grants of options
to executive officers for the fiscal year ended March 31, 2000.
OPTION GRANTS IN FISCAL YEAR 2000
SHARES UNDERLYING % OF TOTAL EXERCISE EXPIRATION
NAME OPTIONS GRANTED OPTIONS GRANTED PRICE DATE
---- --------------- --------------- ----- ----
Patricia J. Wilks 2,000,000 50% $0.30 March 31, 2009
Dennis C. Palmer 2,000,000 50% $0.30 March 31, 2009
OPTION EXERCISES AND VALUES
The following table sets forth information regarding the exercise and
values of options held by executive officers as of March 31, 2000.
AGGREGATE OPTION EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
MARCH 31, 2000 MARCH 31, 2000
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE VALUE REALIZED UNEXERCISABLE UNEXERCISABLE
---- ----------- -------------- ------------- -------------
Patricia J. Wilks 0 0 0/2,000,000 $0/$0
Dennis C. Palmer 0 0 0/2,000,000 $0/$0
24
<PAGE>
EMPLOYMENT AGREEMENTS
On March 31, 2000, we entered into five-year employment contracts with our
President and Executive Vice President/Chief Engineer. These employment
contracts require exclusive service to Dyna-Cam in exchange for minimum annual
salaries of $60,000 each during the term of the contracts. Upon termination for
reasons other than for cause, Dyna-Cam is obligated for the balance due under
the employment contracts payable over 12 months. The employment contracts
provide for discretionary bonuses determined by the Board of Directors and
contain customary non-compete covenants and intellectual property assignment
provisions.
2000 EQUITY INCENTIVE PLAN
We have an approved Equity Incentive Plan ("EIP") for our directors,
officers, key employees and consultants originally covering 3,000,000 shares of
our common stock. On March 3, 2000, the Board of Directors approved an increase
in the shares covered under the EIP to 6,000,000 shares. This action was
ratified by majority consent of our shareholders as permitted by Nevada law. On
March 31, 2000, 4,000,000 options were granted with an exercise price of $.30,
five-year equal year vesting on the anniversary of the grant date and expiring
in accordance with the EIP or no later than nine years from date of grant. None
of these options have currently vested.
Options granted under the EIP may be either "incentive stock options," as
defined in Section 422A of the Internal Revenue Code, or "nonqualified stock
options," subject to Section 83 of the Internal Revenue Code, at the discretion
of the Board of Directors and as reflected in the terms of the written option
agreement. The option price may not be less than 100% (110% if the option is
granted to an optionee who at the time the option is granted owns stock
representing more than 10% of the total combined voting power of all classes of
our stock) of the fair market value of the optioned common stock on the date the
options are granted. Options become exercisable based on the discretion of the
Board of Directors and must be exercised within ten years of the date of grant.
The EIP expires June 14, 2009.
COMPENSATION OF DIRECTORS
The present directors of Dyna-Cam are not compensated for their services as
directors.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
DCEC TRANSACTIONS. In May 1998, DCEC issued 6,000,000 shares of its common
stock each to Patricia J. Wilks and to Dennis Palmer in settlement of accrued
compensation and 1,500,000 shares to Mr. Claude Palmer in settlement of accrued
amounts due for consulting services. These shares were valued at $0.0067 each,
for total consideration of $68,937. The 13,500,000 shares of DCEC issued equated
to approximately 10,222,000 shares of Dyna-Cam to be distributed upon
liquidation of DCEC.
In March 2000, DCEC issued 2,500,000 shares of its common stock to Claude
Palmer and 1,000,000 shares to Ambrose Hope in settlement of accrued amounts due
for consulting services. The shares were valued at $0.0067 each, for total
25
<PAGE>
consideration of $23,450. The 3,000,000 shares of DCEC issued equated to
approximately 2,650,200 shares of Dyna-Cam to be distributed upon liquidation of
DCEC.
Also in March 2000, DCEC issued 5,000,000 shares of its common stock to
Patricia J. Wilks in settlement of accrued compensation and 5,500,000 shares to
Dennis Palmer in settlement of accrued compensation and for release of all
claims related to DCEC's patent and technology. These shares were valued at
$0.0067 each, for total consideration of $52,500. The 10,500,000 shares of DCEC
issued equated to approximately 7,951,000 shares of Dyna-Cam distributed in
connection with the liquidation of DCEC.
NOTE AND SHARE PURCHASE AGREEMENT. In March 2000, Aztore and DCEC entered
into a Note and Share Purchase Agreement. Under this agreement, Aztore agreed to
loan $350,000 to DCEC. The obligation to repay the loan was assumed by Dyna-Cam
upon consummation of the DCEC transaction. The loan bears interest at 12% and is
due on or before March 1, 2001. DCEC issued 4,900,000 of its shares to Aztore as
additional consideration for the loan. These 4,900,000 shares of DCEC equated to
3,710,361 shares of Dyna-Cam to be distributed in the DCEC liquidation. Of the
3,710,361 shares, 927,591 shares were distributed to persons participating in
the loan with Aztore, 1,391,385 were distributed to Sunset Financial Services,
Inc. as compensation in placing participations in the loan and 1,391,385 were
retained by Aztore.
ASSET EXCHANGE AGREEMENT. Effective March 31, 2000, pursuant to an Asset
Exchange Agreement, TSIH acquired all of the assets of DCEC, subject to certain
liabilities, in exchange for 30,000,000 shares of TSIH's common stock and
200,000 shares of Series A Preferred stock. The Asset Exchange Agreement was
approved by the shareholders of DCEC at a special shareholders meeting held on
July 12, 2000. The 30,000,000 shares of common stock and the 200,000 shares of
Series a Preferred stock that were issued to DCEC in exchange for the DCEC
assets are to be distributed by DCEC in liquidation. Of the shares distributed,
Patricia J. Wilks received a total of 10,247,780 shares of common stock and
175,000 shares of Series A Preferred stock, Dennis Palmer received 10,096,771
shares of common stock, Ambrose Hope received 757,216 shares of common stock,
Claude Palmer received 3,028,865 shares of common stock and Aztore received
1,391,385 shares of common stock. These shares include the shares described
above.
CAPITAL ADVISORY AND FINANCIAL CONSULTING SERVICES AGREEMENT. In connection
with the closing of the Asset Exchange Agreement, Dyna-Cam entered into a
Capital Advisory and Financial Consulting Services Agreement with Aztore. Under
this agreement, Aztore is to receive a non-accountable expense reimbursement
equal to one and one-half percent of the gross proceeds of certain placements, a
fee of five percent of the proceeds from the exercise of any of our outstanding
warrants and other customary fees for services in connection with merger,
acquisition or other capital raising activities. Aztore is also to provide
financial consulting services related to our financial reporting, internal
accounting, capital raising and stock trading activities and was initially
compensated at the rate of $150 per hour for the services of its personnel.
Through May 31, Aztore's aggregate fee under the old fee structure totaled
$69,000. Aztore accepted 27,600 shares of Series A Preferred stock in lieu of
$27,600 of fees and was issued a note payable for $41,400 for the balance owed.
This note was paid in October 2000. Effective June 1, 2000, the agreement was
amended to provide a $15,000 fixed monthly fee payable to Aztore in lieu of
hourly fees.
26
<PAGE>
EXISTING SHAREHOLDERS RIGHTS AGREEMENT. In connection with the closing of
the Asset Exchange Agreement, Dyna-Cam entered into an Existing Shareholders
Rights Agreement with certain shareholders of Chasseur. Under this agreement,
the shareholders of TSIH prior to the acquisition of DCEC, including Chasseur,
were granted anti-dilution and certain other rights.
ITEM 8. DESCRIPTION OF SECURITIES
Dyna-Cam is currently authorized to issue up to 65,000,000 shares of $.001
par value common stock and up to 10,000,000 shares of $.001 par value preferred
stock. Our Board of Directors has the right to designate the rights and
preferences of any of the preferred shares to be issued by Dyna-Cam. The Board
has currently designated the issuance of 6,000,000 shares of Series A Preferred
stock of which 1,287,199 shares are currently outstanding. We have 35,014,635
shares of common stock outstanding. We have outstanding 2,400,000 warrants
exercisable at prices ranging from $2.00 to $6.00 per share and 315,000 warrants
exercisable at $0.67 per share. We also have 4,000,000 employee stock options
outstanding.
COMMON STOCK
The holders of common stock are entitled to one vote per share on all
matters submitted to a vote of shareholders. In addition, the common stock
holders may be paid dividends in such amounts as may be declared from time to
time by the Board of Directors out of legally available funds. No dividends may
be paid on the common stock until all accrued but unpaid dividends on the Series
A Preferred stock have been paid. In the event of the dissolution, liquidation
or winding up of Dyna-Cam, the holders of the common stock are entitled to share
ratably in all assets remaining after payment of all liabilities and the
preference amount distributable to the holders of the Series A Preferred. All
outstanding shares of common stock are fully paid and nonassessable.
Except for any matters which may require a greater percentage vote for
approval under applicable law, the holders of a majority of the outstanding
common stock, if present in person or by proxy, are sufficient to constitute a
quorum for the transaction of business at meetings of our shareholders. Holders
of shares of common stock are entitled to one vote per share on all matters
submitted to the vote of shareholders. Except as to any matters which, under
applicable law, require a greater percentage vote for approval, the affirmative
vote of the holders of a majority of the common stock present in person or by
proxy at any meeting (provided a quorum is present) is sufficient to authorize,
affirm or ratify any act or action, including the election of directors.
The holders of common stock do not have cumulative voting rights.
Accordingly, subject to the rights of the holders of the Series A Preferred
stock, discussed below, and any future preferred shares issued, the holders of
more than half of the outstanding shares of common stock can elect all of the
Directors to be elected in any election, if they choose to do so. In such event,
the holders of the remaining shares of common stock would not be able to elect
any directors. The Board is empowered to fill any vacancies on the Board created
by the resignation, death or removal of Directors.
27
<PAGE>
PREFERRED STOCK
Dyna-Cam is authorized to issue up to 10,000,000 shares of preferred stock,
$.001 par value per share, of which 6,000,000 shares have been designated as
Series A Preferred stock. The Board of Directors, without further shareholder
approval, may from time to time designate one or more additional series and
issue such shares for such consideration as the Board may determine. The Board
of Directors has the authority, without shareholder approval, to fix the
dividend rate and to establish the provisions, if any, relating to voting
rights, redemption rates, sinking funds, liquidation preferences and conversion
rights for any series of preferred stock issued in the future, which could
adversely affect the voting power or other rights of the holders of the common
stock. The Board's authority to issue preferred stock provides a convenient
vehicle in connection with possible acquisitions and other corporate purposes,
but could have the effect of making it more difficult for a person or group to
gain control of Dyna-Cam.
SERIES A 10% CUMULATIVE CONVERTIBLE PREFERRED STOCK
The Board of Directors has designated 6,000,000 shares of Dyna-Cam's
authorized preferred stock as Series A 10% Cumulative Convertible Preferred
Stock ("SERIES A PREFERRED"), 1,287,199 shares of Series A Preferred have been
issued and are outstanding.
The Series A Preferred accrues dividends at the rate of $0.10 per share per
annum (10% of the liquidation preference amount) on each January 1, April 1,
July 1 and October 1. Dividends are pro rated for the period the shares are
actually outstanding. Dividends are payable only as declared by the Board of
Directors, are cumulative and only paid out of funds legally available for the
payment of dividends. Accrued dividends are to be paid in shares of common stock
upon conversion of the Series A Preferred into common stock at the conversion
value then in effect for the Series A Preferred. The Series A Preferred has
preference in payment of dividends over the common stock and any other series of
preferred stock later designated.
In the event of any liquidation, dissolution or winding up of Dyna-Cam, the
holders of Series A Preferred are entitled to receive $1.00 per share, plus any
accrued but unpaid dividends, before the holders of common stock receive any
distributions. Dyna-Cam may not establish a series of preferred stock superior
to the Series A Preferred. Upon liquidation, holders of the Series A Preferred
will have the right to participate in such liquidation. The magnitude of such
participation will depend on the net liquidation proceeds and will be no less
than participation on an "AS CONVERTED" basis.
The Series A Preferred may be converted into common stock at a $0.3333
conversion value. Shares of the Series A Preferred may be converted at any time
at the election of the holders. The Series A Preferred will automatically
convert if there is a public market for the common stock and the price of such
stock is at least three times the conversion price (i.e., $1.00) per common
share for a period of 60 trading days. Any accumulated but unpaid dividends will
also be automatically converted at the conversion price of the Series A
Preferred.
28
<PAGE>
The holders of the Series A Preferred vote with the holders of the common
stock on an "as converted" basis, except as to changes in the terms of the
Series A Preferred and for the election of directors. In either such event,
holders of the Series A Preferred vote as a class. The holders of the Series A
Preferred vote as a class to elect one less than the then current majority of
directors. Currently Michael S. Williams is the only director in this position.
The Series A Preferred may be called for redemption, on 20 days notice and
subject to prior conversion, at any time. The Series A Preferred shares are
redeemable at the election of Dyna-Cam at a price equal to the liquidation
amount plus accrued dividends which must be paid in cash.
Holders of the Series A Preferred are entitled to certain preemptive rights
if any future offering of the common stock or equivalents is at a price less
than the conversion price. The Series A Preferred has anti-dilution rights
related to capital changes and in the event shares of common stock are issued at
less than the Series A Preferred conversion price, initially $.3333 per common
share.
The holders of the Series A Preferred are entitled to vote by class and,
within such class, are entitled to one vote per share on all matters submitted
for action to such shareholders. The holders of the Series A Preferred may elect
one less than a majority of the Board of Directors. The common shareholders
elect the remaining members of the Board. There is no provision for cumulative
voting rights with respect to the election of directors. Accordingly, the
holders of more that 50% of each class of shares can, if they choose to do so,
elect any director to be elected by the class.
WARRANTS AND OPTIONS
A total of 4,000,000 employee stock options are outstanding. Each option
entitles the holder to purchase one share of common stock at $0.30 per share.
None of the options are vested.
Dyna-Cam has 2,400,000 common stock purchase warrants outstanding. Of these
common stock purchase warrants, 400,000 are designated Series A Warrants and
400,000 as Series B Warrants which expire June 30, 2001 and allow the holder to
purchase our common stock for $2.00 per share. We have also designated 400,000
Series C Warrants and 400,000 Series D Warrants which expire June 30, 2001 and
allow the holder to purchase one share of our common stock for $4.00. We also
have designated 400,000 Series E Warrants and 400,000 Series F Warrants which
expire June 30, 2002 and allow the purchaser to purchase common stock for $6.00
per share. The Board of Directors have the right to extend the expiration date
of all warrants in its sole discretion. All of the warrants described above may
be redeemed at $0.0001 per warrant upon 20 days notice and subject to prior
exercise within such period.
We have 315,000 additional warrants outstanding, each entitling the holder
to purchase shares of common stock at $0.67 per share. These options were issued
as compensation to the placement agent in connection with a placement of our
Series A Preferred.
TRANSFER AGENT AND REGISTRAR
We have contracted with Computershare Investor Services, 12039 West Alameda
Parkway, Suite Z-2, Lakewood, CO 80228 to act as our common stock transfer agent
and warrant agent for our Series A to F Warrants. The transfer agent's telephone
number is (303) 986-5400.
29
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
Our common stock is not yet traded on any established market or exchange. A
market maker has applied with the NASD for qualifications to trade our stock in
the over the counter market. This market maker has indicated its willingness to
apply to list our stock on the OTC while we meet the listing criteria for the
OTC Bulletin Board. We cannot guarantee that our stock will be qualified for
over the counter trading or meet the criteria for listing in the OTC Bulletin
Board, or if successful in becoming listed, that a market for our common stock
will develop. At November 30, 2000, there were approximately 230 shareholders of
Dyna-Cam.
We have never declared or paid a dividend on our common stock, and we do
not intend to pay dividends in the foreseeable future. We are required to accrue
$0.10 per share cumulative annual dividend for each share of Series A Preferred
stock outstanding. This dividend is payable only when declared by the Board of
Directors, and must be paid before any dividends on common stock.
ITEM 2. LEGAL PROCEEDINGS
We are not involved in any litigation, nor are we aware of any potential or
threatened litigation, or any asserted claims that may result in litigation.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
In November 1999, TSIH (prior to its name change to Dyna-Cam) issued
2,400,000 common stock purchase warrants under TSI's Plan of Reorganization. At
such time, TSIH was wholly owned by TSI. The common stock purchase warrants were
issued in six series, each series comprising 400,000 warrants. The Series A
Warrants and Series B Warrants expire June 30, 2001 and allow the holder to
purchase common stock at $2.00 per share. The Series C Warrants and Series D
Warrants expire June 30, 2001 and allow the holder of each warrant to purchase
one share of common stock for $4.00. The Series E Warrants and Series F Warrants
expire June 30, 2002 and allow the holder to purchase common stock at $6.00. The
common stock and warrants were issued to the creditors of TSI as consideration
for their claims in the bankruptcy proceeding. The shares and warrants were
issued under the exemption from registration provided by Section 1145 of the
Bankruptcy Code.
30
<PAGE>
In March 2000, pursuant to an Asset Exchange Agreement wherein TSIH
acquired all of the assets of DCEC, Dyna-Cam issued 30,000,000 shares of common
stock and 200,000 shares of Series A Preferred stock were issued in settlement
of debt. The Asset Exchange Agreement was approved by the shareholders of DCEC
at a special shareholders meeting held on July 12, 2000. The shares held by DCEC
have been distributed to their shareholders upon liquidation. The shares were
issued in reliance on the exemption from registration provided under Section
4(2) of the Securities Act.
In June 2000, Dyna-Cam issued 37,199 shares of Series A Preferred stock in
cancellation of debt and for services performed totaling $37,199. These shares
were issued in reliance upon the exemption from registration as provided under
Section 4(2) of the Securities Act.
In September and October 2000, Dyna-Cam issued 1,050,000 shares of our
Series A Preferred for $1,050,000 cash in a private placement ($800,000 through
September 30, 2000). Related to this placement, Dyna-Cam also issued warrants to
purchase 315,000 shares of our common stock at $0.67 per share to the placement
agent as additional compensation. Offering related expenses totaling $186,690
were recorded as an offset against additional paid-in-capital in the financial
statements included in this Form 10-SB. The Series A Preferred shares were
issued in reliance on Rule 506 of Regulation D and the warrants were issued in
reliance on Section 4(2) of the Securities Act.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
We are required by our Articles of Incorporation and bylaws to indemnify
our officers and directors against claims resulting from their association with
us. Under Nevada law, we have agreed to eliminate the personal liability of our
directors and officers for losses resulting from any breach of their duty of
care. These provisions do not limit equitable remedies, nor do they eliminate
directors' and officers' liability for intentional misconduct, fraud or other
illegal activities.
Nevada law allows a corporation to eliminate or limit personal liability of
members of its board of directors for violations of their fiduciary duties.
However, Nevada law does not allow the elimination of a director's liability for
transactions resulting in improper personal gains, or for illegal payments.
Equitable remedies for breach of fiduciary duty, such as an injunction or
rescission, are also still available.
We have been advised that it is the position of the Securities and Exchange
Commission that insofar as the foregoing provision may be invoked to disclaim
liability for damages arising under the Securities Act, such provision is
against public policy as expressed in the Securities Act and therefore
unenforceable.
31
<PAGE>
PART F/S
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Public Accountants 33
Balance Sheets as of March 31, 2000 and September 30, 2000 34
Statements of Operations for the years ended March 31, 1999
and 2000, for the period from inception to March 31, 2000,
and for the six months ended September 30, 1999 and 2000 35
Statement of Stockholders' Equity (Deficit) for the years
ended March 31, 1999 and 2000, and for the six months ended
September 30, 1999 and 2000 36
Statements of Cash Flows for the years ended March 31, 1999
and 2000, for the period from inception to March 31, 2000,
and for the six months ended September 30, 1999 and 2000 37
Notes to the Financial Statements 39
32
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and the Board of Directors of Dyna-Cam Engine Corporation
(formerly TSI Handling, Inc.)
We have audited the accompanying balance sheet of Dyna-Cam Engine
Corporation (formerly TSI Handling, Inc.), a development stage company, as of
March 31, 2000 and the related statements of operations, stockholders' equity
(deficit) and cash flows for each of the two years in the period ended March 31,
2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Dyna-Cam Engine Corporation
(formerly TSI Handling, Inc.) as of March 31, 2000 and the results of its
operations and its cash flows for each of the two years in the period ended
March 31, 2000, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company incurred net losses for
the years ended March 31, 2000 and 1999 and has negative working capital of
$228,687 as of March 31, 2000. In addition, the Company has not yet obtained
capital needed to achieve management's plans and support its operations and
there is no assurance that the Company will be able to raise such financing.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans with regard to these matters are discussed
in Note 1. The financial statements do not include any adjustments relating to
the recoverability and classification of asset carrying amounts or the amount
and classification of liabilities that might result should the Company be unable
to continue as a going concern.
/s/ KING, WEBER & ASSOCIATES, P.C.
Tempe, Arizona
August 25, 2000
33
<PAGE>
DYNA-CAM ENGINE CORPORATION
BALANCE SHEETS
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
March 31, Sept. 30, 2000
2000 (unaudited)
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 34,545 $ 161,175
Inventory 103,425 118,826
Deferred financing costs 24,500 2,500
----------- -----------
Total current assets 162,470 282,501
Machinery and equipment, net 315,456 309,499
Patents and intellectual property rights -- --
----------- -----------
$ 477,926 $ 592,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 13,694 $ 97,150
Accrued interest 2,764 113
Customer deposits 15,000 15,000
Bridge loan 75,000 --
Short-term borrowings 235,603 50,700
Current portion of long-term debt and capitalized
lease obligations 49,096 51,895
----------- -----------
Total current liabilities 391,157 214,858
Long-term debt, less current portion 304,406 309,873
Capitalized lease obligations, less current portion 81,775 68,426
Commitments and contingencies -- --
----------- -----------
Total liabilities 777,338 593,157
Stockholders' deficit:
Preferred stock - Series A; $1.00 liquidation value,
authorized 6,000,000 shares, 200,000 and 1,037,199
shares issued and outstanding 200,000 1,037,199
Preferred stock; $.001 par value, undesignated, authorized
4,000,000 shares, no shares issued and outstanding -- --
Common stock; $.001 par value, authorized 65,000,000 shares,
35,014,635 shares issued and outstanding 35,015 35,015
Additional paid in capital 759,829 573,139
Accumulated deficit (1,294,256) (1,646,510)
----------- -----------
Total stockholders' deficit (299,412) (1,157)
----------- -----------
$ 477,926 $ 592,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
34
<PAGE>
DYNA-CAM ENGINE CORPORATION
STATEMENTS OF OPERATIONS
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
Fiscal years ended March 31, Inception to Six months ended Sept. 30,
---------------------------- March 31, 2000 -----------------------------
1999 2000 (unaudited) 1999 2000
------------ ------------ ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES: $ -- $ -- $ -- $ -- $ --
------------ ------------ ------------ ------------ ------------
OPERATING EXPENSES:
Research and development 42,067 63,892 431,372 3,011 35,371
General and administrative 99,807 113,506 778,893 30,901 204,694
Legal and professional fees 12,768 49,899 143,941 45,780 30,880
Depreciation and amortization 32,639 65,106 169,994 17,532 37,445
------------ ------------ ------------ ------------ ------------
Total operating expenses 187,281 292,403 1,524,200 97,225 308,390
------------ ------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (187,281) (292,403) (1,524,200) (97,225) (308,390)
------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (63,899) (50,636) (342,685) (15,467) (45,796)
Interest income -- 370 14,525 510 1,357
Grant income -- -- 442,295 -- --
Other income (expense) 49,128 -- (73,870) 1,366 575
------------ ------------ ------------ ------------ ------------
Total other income (expense) (14,771) (50,266) 40,265 (13,591) (43,864)
------------ ------------ ------------ ------------ ------------
LOSS BEFORE EXTRAORDINARY ITEM (202,052) (342,669) (1,483,935) (110,816) (352,254)
EXTRAORDINARY ITEM:
Debt forgiveness income, no income
tax effect -- 189,679 189,679 -- --
------------ ------------ ------------ ------------ ------------
NET LOSS $ (202,052) $ (152,990) $ (1,294,256) $ (110,816) $ (352,254)
============ ============ ============ ============ ============
NET LOSS PER COMMON SHARE:
Basic: Before Extraordinary Item $ (0.007) $ (0.010) $ (0.049) $ (0.004) $ (0.010)
Extraordinary Item -- 0.005 0.006 -- --
------------ ------------ ------------ ------------ ------------
Total Basic $ (0.007) $ (0.005) $ (0.043) $ (0.004) $ (0.010)
============ ============ ============ ============ ============
Diluted: Before Extraord. Item $ (0.007) $ (0.010) $ (0.049) $ (0.004) $ (0.010)
Extraordinary Item -- 0.005 0.006 -- --
------------ ------------ ------------ ------------ ------------
Total Diluted $ (0.007) $ (0.005) $ (0.043) $ (0.004) $ (0.010)
============ ============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Basic 30,000,000 34,596,752 30,000,000 30,000,000 35,014,635
============ ============ ============ ============ ============
Diluted 30,000,000 34,596,752 30,000,000 30,000,000 35,014,635
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
35
<PAGE>
DYNA-CAM ENGINE CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(A DEVELOPMENT STAGE COMPANY)
For the fiscal years ended March 31, 1999 and 2000 and for the six months
ended September 30, 2000
<TABLE>
<CAPTION>
Series A Preferred stock Common stock Additional Total
------------------------ ----------------------- paid-in Accumulated Stockholders'
Number Amount Shares Amount Capital deficit (deficit)
--------- ---------- ----------- -------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, April 1, 1998 -- $ -- 30,000,000 $ 30,000 $ 556,282 $ (939,214) $(352,932)
Common stock issued for cash -- -- 7,723 8 20,392 -- 20,400
Common stock issued to principals
as compensation -- -- 10,222,420 10,222 58,715 -- 68,937
Net loss -- -- -- -- -- (202,052) (202,052)
--------- ---------- ----------- -------- --------- ----------- ---------
Balance, March 31, 1999 -- -- 40,230,143 40,230 635,389 (1,141,266) (465,647)
Common stock issued for services
rendered -- -- 2,716,589 2,717 14,783 -- 17,500
Common stock issued to principals
as compensation -- -- 7,950,771 7,951 44,549 -- 52,500
Common stock issued for bridge
loan fees -- -- 3,710,360 3,710 20,790 -- 24,500
Preferred stock issued in
settlement of debt 200,000 200,000 -- -- 24,725 -- 224,725
Recapitalization as a result of
Reverse Acquisition -- -- (19,593,228) (19,593) 19,593 -- --
Net loss -- -- -- -- -- (152,990) (152,990)
--------- ---------- ----------- -------- --------- ----------- ---------
Balance, March 31, 2000 200,000 200,000 35,014,635 35,015 759,829 (1,294,256) (299,412)
Preferred stock issued for cash 800,000 800,000 -- -- (186,690) -- 613,310
Preferred stock issued for
services rendered 31,100 31,100 -- -- -- -- 31,100
Preferred stock issued in
settlement of debt 6,099 6,099 -- -- -- -- 6,099
Net loss -- -- -- -- -- (352,254) (352,254)
--------- ---------- ----------- -------- --------- ----------- ---------
Balance, September 30, 2000
(unaudited) 1,037,199 $1,037,199 35,014,635 $ 35,015 $ 573,139 $(1,646,510) $ (1,157)
========= ========== =========== ======== ========= =========== =========
</TABLE>
The accompanying notes are an integral part to these financial statements.
36
<PAGE>
DYNA-CAM ENGINE CORPORATION
STATEMENTS OF CASH FLOWS
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
Fiscal years ended March 31, Inception to Six months ended Sept. 30,
---------------------------- March 31, --------------------------
1999 2000 2000 1999 2000
----------- ----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (202,052) $ (152,990) $(1,294,256) $ (110,816) $ (352,254)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Gain on debt extinguishment -- (189,679) (189,679) -- --
Depreciation and amortization 42,915 65,106 180,014 17,532 37,446
Common stock issued for services
rendered 68,937 70,000 487,163 -- --
Preferred stock issued for services
rendered -- -- -- -- 31,100
Note payable issued for services
rendered -- -- -- -- 41,400
Changes in assets and liabilities-
(Increase) decrease in inventories 31,618 (46,682) (103,425) (44,806) (15,401)
Decrease in deferred financing costs -- -- -- -- 22,000
(Increase) decrease in prepaid expenses 856 3,653 -- (965) --
Increase in accounts payable 7,457 5,720 13,694 -- 89,555
Increase (decrease) in customer deposits (5,000) 10,000 15,000 (10,090) --
Increase (decrease) in accrued interest payable 18,636 25,555 2,764 (2,678) (2,651)
----------- ----------- ----------- ----------- -----------
Net cash used in operating activities (36,633) (209,317) (888,725) (131,643) (148,087)
----------- ----------- ----------- ----------- -----------
</TABLE>
-CONTINUED-
The accompanying notes are an integral part of these financial statements.
37
<PAGE>
DYNA-CAM ENGINE CORPORATION
STATEMENTS OF CASH FLOWS
(A DEVELOPMENT STAGE COMPANY)
(CONTINUED)
<TABLE>
<CAPTION>
Fiscal years ended March 31, Inception to Six months ended Sept. 30,
---------------------------- March 31, --------------------------
1999 2000 2000 1999 2000
----------- ----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of machinery and equipment (89,984) (144,841) (347,318) (137,515) (31,489)
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities (89,984) (144,841) (347,318) (137,515) (31,489)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of preferred stock, net of
placement fees -- -- -- -- 613,310
Issuance of common stock 20,400 -- 307,681 -- --
Borrowings on notes payable 114,582 330,341 1,051,411 240,913 31,229
Proceeds from bridge loan -- 75,000 75,000 -- 275,000
Payments on bridge loan -- -- -- -- (350,000)
Principal repayments on capitalized
leases (11,083) (17,803) (37,318) (6,802) (13,990)
Repayments on notes payable (5,579) (53,205) (126,186) (10,340) (248,625)
----------- ----------- ----------- ----------- -----------
Net cash provided by financing activities 118,320 334,333 1,270,588 223,771 306,924
----------- ----------- ----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH (8,297) (19,825) 34,545 (45,387) 126,630
CASH, beginning of period 62,667 54,370 -- 54,370 34,545
----------- ----------- ----------- ----------- -----------
CASH, end of period $ 54,370 $ 34,545 $ 34,545 $ 8,983 $ 161,175
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 22,237 $ 18,890 $ 48,960 $ 15,884 $ 38,245
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCIAL ACTIVITIES:
Preferred stock issued for services rendered $ -- $ 224,725 $ 224,725 $ -- $ 37,699
=========== =========== =========== =========== ===========
Note payable issued for services rendered $ -- $ -- $ -- $ -- $ 41,400
=========== =========== =========== =========== ===========
Machinery and equipment acquired under
capitalized leases $ -- $ 106,186 $ 148,151 $ 106,186 $ --
=========== =========== =========== =========== ===========
Common stock issued for bridge loan fees $ -- $ 24,500 $ 24,500 $ -- $ --
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
38
<PAGE>
DYNA-CAM ENGINE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(A DEVELOPMENT STAGE COMPANY)
MARCH 31, 2000
(1) ORGANIZATION AND OPERATIONS
HISTORY AND ORGANIZATION
Dyna-Cam Engine Corporation ("DCEC") was incorporated in the State of California
in 1993 originally as Dyna-Cam Aero Engine Corporation. On March 31, 2000, TSI
Handling, Inc., a Nevada corporation ("TSIH"), acquired substantially all of the
operating assets and liabilities of DCEC for 30,000,000 shares of TSIH common
stock and 200,000 shares of TSIH Series A Preferred stock were issued for
settlement of DCEC debt. TSIH was a non-trading public company in the business
of integrated circuit handling technologies. TSIH divested the net assets
related to its old business. Immediately following the transaction, the
stockholders of DCEC held approximately 85.7% of the outstanding shares of
common stock of TSIH.
For accounting purposes, the acquisition has been treated as a recapitalization
of DCEC with DCEC as the acquirer (the "Reverse Acquisition"). Accordingly, the
historical financial statements have been restated after giving effect to the
March 31, 2000 acquisition of DCEC. The financial statements have been prepared
to give retroactive effect of the Reverse Acquisition completed on March 31,
2000 and to represent the operations of DCEC. Consistent with Reverse
Acquisition accounting, (i) all of DCEC's assets, liabilities and accumulated
deficit are reflected at their combined historical cost (as the accounting
acquirer) and (ii) the preexisting outstanding shares of TSIH (the accounting
acquiree) are reflected at their net asset value which was not material. The
Reverse Acquisition is treated as an issuance of shares for net assets of DCEC
by TSIH and is recorded under the purchase method. TSIH had no significant
operations, assets or liabilities prior to its transaction with DCEC. TSIH
subsequently amended its Articles of Incorporation to change its name to
Dyna-Cam Engine Corporation (hereinafter collectively, the "Company").
NATURE OF BUSINESS
The Company is developing a unique axial cam-drive, free piston, internal
combustion engine. Prior to incorporation, the principals of the Company
conducted research and development of the Dyna-Cam Engine and built and tested
several prototypes. The Company just recently completed the final manufacturing
plan for producing its first production engine. The Company intends to
manufacture, market and sell the Dyna-Cam Engine, initially targeting the
kitbuilt aircraft market. The Company plans to develop other models and sizes of
the Dyna-Cam Engine and hopes to target other markets and industries in the
future.
GOING CONCERN
The Company faces many operating and industry challenges. There is no meaningful
operating history to evaluate the Company's prospects for successful operations.
The Company is doing business in a highly competitive industry and has incurred
operating losses and has had negative cash flow since incorporation in 1993.
Future losses for the Company are anticipated and the proposed plan of
operations, even if successful, may not result in cash flow sufficient to
finance the continued expansion of its business. The Company's success is also
dependent on several key employees.
39
<PAGE>
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed, the Company has incurred
losses since 1993 and has not yet obtained capital needed to achieve
management's plans and support its operations and there is no assurance that the
Company will be able to raise such financing. These factors raise substantial
doubt about the Company's ability to continue as a going concern. In view of
these matters, realization of a major portion of the assets is dependent upon
continued operations of the Company, which in turn is dependent upon the
Company's ability to meet its financing requirements and the success of its
future operations. The financial statements do not include any adjustments that
might result from this uncertainty.
MANAGEMENT'S PLANS
During early 2000, management of DCEC commenced aggressive restructuring plans
to address its liquidity problems. On March 1, 2000, pursuant to a Note and
Share Purchase Agreement with Aztore Holdings, Inc., a Phoenix, Arizona-based
investment and consulting company ("Aztore"), Aztore firmly committed to lend
DCEC $350,000. The purpose of this loan was to provide working capital to allow
DCEC to continue operations, to pay off a note payable in default at March 31,
2000 and to consummate the Reverse Acquisition.
Following the Reverse Acquisition, to obtain the capital for the acquisition of
materials, components and additional tooling and the working capital necessary
to assemble and manufacture the initial production Dyna-Cam Engines, the Company
is attempting to raise up to $5,000,000 of funding pursuant to a Private
Placement Memorandum (the "Offering"). The Offering is for up to 5,000,000
shares of Series A 10% Cumulative Convertible Preferred Stock at $1.00 per share
(the "Series A Preferred"), with each share convertible into three shares of the
Company's common stock (see Note 9). All shares of Series A Preferred stock will
be newly issued and are being sold by the Company solely to "accredited
investors" as defined in Rule 501(a) of Regulation D as promulgated under the
Securities Act of 1933. In addition, the proceeds will be used for
implementation of sales, marketing and promotional activities. The Company
believes its capital restructuring, the bridge loan and the Offering will allow
it to obtain sufficient capital for operations and to continue as a going
concern.
In connection with the Offering, the Company has entered into a Selling
Agreement with Sunset Financial Services, Inc. ("Sunset") which provides for a
10% commission on funds raised under the Offering and a 1 1/2% non-accountable
expense allowance. Sunset is also granted warrants to purchase additional shares
of common stock pro rata as closings occur (see Note 11). On July 27, 2000, the
Company obtained $400,000 of new funding under this Offering (see Note 15).
(2) SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and all highly liquid investments
with a maturity of six months or less when purchased.
40
<PAGE>
MACHINERY AND EQUIPMENT
Machinery and equipment is stated at cost. Depreciation is being provided using
the straight-line method over the estimated useful lives of five to seven years.
Maintenance, repairs and renewals, which do not materially add to the value of
an asset or appreciably prolong its life, are charged to expense. Machinery
under capital leases is amortized over the lease terms.
INVENTORIES
Inventory consists primarily of raw materials, purchased parts and labor to
modify parts all used in the manufacturing of engines. The Company records its
inventory at the lower of cost (first-in, first-out) or market.
March 31, Sept. 30, 2000
2000 (unaudited)
-------- --------
Raw materials and supplies $ 84,101 $ 99,502
Work in process 19,324 19,324
-------- --------
$103,425 $118,826
======== ========
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations as incurred.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
STOCK BASED COMPENSATION
The Company applies the provisions of Accounting Principles Board Opinion
("APB") No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and provides the pro
forma net earnings and pro forma earnings per share disclosures for employee
stock option grants made in 1996 and subsequent years as if the fair-value-based
method defined in Statement of Financial Accounting Standards ("SFAS") No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, had been applied. In accordance with
APB No. 25, compensation expense is recorded on the date an option is granted
only if the current market price of the underlying stock exceeds the exercise
price (see Note 10).
41
<PAGE>
LOSS PER COMMON SHARE
The Company has adopted SFAS No. 128, EARNINGS PER SHARE, which supercedes APB
No. 15 as the new authoritative guidance. The new statement modifies the
calculations of primary and fully diluted earnings per share ("EPS") and
replaces them with basic and diluted EPS. Basic EPS differs from primary EPS
calculation in that basic EPS does not include any potentially dilutive
securities. Diluted EPS must be disclosed regardless of dilutive impact to basic
EPS. The outstanding Series A Preferred stock, which is convertible into 600,000
shares of common stock (see Note 9), was not considered in the calculation of
diluted EPS for the year ended March 31, 2000 because the effect of its
inclusion would be antidilutive. There were no dividends declared on the Series
A Preferred stock for the year ended March 31, 2000. Also, stock options
outstanding to purchase 4,000,000 shares of common stock (see Note 10) and
warrants outstanding to purchase 2,400,000 shares of common stock (see Note 11)
were not considered in the calculation of diluted EPS for the year ended March
31, 2000 because the effect of their inclusion would be antidilutive.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
ACCOUNTING FOR INCOME TAXES. SFAS No. 109 requires the use of an asset and
liability approach in accounting for income taxes. Deferred tax assets and
liabilities are recorded based on the differences between the financial
statement and tax bases of assets and liabilities and the tax rates in effect
when these differences are expected to reverse. SFAS No. 109 requires the
reduction of deferred tax assets by a valuation allowance, if, based on the
weight of available evidence, it is more likely than not that such portion of
the deferred tax asset will not be realized.
There is no significant income tax effect reflected in the accompanying
financial statements. The Reverse Acquisition was effective on March 31, 2000,
the last day of the Company's fiscal year. The transaction was effected as an
asset purchase. Therefore, any tax effect of the historical operations of DCEC,
including the tax benefit of net operating loss carryforwards, remained with the
previous corporate entity and do not transfer to the new operations. TSIH had no
material tax assets or liabilities prior to the Reverse Acquisition.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company reviews long-lived assets and certain identifiable intangibles for
impairment whenever events or changes in circumstances indicate the carrying
amount of an asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an asset to
future, undiscounted, net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
42
<PAGE>
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES, was issued effective for fiscal years beginning after June 15, 2000
(as amended). SFAS No. 133 establishes accounting and reporting standards
requiring that derivative instruments be recorded on the balance sheet as either
an asset or liability measured at its fair value. This statement also requires
that changes in the derivative's fair value be recognized in earnings unless
specific hedge accounting criteria are met. The adoption of SFAS No. 133 will
have no impact on the Company.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS. SAB No.
101 summarizes the staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. The adoption of SAB
No. 101 did not have a material effect on the Company's revenues or revenue
recognition policy.
(3) MACHINERY AND EQUIPMENT
Machinery and equipment is comprised of the following:
March 31, Sept. 30, 2000
2000 (unaudited)
--------- ---------
Vehicle $ -- $ 24,000
Machinery and warehouse equipment 355,257 362,746
Furniture and fixtures 16,300 16,300
Patterns, tooling and dies 123,913 123,913
--------- ---------
495,470 526,959
Less: Accumulated depreciation (180,014) (217,460)
--------- ---------
$ 315,456 $ 309,499
========= =========
(4) PATENTS AND INTELLECTUAL PROPERTY RIGHTS
Certain aspects of current version of the Dyna-Cam Engine are patented in the
United States. The Company owns U.S. Patent no. 4,492,188, issued in 1985 to
Dennis C. Palmer, an officer of the Company. The Company owns the patent and all
related intellectual property rights with respect to the engine's design. The
current patent will expire in January 2003. With funds to be raised in the
Offering (see Note 1), the Company plans to apply for additional patent
protection to cover improvements made to the Dyna-Cam Engine since the original
patents were obtained. Prior to delivery of the first engines, the Company
intends to file additional patents domestically as well as internationally.
Certain key components, such as the cam and piston design, were patented by the
original developer of the technology and patent protection may be limited.
43
<PAGE>
The Company has also developed manufacturing processes and component designs
that are considered "trade secrets," which would make the engine difficult to
produce by other manufacturers and still be competitive. As research and
development continues to advance the Dyna-Cam Engine technology, new features,
trade secrets and patents will be pursued to provide additional barriers to
competition. The Company has agreements with its officers and key employees to
own any new features, trade secrets and patents developed in the future.
(5) BRIDGE LOAN
On March 1, 2000, the Company entered into a Note and Share Purchase Agreement
with Aztore. Pursuant to this Agreement, Aztore firmly committed to lend the
Company $350,000 (the "bridge loan"). Principal and interest on the bridge loan
are due in a single maturity on March 1, 2001. The bridge loan is secured by all
assets of the Company and bears interest at 12% per annum. At March 31, 2000,
the Company had been advanced $75,000 under the bridge loan. Subsequent to
year-end, the bridge loan was fully funded by Aztore and later partially repaid
(Note 15). The Company issued shares of its common stock as additional
consideration for the bridge loan.
(6) SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
March 31, Sept. 30,
2000 2000
--------- ---------
(unaudited)
<S> <C> <C>
Note payable to Economic Development Commission. Original face value
amount of $100,000, interest at 4% per annum, discounted at 11%
resulting in discount of $12,077 Originally due in Sept. 1999.
Collateralized by all assets of the Company. Personally guaranteed by
the officers of the Company. The note was in default and settled with
the lender for $12,000. The settlement amount was paid subsequent to
March 31, 2000 $ 12,000 $ --
Note payable to individual, interest at 1% per month, interest
payments due monthly, balance due May 24, 2001 One of the Company's
officers has pledged their common stock in the Company to this
individual as collateral 30,000 30,000
Note payable to individual, in default at March 31, 2000 Original loan
amount of $361,000, interest at 10% per annum. The Company agreed to
the final terms of this note in the year ended March 31, 2000 through
a court ordered judgement. The settlement amount was paid subsequent
to March 31, 2000 193,603 --
Note payable to Aztore, interest at 10% per annum. Original amount of
$41,400, 1/2 paid upon first $500,000 raised under the Offering.
Balance due upon an aggregate of $1,000,000 raised under the Offering -- 20,700
-------- -------
$235,603 $50,700
======== =======
</TABLE>
44
<PAGE>
The notes payable of the Company that were settled for amounts less than their
respective principal balance at the settlement date resulted in a gain on
extinguishment of debt for the year ended March 31, 2000 of $189,679. This gain
is included as an extraordinary item in the accompanying statement of operations
for the year ended March 31, 2000.
(7) LONG-TERM DEBT
Long-term debt consists of an SBA loan the Company received in May 1999, which
was used primarily to purchase equipment and inventory. The SBA loan is
guaranteed by two officers of the Company who pledged additional personal
collateral to secure this financing.
<TABLE>
<CAPTION>
March 31, Sept. 30, 2000
2000 (unaudited)
--------- ---------
<S> <C> <C>
SBA loan, interest at prime plus 2.75% (11.75% at March 31,
2000) per annum, monthly payments of principal and
interest of $4,576, due November 24, 2008 $ 324,444 $ 313,281
Note payable to finance company, interest at 12.9% per
annum, payments of $492 due monthly, due April 7, 2005
Secured by vehicle. Guaranteed by an officer of the
Company -- 20,070
Less: Current portion (20,038) (23,478)
--------- ---------
$ 304,406 $ 309,873
========= =========
</TABLE>
(8) LEASE OBLIGATIONS
OPERATING LEASE
The Company leases its warehouse and corporate offices on a month to month
basis. The Company also leases six pieces of equipment under leases that have
been accounted for as capital leases. Two officers of the Company guarantee
these leases. Future minimum lease payments under capitalized lease obligations
are as follows:
45
<PAGE>
CAPITAL LEASES
The Company leases certain equipment under a capital leases that expire through
2005. Minimum required lease payments under the lease agreements for the years
ending March 31, are as follows:
Year ending March 31,
---------------------
2001 $ 40,966
2002 37,053
2003 29,167
2004 29,168
2005 4,793
---------
Total 141,777
Less: Amount representing interest (30,944)
---------
Total payments, net of interest 110,833
Less: Current portion (29,058)
---------
Total long term minimum lease payments $ 81,775
=========
Equipment under capital leases is included in machinery and equipment as
follows:
March 31,
2000
---------
Machinery and equipment $ 148,152
Less: Accumulated amortization (26,044)
---------
$ 122,108
=========
(9) SHAREHOLDERS' EQUITY
AUTHORIZED CAPITAL
The Company's authorized capital consists of 65,000,000 shares of common stock,
par value $.001 per share, and 10,000,000 shares of preferred stock, par value
$.001 per share, undesignated as to other attributes. The Board of Directors of
the Company, in its sole discretion, may divide the shares of preferred stock
into series, and fix and determine the dividend rate, designations, preferences,
privileges, conversion rates and ratify the powers and determine the
restrictions and qualifications of each series of preferred stock as
established. The Board of Directors has designated 6,000,000 shares of the
authorized preferred stock as Series A Preferred stock, of which 200,000 shares
are issued and outstanding as of March 31, 2000.
46
<PAGE>
SERIES A PREFERRED STOCK
The Series A Preferred stock has a $1.00 per share liquidation preference and a
10% cumulative dividend. Dividends will accrue each January 1, April 1, July 1
and October 1. Each share of the Series A Preferred stock is convertible at a
conversion price of $.333 (or equivalent to three shares of common stock).
Shares of Series A Preferred stock may be converted at any time at the election
of the holder and will automatically convert upon the Company's common stock
trading at $1.00 or greater for 60 consecutive trading days on an established
market. Shares may be redeemed by the Company at an amount equal to their
liquidation preference upon 30 day notice to the holders.
Other attributes of the Series A Preferred stock are priority of class,
liquidation preference, anti-dilution protection and adjustment, right of first
refusal to the holders, and voting rights on an as converted basis. The Series A
Preferred stock is senior to all other capital stock of the Company. In the
event of liquidation, the holders of Series A Preferred stock will be entitled
to be paid an amount in cash equal to the liquidation preference amount plus any
accrued dividends, before any other payment or distribution is made. The Series
A Preferred stock is protected from a dilutive issuance of additional shares of
stock at a per share less than the conversion price at the date of such new
issuance. Each holder of the Series A Preferred stock shall be given the first
right to purchase their pro rata portion of any equity securities offered by the
Company (except for shares offered under the Company's Equity Incentive Plan) on
the same terms and conditions as the Company offers to other investors. Each
share of Series A Preferred stock votes with the shares of common stock as a
single class on all matters except for matters that affect the rights of the
Series A Preferred stock in which case the Series A Preferred stock votes
separately as a single class.
COMMON STOCK TRANSACTIONS
During the years ended March 31, 2000 and 1999, the Company issued shares of its
common stock to officers and consultants for compensation and for services
rendered and as additional consideration for the bridge loan. Although the
Company had earlier sold less than 8,000 shares of common stock for cash at
approximately $2.64 per share to individual investors, these non-cash stock
issuances were recorded at a nominal value. The value of the shares of common
stock issued to Aztore in connection with the bridge loan was determined on the
basis of an arms-length negotiated price between the two parties at the time of
issuance and established the fair market value of $.0067 per share for
accounting purposes. At the time of that transaction, the Company had no cash or
other working capital, was in default on several notes payable including the SBA
loan, had a judgement against in for approximately $200,000 (see Note 6), and
was facing the prospects of bankruptcy. In addition, the Company was required to
restructure other debt and was dependent on the bridge loan and subsequent
funding in order to continue operations.
The per share fair market value for the shares of common stock issued to Aztore
is management's best estimate of the fair value of the common stock issued. This
basis has been used to value all non-cash issuances of common stock during the
years ended March 31, 2000 and 1999. For those shares issued during the years
ended March 31, 2000 and 1999, the accompanying financial statements include a
charge to earnings for consulting, compensation or interest expense with a
corresponding offset credited to stockholders' equity.
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(10) STOCK OPTIONS
1999 EQUITY INCENTIVE PLAN
The Company has approved an Equity Incentive Plan for the Company's directors,
officers, key employees and consultants initially covering 3,000,000 shares of
Company common stock (the "EIP"). On March 3, 2000, the Board of Directors
approved an increase in the shares covered under the EIP to 6,000,000 shares.
This action was ratified by majority consent of the shareholders of the Company
as permitted by Nevada law. On March 31, 2000, 4,000,000 options were granted
with an exercise price of $.30, five-year equal year vesting on the anniversary
of the grant date and expiring in accordance with the EIP or no later than nine
years from date of grant.
Options granted under the EIP may be either "incentive stock options," as
defined in Section 422A of the Internal Revenue Code, or "nonqualified stock
options," subject to Section 83 of the Internal Revenue Code, at the discretion
of the Board of Directors and as reflected in the terms of the written option
agreement. The option price shall not be less than 100% (110% if the option is
granted to an optionee who at the time the option is granted owns stock
representing more than 10% of the total combined voting power of all classes of
stock of the Company) of the fair market value of the optioned common stock on
the date the options are granted. Options become exercisable based on the
discretion of the Board of Directors and must be exercised within ten years of
the date of grant. The EIP expires June 14, 2009.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, and continues to account for stock
based compensation using the intrinsic value method prescribed by APB No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. Accordingly, no compensation cost has
been recognized for the stock options granted to employees. Had compensation
cost for the Company's stock options been determined based on the fair value at
the grant date for awards during the period, consistent with the provisions of
SFAS No. 123, the Company's net loss and loss per share would not have been
materially different.
Under the provisions of SFAS No. 123, there are no fully vested options and
4,000,000 proportionately vested options for the year ended March 31, 2000 used
to determine net earnings and earnings per share under a pro forma basis. The
fair value of each option grant is estimated on the date of grant using the
minimum value method with the following assumptions for year ended March 31,
2000:
Dividend yield None
Volatility N/A
Risk free interest rate 6.00%
Expected asset life 10 years
The value of the stock used in the calculation was $0.0067 per share as that
value used in the non-cash transactions occurring in the year ended March 31,
2000. Using the minimum value method, the result is that there is no value to
assign to the options granted in the year ended March 31, 2000.
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A summary of stock option activity for the year ended March 31, 2000 follows:
Weighted Average
Number Exercise Price
------ --------------
Options outstanding at beginning of the year --
Granted 4,000,000 $.30
Exercised --
Forfeited --
---------
Options outstanding at end of year 4,000,000 $.30
=========
Options available for grant at end of year 2,000,000
=========
Options exercisable at end of year --
=========
(11) COMMON STOCK WARRANTS
The Company has six series of common stock purchase warrants, with 400,000
warrants outstanding in each series (see Note 14). Each warrant provides for the
purchase of one share of common stock. Each warrant is callable by the Company
for a price of $.0001 per warrant at any time. A summary of warrants outstanding
at March 31, 2000 follows:
A & B C & D E & F
Warrants Warrants Warrants
-------- -------- --------
Warrants outstanding,
March 31, 2000 800,000 800,000 800,000
============= ============= =============
Exercise price $ 2.00 $ 4.00 $ 6.00
============= ============= =============
Expiration date JUNE 30, 2001 JUNE 30, 2001 JUNE 30, 2002
============= ============= =============
SELLING AGENT WARRANTS
In connection with the Offering, Sunset could be granted warrants to purchase up
to 2,250,000 shares of common stock at an exercise price of $.67 per share (the
"Selling Agent Warrants"). Selling Agent Warrants will be issued pro rata as
closings occur at a rate of 10% to 15% of the common shares underlying the
Series A Preferred stock sold in the Offering. Selling Agent Warrants expire six
years from the date of grant. No Selling Agent Warrants were outstanding at
March 31, 2000, although some were issued subsequent to year-end (see Note 15).
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(12) RELATED PARTY TRANSACTIONS
CHASSEUR HOLDINGS, INC.
Prior to the Reverse Acquisition, Chasseur Holdings, Inc. ("Chasseur") was the
largest shareholder of TSIH, owning 4,000,000 of 5,014,635 shares outstanding.
Chasseur is a non-trading public investment company and is the Reorganized
Debtor of Technical Systems Integrators, Inc. ("TSI") pursuant to TSI's Chapter
11 Plan of Reorganization which was confirmed by the bankruptcy court on
November 10, 1999, (the "TSI Plan"). Chasseur's business is similar to Aztore's.
Aztore controls Chasseur. Michael S. Williams, a director of the Company, and
Lanny R. Lang, an officer of the Company, are also officers and directors of
Chasseur, as well as Aztore. After the Reverse Acquisition, Chasseur owns 11.4%
of the Company.
As a requirement of the Reverse Acquisition, the Company entered into an
Existing Shareholder Rights Agreement, wherein the shareholders of TSIH prior to
the Reverse Acquisition, including Chasseur, were granted anti-dilution and
certain other rights. Under this agreement, if the Company's total cumulative
revenues through March 31, 2002 do not equal two times the amount of gross
proceeds raised in the Offering, Aztore, as agent for these shareholders, will
have the right to remove and appoint one member of the Board of Directors
elected by the common stock shareholders. If total cumulative revenues earned
through March 31, 2003 do not equal six times the amount of gross proceeds
earned in the Offering, Aztore will have the right to remove and appoint all
members of the Board of Directors elected by the common shareholders.
AZTORE HOLDINGS, INC.
Aztore is a Phoenix, Arizona-based, investment and consulting company that holds
various interests in companies and provides corporate restructuring and
consulting services. Michael S. Williams, a director of the Company, and Lanny
R. Lang, an officer of the Company, are also officers and directors of Aztore.
Aztore directly owned 4.6% of the Company's common stock outstanding as of March
31, 2000.
The Company has also engaged Aztore to provide investment banking and financial
consulting services under various agreements. Under a Note and Share Purchase
Agreement, Aztore committed to lend $350,000 to the Company (see Note 5). Under
a Capital Advisory and Financial Consulting Agreement, Aztore will receive a fee
of five percent of the proceeds from the exercise of any of the Company's
outstanding common stock warrants which existed prior to the Reverse
Acquisition. Aztore will also provide financial consulting services related to
the Company's financial reporting, internal accounting, capital raising and
stock trading activities and is compensated at the rate of $150 per hour for the
services of its personnel. Subsequently, Aztore and the Company agreed to a
fixed monthly fee of $15,000 (see Note 15).
In connection with the Offering, Aztore will receive a non-accountable fee equal
to 1 1/2% of the proceeds raised under the Offering.
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(13) COMMITMENTS AND CONTINGENCIES
On March 31, 2000, the Company executed five-year employment contracts with the
President and the Executive Vice President and Chief Engineer of the Company.
These employment contracts require exclusive service to the Company in exchange
for minimum annual salaries of $60,000 each during the term of the contracts.
Upon termination for reasons other than for cause, the Company is obligated for
the balance due under the employment contracts payable over 12 months. The
aggregate commitment under these employment contracts as of March 31, 2000 is
$600,000. The employment contracts provide for discretionary bonuses determined
by the Board of Directors and contain customary non-compete covenants and the
assignment any new features, trade secrets and patents developed in the future
to the Company.
(14) DISTRIBUTION OF SECURITIES
TSIH was originally formed pursuant to the TSI Plan and was a wholly owned
subsidiary of TSI. The TSI Plan provided for the distribution of securities
owned by TSI to TSI's creditors and debenture holders. The securities
distributed included 500,000 shares of common stock of TSIH owned by TSI and
2,400,000 warrants, which were equally divided into six series. The distribution
of these securities by TSI was exempt from registration under the Securities Act
of 1933, as authorized by Section 1145 of the Bankruptcy Code. The Company
believes this stock, the warrants and the common stock underlying the warrants
is freely transferable to future holders.
As a result of the distribution of securities by TSI, the Company has
approximately 200 shareholders who own approximately 3% of the Company's common
stock outstanding as of March 31, 2000 after the Reverse Acquisition. The
2,400,000 warrants distributed by TSI are all held by approximately 60
shareholders who were the former debenture holders of TSI (see Note 11).
(15) SUBSEQUENT EVENTS
AZTORE FINANCIAL CONSULTING AGREEMENT
Effective June 1, 2000, Aztore and the Company agreed to amend the Financial
Consulting Agreement to pay Aztore a fixed monthly fee of $15,000. Through May
31, Aztore's aggregate fee under the old fee structure totaled $69,000. Aztore
converted $27,600 into 27,600 shares of Series A Preferred stock and was issued
a note payable for $41,400 for the balance owed. This note payable bears
interest at 10% per annum and is due 1/2 upon the first $500,000 raised under
the Offering and 1/2 upon the next $500,000 raised under the Offering.
SETTLEMENT OF DEBT
On June 1, 2000, the Company issued 6,099 shares of Series A Preferred stock to
settle a claim of the Company's former legal counsel who was owed $6,099.
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OFFERING CLOSING
On July 27, 2000, the Company obtained $400,000 of new funding under the
Offering. Sunset was paid $40,000 in commission and a $6,000 expense allowance
and was issued 120,000 Selling Agent Warrants at this closing. Aztore was paid a
$6,000 expense allowance and was paid back $200,000 of the Bridge Loan, plus
accrued interest, leaving a balance of $150,000 owed Aztore on the Bridge Loan.
(16) NOTES TO INTERIM FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The unaudited financial statements presented herein have been prepared by the
Company, without audit, pursuant to the rules and regulations for interim
financial information. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principals have been omitted. These unaudited consolidated
financial statements should be read in conjunction with the financial statements
and notes thereto as set forth above. In the opinion of management, these
unaudited financial statements reflect all adjustments which are necessary to
present fairly the financial position and results of operations of the Company.
Operating results for interim periods are not necessarily indicative of the
results, which may be expected for the entire year.
NOTE PAYABLE TO AZTORE HOLDINGS, INC.
The note payable to Aztore arises from a Financial Consulting Agreement with
Aztore to provide financial consulting services related to the Company's
financial reporting, internal accounting, capital raising and stock trading
activities at the rate of $150 per hour for the services of its personnel.
Through May 31, 2000, Aztore's aggregate fee under this fee structure totaled
$69,000 and Aztore was issued an unsecured note payable for $69,000. Aztore
thereafter converted $27,600 of the note payable into 27,600 shares of Series A
Preferred stock, leaving a note balance of $41,400. One-half of this amount was
paid during the quarter leaving a balance of $20,700 as of September 30, 2000
(see Note 6). Effective June 1, 2000, the Financial Consulting Agreement was
amended and the Company agreed to pay Aztore a fixed monthly fee of $15,000 for
their services.
SETTLEMENT OF DEBT
On September 15, 2000, the Company issued 3,500 shares of Series A Preferred
stock for services rendered in the amount of $3,500 by the Company's web site
designer.
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OFFERING CLOSINGS
Through September 30, 2000, the Company has obtained $800,000 of new funding
under the Offering. Sunset has been paid $80,000 in commission and a $12,000
expense allowance and has been issued 240,000 Selling Agent Warrants. Aztore has
been paid a $12,000 expense allowance and has been paid back $350,000 of the
Bridge Loan, plus accrued interest, leaving no balance owed Aztore on the Bridge
Loan as of September 30, 2000.
Since September, the Company obtained an additional $250,000 of new funding
under the Offering for a total of $1,050,000 under this Offering and has issued
an aggregate of 1,050,000 shares of Series A Preferred stock related to this
Offering.
The Company is in the process of commencing another private placement of its
Series A Preferred stock. Sunset will continue to act as placement agent for
this anticipated placement.
PREFERRED STOCK SUMMARY
As of November 10, 2000, 1,287,199 Series A Preferred shares are issued and
outstanding, consisting of 200,000 shares issued pursuant to the Reverse
Acquisition, 27,600 shares issued to Aztore upon the conversion of $27,600 of
note payable, 6,099 shares issued to the Company's former legal counsel to
settle accounts payable of $6,099, 1,050,000 shares for $1,050,000 of new
funding under the Company's Offering, and 3,500 shares issued to the Company's
web designer.
PATENT APPLICATIONS
The Company has submitted a new application for patent on improvements
identified and made to the Dyna-Cam Engine since the original patents were
obtained (see Note 4) and has received "patent pending status" on serial number
9/678,627 dated October 3, 2000.
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PART III
ITEM 1. INDEX TO EXHIBITS
3.1 Articles of Incorporation of TSI Handling, Inc.
3.2 Certificate of Amendment to the Articles of Incorporation of TSI
Handling, Inc.
3.3 Certificate of Designation - Series A 10% Cumulative Convertible
Preferred Stock
3.4 Bylaws of TSI Handling, Inc.
10.1 Asset Exchange Agreement dated March 31, 2000 by and among TSI
Handling, Inc., Dyna-Cam Engine Corporation and Certain
Shareholders
10.2 Capital Advisory and Financial Consulting Agreement dated March
31, 2000 by and between TSI Handling, Inc. dba Dyna-Cam Engine
Corporation and Aztore Holdings, Inc.
10.3 Existing Shareholders Rights Agreement dated March 31, 2000 by and
between Dyna-Cam Engine Corporation, Chasseur Holdings, Inc. and
Patricia J. Wilks and Dennis C. Palmer
10.4 Note and Share Purchase Agreement
10.5 Employment Agreement dated March 31, 2000 by and between Dyna-Cam
Engine Corporation and Patricia J. Wilks
10.6 Employment Agreement dated March 31, 2000 by and between Dyna-Cam
Engine Corporation and Dennis C. Palmer
10.7 2000 Equity Incentive Plan
23.1 Auditor's Consent of King, Weber & Associates, P.C.
27 Financial Data Schedule
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SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
DYNA-CAM ENGINE CORPORATION
(Registrant)
Dated: December 6, 2000 By: /s/ Patricia J. Wilks
--------------------------------------
Patricia J. Wilks
President
Dated: December 6, 2000 By: /s/ Lanny R. Lang
--------------------------------------
Lanny R. Lang
Secretary
55
