<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
TRANSACTION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT FOR THE TRANSITION PERIOD FROM
_______________________ TO _______________________
COMMISSION FILE NUMBER
DYNAMIC I-T, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
COLORADO 0-10065 82-0379959
(STATE OR OTHER JURISDICTION COMMISSION FILE (IRS EMPLOYER
OF INCORPORATION) NO. IDENTIFICATION NO.)
</TABLE>
2504 11TH STREET, SANTA MONICA, CALIFORNIA 90405
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 392-8179
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
At December 13, 2000, there were issued and outstanding 34,605,213
shares of Common Stock.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X] Item 4.
<PAGE> 2
DYNAMIC I-T, INC.
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000 (Unaudited) F-2
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2000
AND 1999 (Unaudited) F-3
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS'
EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2000 (Unaudited) F-4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (Unaudited) F-5
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS F-6/10
</TABLE>
* * *
F-1
<PAGE> 3
DYNAMIC I-T, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000 (Unaudited)
<TABLE>
<S> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 102,769
Accounts receivable 953,392
Due from related parties 343,942
Prepaid expenses and advances 37,299
Other current assets 330,947
-----------
Total current assets 1,768,349
Equipment, net of accumulated depreciation of $1,105,408 2,022,968
Investment in real property 2,605,904
-----------
Total $ 6,397,221
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 846,895
Due to related parties 514,889
Due to Complex Holdings Limited 239,000
Note payable 25,000
Accrued officer's salary 390,000
-----------
Total current liabilities 2,015,784
Other liabilities 10,015
-----------
Total liabilities 2,025,799
-----------
Stockholders' equity:
Common stock, no par value; 100,000,000 shares authorized;
34,605,213 shares issued and outstanding 6,877,362
Common stock to be issued (700,000 shares) 2,105,904
Paid-in capital 1,425,830
Accumulated deficit (5,897,422)
Cumulative translation adjustment (140,252)
-----------
Total stockholders' equity 4,371,422
-----------
Total $ 6,397,221
===========
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
F-2
<PAGE> 4
DYNAMIC I-T, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------------ ------------------------------
OPERATIONS 2000 1999 2000 1999
---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 2,677,717 $ 2,826,842 $ 920,051 $ 1,047,470
Cost of revenue 1,726,900 1,758,099 624,958 634,003
------------ ------------ ------------ ------------
Gross profit 950,817 1,068,743 295,093 413,467
Selling, general and administrative
expenses 673,885 829,074 365,103 208,696
------------ ------------ ------------ ------------
Income (loss) from operations 276,932 239,669 (70,010) 204,771
------------ ------------ ------------ ------------
Other (income) expenses:
Interest (income) expense, net (1,006) 6,298 (287) (405)
Foreign currency (gain) loss, net 20,817 35,396 (31,887) (37,856)
------------ ------------ ------------ ------------
Totals 19,811 41,694 (32,174) (38,261)
------------ ------------ ------------ ------------
Net income (loss) $ 257,121 $ 197,975 $ (37,836) $ 243,032
============ ============ ============ ============
Basic earnings (loss) per common share $ .01 $ .01 $ (-) $ .01
============ ============ ============ ============
Basic weighted average common shares
outstanding 31,397,587 30,400,000 33,371,074 30,400,000
============ ============ ============ ============
COMPREHENSIVE INCOME (LOSS)
---------------------------
Net income (loss) $ 257,121 $ 197,975 $ (37,836) $ 243,032
Other comprehensive loss, net of tax -
translation adjustments (166,628) (38,099) (39,698) (15,697)
------------ ------------ ------------ ------------
Comprehensive income (loss) $ 90,493 $ 159,876 $ (77,534) $ 227,335
============ ============ ============ ============
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
F-3
<PAGE> 5
DYNAMIC I-T, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
Common Stock to be Issued Cumulative
------------ ------------ Paid-in Accumulated Translation
Shares Amount Shares Amount Capital Deficit Adjustment Total
------ ------ ------ ------ ------- ------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
2000 30,400,000 $6,846,798 $(6,154,543) $ 26,376 $ 718,631
Common stock issued
in connection with
reverse acquisition 4,205,213 30,564 30,564
Foreign currency trans-
lation adjustment (166,628) (166,628)
Acquisition of real prop-
erty 700,000 $2,105,904 2,105,904
Conversion of stock-
holders debt to equity $1,425,830 1,425,830
Net income 257,121 257,121
---------- ---------- ------- ---------- ---------- ----------- --------- ----------
Balance, September
30, 2000 34,605,213 $6,877,362 700,000 $2,105,904 $1,425,830 $(5,897,422) $(140,252) $4,371,422
========== ========== ======= ========== ========== =========== ========= ==========
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
<PAGE> 6
DYNAMIC I-T, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Operating activities - net cash provided by (used in)
operating activities $ 112,637 $ (52,317)
--------- ---------
Investing activities:
Cash received as a result of reverse acquisition 237,420
Acquisition of real property (100,000)
Purchases of equipment (215,304) (232,257)
--------- ---------
Net cash used in investing activities (77,884) (232,257)
--------- ---------
Financing activities:
Increase in related party loans 280,756
Repayment of capital lease obligation (17,758)
---------
Net cash provided by financing activities 262,998
---------
Effect of exchange rate changes on cash and cash
equivalents 40,672 (11,483)
--------- ---------
Increase (decrease) in cash and cash equivalents 75,425 (33,059)
Cash and cash equivalents, beginning of period 27,344 64,841
--------- ---------
Cash and cash equivalents, end of period $ 102,769 $ 31,782
========= =========
</TABLE>
Supplemental disclosure of noncash investing and financing activities during the
nine months ended September 30, 2000:
The Company acquired its investment of real property, in part, through
the issuance of 700,000 shares of common stock having a fair value of
$2,105,904 and a loan payable of $239,000 to Complex Holdings Limited.
The stockholders converted their debt aggregating $1,425,830 to equity.
See Notes to Unaudited Condensed Consolidated Financial Statements.
F-5
<PAGE> 7
DYNAMIC I-T, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Business activities, reverse acquisition and significant accounting
policies:
Business:
Dynamic I-T, Inc. ("Dynamic") was incorporated under the laws
of the State of Colorado on March 3, 1980. Dynamic provides a
broad range of tele-communication services consisting of
terrestrial data, satellite data and Internet services to
Hungarian and multi-national corporations in Hungary and
Central Europe through the operation of its telecommunications
hub located in Budapest and with international gateway
partners.
Reverse acquisition:
On February 14, 2000, Satnet Ltd. agreed to sell its
investment in Banknet KFT to Dynamic, in exchange for
30,400,000 shares of Dynamic's common stock (Dynamic and
Banknet KFT are collectively referred as the "Company"). This
agreement was subsequently revised to be effective July 28,
2000. The transaction has been accounted for as a reverse
merger involving a shell company (Dynamic), effectively a
recapitalization of Banknet KFT (the operating
company/accounting acquirer). Accordingly, the historical
financial statements of Banknet KFT are presented as the
historical financial statements of the registrant. The results
of operations of Dynamic (legal acquirer/shell) are included
in the consolidated financial statements since the effective
date of the merger. Pro forma condensed consolidated statement
of operations information for the nine months ended September
30, 2000, as if the reverse acquisition occurred on January 1,
1999, is as follows:
<TABLE>
<S> <C>
Revenue $2,678,000
Net income $ 33,000
Earnings per share $ -
</TABLE>
The pro forma condensed consolidated statement of operations
information for the nine months ended September 30, 1999 has
not been presented since the impact of Dynamic's continuing
operations on Banknet KFT would not have a material effect.
Foreign currency translation:
The Company follows a translation policy in accordance with
Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation." The functional currencies of the
Company are the Hungarian Forint and the British Pound. The
United States Dollar has been designated as the reporting
currency.
Transactions arising in foreign currency are translated into
the functional currencies of the rates of exchange at the date
of the transactions. Assets and liabilities denominated in
foreign currencies are translated into the Hungarian Forint or
British Pound at the rates of exchange at the balance sheet
date. Assets and liabilities in Hungarian Forints and British
Pounds are translated to United States dollars at the rates of
exchange at the balance sheet data. Income and expense
accounts and cash flows are translated into the United States
Dollar, the reporting currency, at average monthly rates of
exchange. The resultant translation adjustments are included
in other comprehensive income (loss) and as a separate
component of stockholders' equity.
F-6
<PAGE> 8
DYNAMIC I-T, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Business activities, reverse acquisition and significant accounting
policies (concluded):
Earnings (loss) per share:
The Company presents "basic" earnings (loss) per common share
and, if applicable, "diluted" earnings per common share
pursuant to the provisions of Statement of Financial
Accounting Standards No. 128, "Earnings per Share". Basic
earnings (loss) per common share is calculated by dividing net
income or loss applicable to common stock by the weighted
average number of common shares outstanding during each
period. The calculation of diluted earnings (loss) per common
share is similar to that of basic earnings per common share,
except that the denominator is increased to include the number
of additional common shares that would have been outstanding
if all potentially dilutive common shares, such as those
issuable upon the assumed exercise of stock options and
warrants, had been issued during the period. For the nine and
three months ended September 30, 2000 and 1999, the Company
did not have any potentially dilutive common share equivalents
outstanding.
Note 2 - Unaudited interim financial statements:
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments,
consisting of normal recurring accruals, necessary to present
fairly the financial position of the Company as of September 30,
2000 and its results of operations and comprehensive income (loss)
for the nine and three months ended September 30, 2000 and 1999 and
its cash flows for the nine months ended September 30, 2000 and
1999. Certain terms used herein are defined in the audited
consolidated financial statements of the Company as of December 31,
1999 and for the year then ended (the "Audited Financial
Statements") included in the Company's Annual Report on Form 10-KSB
(the "Form 10KSB") for the year ended December 31, 1999 and the
Company's Report on Form 8-K/A dated July 31, 2000 that were
previously filed with the United States Securities and Exchange
Commission (the "SEC"). Pursuant to rules and regulations of the
SEC, certain information and disclosures normally included in
financial statements prepared in conformity with generally accepted
accounting principles have been condensed or omitted from these
condensed consolidated financial statements unless significant
changes have taken place since the end of the most recent fiscal
year. Accordingly, these unaudited condensed consolidated financial
statements should be read in conjunction with the Audited Financial
Statements and the other information also included in Forms 10-KSB
and 8-K/A.
The Company's results of operations for the nine and three months
ended September 30, 2000 are not necessarily indicative of the
results of operations to be expected for the full year ending
December 31, 2000.
F-7
<PAGE> 9
DYNAMIC I-T, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Acquisition:
On August 2, 2000, the Company completed an acquisition valued at
an aggregate of $2,605,904 of LM Hungary Parts Supply and
Distribution Co., Ltd. ("LM"), a company organized under the laws
of Hungary. The transaction was consummated pursuant to a Quota
Sale and Purchase Agreement dated August 2, 2000 (the "Purchase
Agreement") by and between the Company and Mannai Corporation
Limited ("Mannai"). Mannai was the sole owner of LM. The
stockholder of Mannai is a member of the Company's Board of
Directors.
The primary asset of LM consists of real property. Pursuant to the
Purchase Agreement, the Company acquired LM for cash of $500,000,
700,000 common shares of the Company's common stock and the
assumption by the Company of a debt of LM payable to Complex
Holdings Limited ("Complex"). The balance of $239,000, which is due
to Complex, will be paid in one payment of $59,000 and six equal
consecutive monthly payments of $30,000. As of September 30, 2000,
the note payable is due on demand with interest at 9% per annum.
The consideration was paid to Mannai as follows:
<TABLE>
<S> <C>
Cash paid by Dynamic prior to reverse merger $ 161,000
Cash paid by Company on August 2, 2000 100,000
Note payable to Complex 239,000
Common stock issued - 700,000 shares at fair value 2,105,904
----------
Total $2,605,904
==========
</TABLE>
Note 4 - Related party transactions:
Accrued officer's salary in the amount of $390,000 represents
salary due Mr. M. Coke Reeves for services performed through March
31, 1999. An agreement was reached on April 20, 1999 between M.
Coke Reeves and the Board of Directors to forgive the $390,000 of
accrued salary after the common share price of the Company on the
OTC Bulletin Board had averaged $3 per share for thirty consecutive
trading days. In the event that such average price does not occur
within two years of the date of the agreement, the Company will
issue registered shares at the then market price, in full
satisfaction of the obligation. In addition, M. Coke Reeves shall
hold a pledge of 200,000 shares of the Company's common stock as
collateral for the payment of the accrued and unpaid salary.
Note 5 - Stockholders' equity:
The stockholders passed a resolution dated July 28, 2000 in which
they agreed to convert $1,425,830 to equity.
F-8
<PAGE> 10
DYNAMIC I-T, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - Segment disclosure and related information:
The Company operates in four segments within the telecommunications
service provision industry: satellite data transmission ("VSAT"),
terrestrial data transmission and frame relay services ("Infonet"),
Internet service provision ("Internet") and other services. The
satellite data transmission segment provides data communication
services, using VSAT technology, to banks, governmental
organizations, insurance companies and other corporations mainly in
Hungary and in other parts of Europe. Terrestrial data and frame
relay services are provided to Internet service providers and local
Hungarian companies. Other services include provision of ground
operations for major multi-national telecommunication companies in
Hungary and in single channels per carrier links.
The above mentioned segments are managed and evaluated separately
because each segment possesses different economic characteristics
requiring different marketing strategies.
The Company's management evaluates performances based on operating
contribution, where segment revenue is reduced by those costs that
are allocable to the segments. Nonallocable general, administrative
and marketing costs are treated as corporate costs and not charged
to the segments.
The following summarizes financial information concerning the
Company's reportable segments:
<TABLE>
<CAPTION>
Other
VSAT Infonet Internet Services Total
---------- ---------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
Nine months ended
September 30, 2000:
Total revenue $1,031,999 $1,157,079 $ 187,234 $301,405 $2,677,717
========== ========== ========= ======== ==========
Operating income (loss) $ 172,632 $ 547,407 $ (33,282) $ 49,702 $ 736,459
========== ========== ========= ======== ==========
Nine months ended
September 30, 1999:
Total revenue $1,316,663 $ 849,005 $ 271,889 $389,285 $2,826,842
========== ========== ========= ======== ==========
Operating income (loss) $ 300,339 $ 334,860 $ (23,130) $109,407 $ 721,476
========== ========== ========= ======== ==========
Three months ended
September 30, 2000:
Total revenue $ 342,392 $ 428,204 $ 63,593 $ 85,862 $ 920,051
========== ========== ========= ======== ==========
Operating income (loss) $ 45,164 $ 175,049 $ (9,053) $ 10,702 $ 221,862
========== ========== ========= ======== ==========
Three months ended
September 30, 1999:
Total revenue $ 481,872 $ 372,237 $ 67,528 $125,833 $1,047,470
========== ========== ========= ======== ==========
Operating income (loss) $ 155,608 $ 188,450 $ (22,155) $ 45,532 $ 367,435
========== ========== ========= ======== ==========
</TABLE>
F-9
<PAGE> 11
DYNAMIC I-T, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - Segment disclosure and related information (concluded):
<TABLE>
<CAPTION>
Reconciliation of operating income
from reportable segments to net Nine Months Ended Nine Months Ended Three Months Ended Three Months Ended
income (loss) before income taxes September 30, 2000 September 30, 1999 September 30, 2000 September 30, 1999
--------------------------------- ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Operating income from reportable
segments $ 736,459 $ 721,476 $ 221,862 $ 367,435
Other nonallocable costs (459,527) (481,807) (291,872) (162,664)
Interest income (expense), net 1,006 (6,298) 287 405
Foreign currency gain (loss) (20,817) (35,396) 31,887 37,856
Net income (loss) 257,121 197,975 (37,836) 243,032
</TABLE>
* * *
F-10
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the
condensed consolidated financial statements and notes thereto appearing
elsewhere in this report.
OVERVIEW
Dynamic I-T, Inc. ("Dynamic" or the "Company"), a Colorado corporation,
was incorporated in 1980 as Colorado Gold & Silver Mining to engage in the
exploration, acquisition and development of mining and mineral prospects. In
August 1999, the Company changed its name and ceased all of its efforts in the
mining and minerals industry and approved a plan to pursue the acquisition of
development stage Internet-related companies and technologies which such
companies would likely lack any significant operating or financial histories
and, in all likelihood, be unprofitable with significant losses and negative
shareholders equity and which technologies would likely be development stage
with little or no revenue and no history of sales. The Company planned to be an
"incubator" of such Internet-related endeavors and to develop an acquired
company to the point that such a company would be able to begin marketing its
services and generate revenue. Thus, the Company amended its articles of
incorporation in order to reflect the change in its basic business and conducted
extensive market research and analysis in order to focus its marketing efforts
more narrowly to an Internet business that would have wide application, have the
ability to generate long term growth, be international in scope, and not require
capital intensive start-up costs. A decision was made by Company management to
enter the distance learning ("Distance Learning") market with the objective of
developing via the Internet and delivering through tailored global distance
educational courses including business, corporate, medical and pedagogical
programs. A separate division of the Company (the "Distance Learning Division")
is dedicated to achieving these goals. The Company will offer the programs from
the United States for delivery virtually anywhere in the world. The technology
used by the Company in the delivery of these interactive programs will be via
broadband terrestrial and satellite telecommunications networks utilizing the
Internet as the medium for course work. Although its primary focus will be in
the business, corporate and medical areas, the Company will be able to provide
educational programs through the Internet for public or private pedagogical
institutions or for the training of executives in virtually any industry.
Instruction can be offered to enhance the subscriber's knowledge for business or
other purposes and might ultimately be for degree or non-degree programs.
In August 1999, the Company effected a reverse split of its common
stock and simultaneously changed its name to Dynamic I-T, Inc. amending its
stated business purpose in order to begin to focus on the aforementioned
objective of acquiring Internet-related companies and/or technologies. The
Company's strategic and tactical plans are currently in the process of being
implemented by Company personnel as well as through the use of outside
consultants and other professionals. For example, the Distance Learning
Division's website is being developed by Engram Digital, a leading Internet web
development company. In addition, the Company recently announced the completion
of the video portion of the first of 25 online executive seminars that it plans
to produce over the next two years. Each seminar is designed for management
personnel of Fortune 1000 companies and can be accessed from any computer with a
modem at any time.
The objective of the Company for the Distance Learning Division is that
it become one of the leading providers of Distance Learning in the United States
and ultimately internationally. To achieve this, Dynamic needs to develop more
channels for the marketing of its Distance Learning programs, and maintain its
focus on emerging technology while continuing to develop a high level of
expertise in this industry. Through its Distance Learning Division, the Company
intends to introduce many more innovative product solutions to the Distance
Learning industry and to expand into other Internet-related businesses through
technology and the delivery of customized solutions for Dynamic's emerging
<PAGE> 13
markets. In addition, the Company believes that more and more international
opportunities are emerging in the Distance Learning area which the Company
intends to pursue more vigorously through its recently acquired subsidiary,
BankNet Kft ("BankNet").
On July 31, 2000, the Company acquired BankNet, a company organized
under the laws of Hungary in 1991, in a reverse acquisition transaction with
Satnet Ltd. for 30,400,000 shares of Dynamic. BankNet is a satellite
telecommunications company based in Hungary which operates in four segments of
this market, namely the telecommunications services industry, satellite data
transmission, terrestrial data transmission and frame relay services markets.
BankNet was established to take advantage of the liberalization of the
Central and Eastern European telecommunications markets and the demand that
existed. BankNet started its professional and business activities by introducing
satellite data communications technology in Hungary, which was virtually unknown
to the general public at that time, and proving that it had the potential to
enter the highly competitive data communications market, BankNet installed a hub
which was the first of its kind in Eastern Europe in June 1993.
BankNet provides data communications services within Hungary and
neighboring countries. It owns a hub in Budapest with an installed base of 600
remote sites. The service is carried across Europe and Russia. The ground
equipment is Hughes Network Systems (HNS) Personal Earth Stations (PES) Very
Small Aperture Terminal (VSAT) technology which is the most widely used method
of transferring data. Furthermore BankNet operates a number of Single Channel
Per Carrier (SCPS) connections as well as a growing Internet business with
Internet Service Providers (ISPs) providing links and services.
Currently, the main functional areas of BankNet's services are (i) data
communication and information technology systems integration; (ii)
implementation and operation of special-demand private business networks; (iii)
applications development and operation in the Infonet world network and (iv)
Internet services for ISPs and dedicated clients.
The Company acquired BankNet because of the synergies that management
believes exist between BankNet and Dynamic. These synergies are based on the
principle that the programs will be designed in and marketed from the United
States while delivery and network management will be done from Hungary.
Recently, Dynamic announced that it is in negotiations with Motorola Inc. to
obtain a license to be the exclusive solutions operator within Hungary of
Motorola's new electronic commerce software platform, EC-Global Corridor which
was designed to provide electronic commerce services to the business-to-business
and business-to-government purchasing markets. Dynamic will offer EC-Global
Corridor business solutions through BankNet.
The Company's securities are quoted on the Over-the-Counter Bulletin
Board ("OTCBB") under the symbol DYNM.
<PAGE> 14
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO
THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2000 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1999
REVENUES
The Company's revenues decreased 7.4%, from $1,047,470 for the third
quarter of 1999 to $970,051 for the third quarter of 2000. For the nine-month
period ended September 30, 2000, net sales of $2,677,717 were 5.3% lower than
the same period in 1999 when net sales totaled $2,826,842. This decrease in
revenues was primarily attributable to the decrease of VSAT related services, as
new solutions for data communication were emerging in the market.
COST OF REVENUES
Cost of revenues consists primarily of leased line fees (flex-com) and
space segment fees, as well as Internet related access fees. Direct
telecommunication costs decreased 1.4%, from $634,003 for the third quarter of
1999 to $624,958 for the third quarter of 2000. For the nine-month period ended
September 30, 2000, the direct telecommunication costs of $1,726,900 were 1.8%
lower than the same period in 1999 or $1,758,099. This decrease is mainly
attributable to the devaluation of the Hungarian Forint, which was compensated
by the increase in the cost of the leased lines which is related to the increase
of revenues in the Infonet business.
GROSS PROFIT
Gross income consists of revenues less direct telecommunication costs. Net
revenue decreased approximately 28.6%, from $413,467 for the nine-month period
ended September 30,1999 to $295,093 for the nine-month period ended September
30, 2000. For the nine-month period of 1999, gross margin was $1,068,743 which
decreased to $950,817 in 2000. This decrease is primarily attributable to the
decrease in revenue of VSAT related services, as new solutions for data
communication are emerging on the market.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses consists of costs associated
with the Company's sales and marketing efforts, executive management, finance,
facilities and other general overhead expenses. Selling, general and
administrative expenses increased 74.9% from $208,696 for the third quarter in
1999 to $365,103 in the third quarter of 2000. This increase in selling,
general, and administrative expenses was primarily attributable to the increase
in the cost of professional services used by the Distance Learning Division as
well as for the purposes of meeting the US GAAP reporting requirements. For the
nine-month period the selling, general and administrative expenses decreased by
18.7% from $829,074 in 1999 to $673,885 in 2000, as a result of operating
efficiencies developed by the Company during the period.
<PAGE> 15
NET INCOME
As a result of the above, the Company's net (loss) for the three-month
period ended September 30, 2000, decreased by 115.6%, from a net income of
$243,032 for the nine-month period ended September 30, 1999 to a net loss of
$37,836 for the comparable nine-month period of 2000. The net income of $197,975
for the nine-month period ended September 30, 1999 increased by 29.9% to
$257,121 for the same period in 2000. The increase was due to the decrease in
selling, general and administrative expenses and the decrease in other expenses.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operations were $112,637 for the nine-month period
ended September 30, 2000 as compared to $(52,317) in the comparable period of
1999. The $164,954 increase in cash provided by operations for the nine-month
period was offset by the purchase of real property and equipment. The Company
expects that available cash will be sufficient to meet its normal operating
requirements.
Historically, the Company has financed its working capital requirements
through short-term funding from a related party. This funding has been
periodically forgiven and converted into equity. In the nine-month period ended
September 30, 2000,a non-interest bearing short-term loan in the amount of
$1,425,830 from the related party was converted into equity. For the financing
of the property and equipment purchases, the Company has a loan agreement with
Satnet Ltd. for a loan of $200,000, which can be drawn by the Company in
Hungarian Forint installments. The Company drew a sum of $21,381 on May 5, 2000.
The loan bears interest of 5% per annum.
CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The statements contained in the section captioned Management's
Discussion and Analysis of Financial Condition and Results of Operations which
are not historical are "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking statements
represent the Company's present expectations or beliefs concerning future
events. The Company cautions that such forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things, the
uncertainty as to the Company's future profitability; the uncertainty as to the
demand for Distance Learning; increasing competition in the Distance
Learning market; the ability to hire, train and retain sufficient qualified
personnel; the ability to obtain financing on acceptable terms to finance the
Company's growth strategy; and the ability to develop and implement operational
and financial systems to manage the Company's growth.
New Accounting Pronouncements
No new pronouncement issued by the Financial Accounting Standards
Board, the American Institute of Certified Public Accountants or the Securities
and Exchange Commission is expected to have a material impact on the Company's
financial position or reported results of operations.
<PAGE> 16
PART II OTHER INFORMATION
Item 1 Legal Proceedings
Dynamic I-T, Inc. is not a party to any litigation.
Item 2 Changes in Securities
See Condensed Financial Statements
Item 3 Defaults on Senior Securities
None
Item 4 Submission of Matters to a Vote of Shareholders
None
Item 5 Other Information
Change in Fiscal Year
The Registrant determined on November 17, 2000 to change its
fiscal year to a calendar year in order to conform its
reporting to that of its accounting acquirer, Banknet Kft.
The new fiscal year end is December 31, 2000. A transition
report is not applicable to this change in fiscal year.
Item 6 Exhibits and Reports on Form 8-K.
a) Exhibits. The exhibits filed as part of this Quarterly report on
Form 10-QSB are incorporated by reference to the indicated exhibit as part of
the filing of the Company shown below.
Exhibit No. Description
----------- -----------
2 Share Purchase Agreement, dated January 28, 2000, by and
between the Company and Banknet Kft (Exhibit 7.1 of Form 8-K
filed 2/29/00).
3.1 Articles of Incorporation (Exhibit 3.1 to Form 8-K filed
8/25/99).
3.2 Bylaws. (Exhibit 3.2 of Annual Report on Form 10-KSB filed
7/21/00).
4 Form of Common Stock Certificate of Company. (Exhibit 4 of
Annual Report on Form 10-KSB filed 7/21/00).
27.1 Financial Data Schedule.*
* Filed herewith.
b) Reports on Form 8-K.
<PAGE> 17
(i) Form 8-K/A was filed with the Securities and Exchange Commission
on August 15, 2000 to report the Company's change in the closing date of a Share
Exchange Agreement by which the Company acquired Banknet Kft.
(ii) Form 8-K was filed with the Securities and Exchange Commission on
August 17, 2000 to report that the Company had acquired certain land from LM
Hungary Parts and Supply Distribution Co. Ltd., a company organized under the
laws of Hungary ("LM Hungary").
(iii) Form 8-K was filed with the Securities and Exchange Commission on
September 5, 2000 to report the Company's dismissal of its certifying
accountants, Michael B. Johnson & Co. and the engagement of J.H. Cohn LLP, its
new independent public accountants.
(iv) Form 8-K/A was filed with the Securities and Exchange Commission
on September 7, 2000 to report that the Company had engaged the firm of J.H.
Cohn LLP as its independent public accountants.
(v) Form 8-K/A was filed with the Securities and Exchange Commission on
November 3, 2000 to update the financial statements of Banknet Kft., which
company Dynamic I-T, Inc. had acquired and reported in an earlier Form 8-K.
(vi) Form 8-K was filed with the Securities and Exchange Commission on
December 14, 2000 to report the Company's change in its independent public
accountants.
<PAGE> 18
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the Company duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DYNAMIC I-T, INC.
By: /s/ Raymond King
-----------------------------------------------
Raymond King
Chief Financial Officer
Date: December 15, 2000
In accordance with the Exchange Act, this Report has been
signed below by the following persons on behalf of the Company in the capacities
set forth and on the dates indicated.
<TABLE>
<CAPTION>
Signature Position Date
<S> <C> <C>
By: /s/ Melvyn Quiller Chief Executor Officer and Director December 15, 2000
----------------------
Melvyn Quiller
By: /s/ Raymond King Chief Financial Officer and Director December 15, 2000
----------------------
Raymond King
</TABLE>
