UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934.
DYNAMIC ASSOCIATES, INC.
(Exact name of registrant as specified in its charter)
NEVADA 33-55254-03 87-0473323
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
7373 North Scottsdale Road, Suite B-150
Scottsdale, Arizona 85253
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (602) 483-8700
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its CURRENT REPORT on Form 8-K dated
May 4, 1996 as set forth in the pages attached hereto:
Audited financial statements as of December 31, 1995 and 1994 for P & H
Laboratories.
Pro forma information as of December 31, 1995 and 1994 and March 31, 1996
and 1995.
Share purchase agreement with P & H Laboratories dated February 28, 1996.
Memorandum of Agreement dated April 23, 1996 finalized May 4, 1996.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dynamic Associates, Inc.
Date: July 15, 1996
Logan B. Anderson, Secretary/Treasurer
CONTENTS
Page
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Balance Sheet
As of December 31, 1995 2-3
Statements of Income and Retained Earnings
For the Years Ended
December 31, 1995 and 1994 4
Statements of Cash Flows
For the Years Ended
December 31, 1995 and 1994 5-6
Notes to Financial Statements
As of December 31, 1995 7-13
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
P & H Laboratories
Simi Valley, California
Members of the Board:
We have audited the accompanying balance sheet of P & H Laboratories as of
December 31, 1995, and the related statements of income and retained earnings,
and cash flows for the years ended December 31, 1995 and 1994. 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
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above presently
fairly, in all material respects, the financial position of P & H Laboratories
as of December 31, 1995 and the results of its operations and its cash flows for
the years ended December 31, 1995 and 1994, in conformity with generally
accepted accounting principles.
/S/ Singer Lewak Greenbaum & Goldstein LLP
Los Angeles, California
March 21, 1996
1
P & H LABORATORIES
BALANCE SHEET
As of December 31, 1995
ASSETS
(Note 4)
CURRENT ASSETS
Cash and cash equivalents (Note 3) $ 178,867
Short-term commercial paper 329,157
Accounts receivable, net of allowance for
doubtful accounts of $20,000 810,825
Inventories (Note 2) 588,803
Accounts receivable - officer (Note 8) 30,300
Prepaid expenses and other current assets 4,523
Deferred income tax (Notes 2 and 9) 53,000
----------------
TOTAL CURRENT ASSETS 1,995,475
----------------
MACHINERY AND EQUIPMENT (Note 2)
Machinery and equipment 1,350,501
Furniture and fixtures 198,460
----------------
1,548,961
Less accumulated depreciation (1,392,330)
----------------
NET MACHINERY AND EQUIPMENT 156,631
----------------
MACHINERY UNDER CAPITAL LEASES (Note 2)
Equipment 59,315
Less accumulated amortization (45,239)
----------------
NET MACHINERY UNDER CAPITAL LEASES 14,076
----------------
OTHER ASSETS
Deposits 21,315
----------------
TOTAL ASSETS $ 2,187,497
================
The accompanying notes are an integral part of these financial statements.
2
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 203,039
Income taxes payable (Notes 2 and 9) 128,205
Current portion of long-term debt (Note 4) 77,304
Current portion of capital lease obligation 519
----------------
TOTAL CURRENT LIABILITIES 409,067
LONG-TERM DEBT, Net of current portion (Note 4) 173,652
DEFERRED INCOME TAX (Notes 2 and 9) 54,000
----------------
TOTAL LIABILITIES 636,719
COMMITMENT (Note 6)
STOCKHOLDERS' EQUITY
Common stock, $.10 par value;
5,000,000 shares authorized,
275,000 shares issued and outstanding 27,500
Additional paid-in capital 22,500
Retained earnings 1,500,778
----------------
TOTAL STOCKHOLDERS' EQUITY 1,550,778
----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,187,497
================
The accompanying notes are an integral part of these financial statements.
3
P & H LABORATORIES
STATEMENTS OF INCOME AND RETAINED EARNINGS
For the Years Ended December 31, 1995 and 1994
1995 % of 1994 % of
Amount Net Sales Amount Net Sales
NET SALES (Note 5) $ 3,723,013 100.0% $ 3,448,251 100.0%
COST OF GOODS SOLD 2,370,168 63.7 2,674,240 77.6
------------- -------------- ------------- -------------
GROSS PROFIT 1,352,845 36.3 774,011 22.4
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES 845,254 22.7 681,212 19.7
------------- -------------- ------------- -------------
INCOME FROM OPERATIONS 507,591 13.6 92,799 2.7
------------- -------------- ------------- -------------
OTHER INCOME (EXPENSE)
Interest income 24,310 0.7 11,325 0.3
Interest expense (23,132) (0.6) (23,500) (0.7)
(Loss) on disposal of machinery
and equipment - - (1,032) -
------------- -------------- ------------- -------------
TOTAL OTHER INCOME (EXPENSE) 1,178 0.1 (13,207) (0.4)
------------- -------------- ------------- -------------
INCOME BEFORE PROVISION FOR (BENEFIT
FROM) INCOME TAXES AND EXTRA-
ORDINARY ITEM 508,769 13.7 79,592 2.3
------------- -------------- ------------- -------------
PROVISION FOR (BENEFIT FROM) INCOME
TAXES (Notes 2 and 9)
Current 151,000 4.1 30,368 0.9
Deferred 50,000 1.3 (35,000) (1.0)
------------- -------------- ------------- -------------
TOTAL PROVISION FOR (BENEFIT
FROM) INCOME TAXES 201,000 5.4 (4,632) (0.1)
------------- -------------- ------------- -------------
INCOME BEFORE EXTRAORDINARY ITEM 307,769 8.3 84,224 2.4
EXTRAORDINARY ITEM - Earthquake damage,
net of income tax effect of $8,200 (Note 10) - - (31,098) (0.9)
------------- -------------- ------------- -------------
NET INCOME 307,769 8.3% 53,126 1.5%
============== =============
RETAINED EARNINGS - Beginning of Year 1,193,009 1,139,883
------------- -------------
RETAINED EARNINGS - End of Year $ 1,500,778 $ 1,193,009
============= =============
The accompanying notes are an integral part of these financial statements.
4
P & H LABORATORIES
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1995 and 1994
1995 1994
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 3,548,323 $ 3,182,996
Cash paid to suppliers and employees (3,187,747) (3,122,639)
Interest income received 24,310 11,325
Interest expense paid (22,101) (23,616)
Income taxes received 7,292 7,100
Income taxes paid (46,460) (3,650)
----------------- -----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 323,617 51,516
----------------- -----------------
CASH FLOWS (USED IN) INVESTING ACTIVITIES
Purchase of machinery and equipment (10,370) (45,947)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
(Decrease) Increase in book overdraft (8,905) 8,905
Principal payments on long-term debt (71,650) (38,884)
Borrowings on long-term debt 81,700 15,000
Principal payments on capital lease obligation (9,189) (11,394)
----------------- -----------------
NET CASH (USED IN) FINANCING ACTIVITIES (8,044) (26,373)
----------------- -----------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS DURING YEAR 305,203 (20,804)
CASH AND CASH EQUIVALENTS - Beginning of Year 202,821 223,625
----------------- -----------------
CASH AND CASH EQUIVALENTS - End of Year $ 508,024 $ 202,821
================= =================
The accompanying notes are an integral part of these financial statements.
5
P & H LABORATORIES
STATEMENTS OF CASH FLOWS (Continued)
For the Years Ended December 31, 1995 and 1994
1995 1994
----------------- -----------------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
Net income $ 307,769 $ 53,126
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 48,905 89,105
Bad debt expense 9,428 28,643
Deferred income tax 50,000 (35,000)
Loss on disposal of machinery and equipment - 1,032
Net book value of assets lost in earthquake - 3,257
(Increase) Decrease in:
Accounts receivable (59,038) (183,518)
Inventories (40,931) 416,745
Prepaid expenses and other current assets (1,393) 10,339
Insurance receivable 63,001 (63,001)
Other assets: 10,320 -
(Decrease) Increase in:
Accounts payable and accrued expenses (60,624) (54,040)
Customer refund payable (115,652) (106,512)
Accrued rent - stockholder - (28,000)
Deferred revenue - (95,380)
Income tax payable 111,832 14,720
----------------- -----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 323,617 $ 51,516
================= =================
The accompanying notes are an integral part of these financial statements.
6
P & H LABORATORIES
NOTES TO FINANCIAL STATEMENTS
As of December 31, 1995
NOTE 1 - BUSINESS ACTIVITY
The Company is a California corporation that manufactures highly
technologically advanced microwave components and subsystems for the
communications and aerospace industries. The Company grants credit to its
customers, substantially all of whom are located in the United States.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market. At December 31, 1995, inventories were comprised of the following:
Raw materials $ 218,232
Work in process 370,571
-----------------
$ 588,803
=================
Machinery and Equipment
Machinery and equipment are stated at cost. The Company provides for
depreciation and amortization using straight-line and accelerated methods over
the estimated useful lives of the principal classes of property, as follows:
Machinery and equipment 8 years
Furniture and fixtures 8 years
Machinery Under Capital Leases
The Company leases equipment under non-cancelable leases that are
classified as capital leases. The leased equipment has been capitalized, and the
related obligations have been recorded at the fair value of the asset at the
inception of the lease. The leased equipment is amortized using the accelerated
method over a period of eight years, and interest expense is recognized over the
term of the lease. Amortization expense of $4,692 and $6,256 for the years ended
December 31, 1995 and 1994, respectively, related to assets under capital leases
are included with other depreciation.
7
P & H LABORATORIES
NOTES TO FINANCIAL STATEMENTS
As of December 31, 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Warranty Costs
The Company provides, by a current charge to income, an amount it estimates
will be needed to cover future warranty obligations for products sold during the
year. The accrued liability for warranty costs is included in "Accounts payable
and accrued expenses" in the accompanying balance sheet.
Income Taxes
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences, and operating loss
carryforwards and deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion of all of the deferred tax assets will not be
realized. The valuation allowance at December 31, 1995 was zero. During the year
ended December 31, 1994, the valuation allowance decreased by $15,000. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment. As of December 31, 1995, temporary
differences arose primarily from differences in the timing of recognizing
expenses for financial reporting and income tax purposes. Such differences
include depreciation, bad debt allowances, and various accrued operating
expenses.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
8
P & H LABORATORIES
NOTES TO FINANCIAL STATEMENTS
As of December 31, 1995
NOTE 3 - CASH AND CASH EQUIVALENTS
For purpose of reporting cash flows, the Company considers all
highly-liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
The Company maintains its cash balances in two banks located in Southern
California. The balances at each bank are insured by the Federal Deposit
Insurance Corporation up to $100,000. As of December 31, 1995, the uninsured
portion of the balances held at these banks aggregated to $129,654.
NOTE 4 - LONG-TERM DEBT
Notes payable - S.B.A. Payable in monthly installments of $4,675, including
interest at 4% through August 1996. Commencing September 1996, monthly
payments including interest will be $892. Debt matures in June 2003 and is
guaranteed by the Company's president/stockholder. These notes are
subordinated to the bank note. $ 98,394
Note payable - bank. Payable in monthly installments of
$3,317 plus interest at prime plus 1% per annum and
secured by accounts receivable, other rights to
payment, general intangibles, inventory, and
equipment. Debt matures in December 1999. 152,562
-----------------
250,956
Less current portion 77,304
-----------------
$ 173,652
=================
9
P & H LABORATORIES
NOTES TO FINANCIAL STATEMENTS
As of December 31, 1995
NOTE 4 - LONG-TERM DEBT (Continued)
Scheduled maturities of these obligations are as follows:
Year ending December 31,
1996 $ 77,000
1997 48,000
1998 49,000
1999 42,000
2000 10,000
Thereafter 25,000
-----------------
$ 251,000
=================
NOTE 5 - MAJOR CUSTOMERS
During the years ended December 31, 1995 and 1994, sales to three customers
represented 21.7%, 19.4% and 16.3% of total sales, and sales to two customers
represented 24.1% and 14.8% of total sales, respectively. As of December 31,
1995, accounts receivable from these three customers totaled $495,000.
NOTE 6 - COMMITMENT
Operating Lease
The Company leases its facility from the principal stockholder under an
operating lease that requires minimum monthly payments of $15,164. The term of
the lease is for two years and two months. The lease, which expires on February
28, 1998, specifies that the Company is obligated to pay real property taxes,
insurance, and utility bills.
10
P & H LABORATORIES
NOTES TO FINANCIAL STATEMENTS
As of December 31, 1995
NOTE 6 - COMMITMENT (Continued)
Future minimum lease payments are as follows:
Year ending December 31,
1996 $ 182,000
1997 182,000
1998 30,000
-----------------
$ 394,000
=================
Rent expense for the years ended December 31, 1995 and 1994 was $194,096
and $181,968, respectively.
NOTE 7 - 401(K) SAVINGS PLAN
Employees of the Company may participate in a 401(K) savings plan whereby
they may elect to make contributions pursuant to a salary reduction agreement
upon meeting the age and length-of-service requirements. Matching contributions
by the Company are discretionary. No matching contributions were made for the
years ended December 31, 1995 and 1994.
NOTE 8 - RELATED PARTY TRANSACTIONS
The receivable from the officer/stockholder is non-interest bearing and is
due when certain documentation is received from a government agency.
11
P & H LABORATORIES
NOTES TO FINANCIAL STATEMENTS
As of December 31, 1995
NOTE 9 - INCOME TAXES
A reconciliation of the provision for income tax expense with the expected
income tax computed by applying the federal statutory income tax rate to income
before provision for income taxes is as follows:
December 31,
--------------------------------
1995 1994
---------- ----------
Income tax computed at
federal statutory tax rate 34.0% 15.0%
State taxes (net of federal
benefit) 5.5 7.9
Reduction of valuation
allowance - (30.6)
Other - 2.0
---------------- ---------------
39.5% (5.7)%
================ ===============
Significant components of the Company's deferred tax liabilities and assets
for income taxes consist of the following:
Current deferred tax assets
Allowance for doubtful accounts $ 8,000
Capitalized inventory cost for tax 23,000
Vacation accrual 14,000
State income tax 8,000
-----------------
Net deferred current tax assets $ 53,000
=================
Long-term deferred tax liabilities
Difference in fixed assets $ 54,000
=================
There was no net change in the valuation allowance for the year ended
December 31, 1995. The valuation allowance decreased by $15,000 during the year
ended December 31, 1994.
12
P & H LABORATORIES
NOTES TO FINANCIAL STATEMENTS
As of December 31, 1995
NOTE 10 - EXTRAORDINARY ITEM
On January 17, 1994, the Company incurred significant damage to its leased
facility, inventories, and equipment due to an earthquake. The earthquake
rendered the facility uninhabitable and forced the Company to relocate its
operations. Approximately $329,000 was incurred for additional rent for a
temporary facility, labor directly related to the earthquake, damaged equipment,
and equipment repairs. Of this loss, approximately $290,000 was covered by
insurance. The loss was $31,098, net of a $8,200 income tax benefit.
NOTE 11 - RESTATEMENT
Previously issued financial statements have been restated as a result of a
$123,425 reduction in the December 31, 1994 inventory and a $10,000 warranty
reserve accrual as of December 31, 1993. The restatement of the 1994 results is
partially offset by a related reduction in income tax expense of $49,000.
NOTE 12 - SUBSEQUENT EVENT
On February 28, 1996, the shareholders of the Company entered into an
agreement to sell 50% of all the issued and outstanding common stock of the
Company to Dynamic Associates, Inc. for $7.27 per share, or $1,000,000. Subject
to Dynamic's completion of the purchase of 50% of the Company's issued and
outstanding common stock, the shareholders shall grant to Dynamic the sole and
exclusive option for a period of two years from closing, to purchase an
additional 50% of the issued and outstanding common stock of the Company at and
for a price of $7.27 per share.
13
CONTENTS
PAGE
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
BALANCE SHEETS..................................................... F-1
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
STATEMENTS OF OPERATIONS.......................................... F-5
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS..................................... F-9
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARY
(A Development Stage Company)
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
BALANCE SHEET
March 31, 1996
Pro Forma Consolidated
Dynamic P & H Adjustments Pro Forma
ASSETS
CURRENT ASSETS
Cash $ 417,219 $ 342,848 (1) $ 1,000,000 $ 760,067
(2) (1,000,000)
Marketable securities -0- 194,405 -0- 194,405
Accounts receivable -0- 611,718 -0- 611,718
Loans receivable - related parties 207,000 30,300 -0- 237,300
Accrued interest 11,743 -0- -0- 11,743
Option 30,000 -0- -0- 30,000
Inventory -0- 738,074 -0- 738,074
Prepaid expense -0- 10,326 -0- 10,326
Deferred tax benefit -0- 53,000 -0- 53,000
--------------- ------------ --------------- ---------------
TOTAL CURRENT ASSETS 665,962 1,980,671 -0- 2,646,633
EQUIPMENT 88,546 183,794 -0- 272,340
OTHER ASSETS
Note receivable 92,953 -0- -0- 92,953
Deposits -0- 21,315 -0- 21,315
Organization costs 1,060 -0- -0- 1,060
--------------- ------------ --------------- ---------------
94,103 21,315 -0- 115,328
--------------- ------------ --------------- ---------------
$ 848,521 $ 2,185,780 $ -0- $ 3,034,301
=============== ============ =============== ===============
See Notes to Unaudited Pro Forma Consolidated Condensed Financial Statements.
F-1
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARY
(A Development Stage Company)
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
BALANCE SHEET (Continued)
March 31, 1996
Pro Forma Consolidated
Dynamic P & H Adjustments Pro Forma
LIABILITIES & EQUITY
CURRENT LIABILITIES
Accounts payable $ 195,246 $ 180,226 $ -0- $ 375,472
Accrued expenses 40,738 108,599 -0- 149,337
Bridge loan 220,000 -0- -0- 220,000
Current portion of long-term debt -0- 81,938 -0- 81,938
Income taxes payable 800 20,400 -0- 21,200
--------------- ------------ --------------- ---------------
TOTAL CURRENT LIABILITIES 456,784 391,163 -0- 847,947
LONG-TERM DEBT -0- 150,979 -0- 150,979
DEFERRED INCOME TAXES -0- 54,000 -0- 54,000
--------------- ------------ --------------- ---------------
TOTAL LIABILITIES 456,784 596,142 -0- 1,052,926
Minority interest in subsidiary -0- -0- (3) 794,819 794,819
STOCKHOLDERS' EQUITY Common stock $.001 par value:
Authorized - 25,000,000 shares
Issued and outstanding 7,012,500
shares 7,013 27,500 (1) 500 7,513
(3) (27,500)
Additional paid-in capital 1,334,987 22,500 (1) 999,500 1,359,487
(2) (1,000,000)
(3) (767,319)
(4) 769,819
Earnings (deficit) accumulated
during the development stage (950,263) 1,539,638 (4) (769,819) (180,444)
--------------- ------------ --------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 391,737 1,589,638 (794,819) 1,186,556
--------------- ------------ --------------- ---------------
$ 848,521 $ 2,185,780 $ -0- $ 3,034,301
=============== ============ =============== ===============
See Notes to Unaudited Pro Forma Consolidated Condensed Financial Statements.
F-2
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARY
(A Development Stage Company)
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
BALANCE SHEET
December 31, 1995
Pro Forma Consolidated
Dynamic P & H Adjustments Pro Forma
ASSETS
CURRENT ASSETS
Cash $ 780,976 $ 178,867 (1) $ 1,000,000 $ 959,843
(2) (1,000,000)
Short-term commercial paper -0- 329,157 329,157
Marketable securities -0- -0- -0- -0-
Accounts receivable -0- 810,825 -0- 810,825
Loans receivable - related parties 212,000 30,300 -0- 242,300
Accrued interest 4,202 -0- -0- 4,202
Option 30,000 -0- -0- 30,000
Inventory -0- 588,803 -0- 588,803
Prepaid expense -0- 4,523 -0- 4,523
Deferred tax benefit -0- 53,000 -0- 53,000
--------------- ------------ --------------- ---------------
TOTAL CURRENT ASSETS 1,027,178 1,995,475 -0- 3,022,653
EQUIPMENT 7,050 170,707 -0- 177,757
OTHER ASSETS
Deposits -0- 21,315 -0- 21,315
Organization costs 1,120 -0- -0- 1,120
--------------- ------------ --------------- ---------------
1,120 21,315 -0- 22,435
--------------- ------------ --------------- ---------------
$ 1,035,348 $ 2,187,497 $ -0- $ 3,222,845
=============== ============ =============== ===============
See Notes to Unaudited Pro Forma Consolidated Condensed Financial Statements.
F-3
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARY
(A Development Stage Company)
UNAUDITED CONSOLIDATED CONDENSED
BALANCE SHEET (Continued)
December 31, 1995
Pro Forma Consolidated
Dynamic P & H Adjustments Pro Forma
LIABILITIES & EQUITY
CURRENT LIABILITIES
Accounts payable and accrued
expenses $ 117,215 $ 203,039 $ -0- $ 320,254
Bridge loan 220,000 -0- -0- 220,000
Current portion of long-term debt -0- 77,823 -0- 77,823
Income taxes payable 1,600 128,205 -0- 129,805
--------------- ------------ --------------- ---------------
TOTAL CURRENT LIABILITIES 338,815 409,067 -0- 747,882
LONG-TERM DEBT -0- 173,652 -0- 173,652
DEFERRED INCOME TAXES -0- 54,000 -0- 54,000
--------------- ------------ --------------- ---------------
TOTAL LIABILITIES 338,815 636,719 -0- 975,534
Minority interest in subsidiary -0- -0- (3) 775,389 775,389
STOCKHOLDERS' EQUITY
Common stock $.001 par value:
Authorized - 25,000,000 shares
Issued and outstanding 7,000,000
shares 7,000 27,500 (1) 500 7,500
(3) (27,500)
Additional paid-in capital 1,310,000 22,500 (1) 999,500 1,334,500
(2) (1,000,000)
(3) (747,889)
(4) 750,389
Earnings (deficit) accumulated
during the development stage (620,467) 1,500,778 (4) (750,389) 129,922
--------------- ------------ --------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 696,533 1,550,778 (775,389) 1,471,922
--------------- ------------ --------------- ---------------
$ 1,035,348 $ 2,187,497 $ -0- $ 3,222,845
=============== ============ =============== ===============
See Notes to Unaudited Pro Forma Consolidated Condensed Financial Statements.
F-4
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARY
(A Development Stage Company)
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
STATEMENT OF OPERATIONS
Three Months ended March 31, 1996
Pro Forma Consolidated
Dynamic P & H Adjustments Pro Forma
Net Sales $ -0- $ 713,828 $ -0- $ 713,828
Cost of sales -0- 500,825 -0- 500,825
--------------- ---------------- --------------- ---------------
GROSS PROFIT -0- 213,003 -0- 213,003
Selling and general and administrative
expenses 221,709 154,625 -0- 376,334
Research and development 107,538 -0- -0- 107,538
--------------- ---------------- --------------- ---------------
329,247 154,625 -0- 483,872
--------------- ---------------- --------------- ---------------
NET OPERATING INCOME (LOSS) (329,247) 58,378 -0- (270,869)
OTHER INCOME (EXPENSE)
Interest income 9,121 5,977 -0- 15,098
Interest expense (9,670) (5,095) -0- (14,765)
--------------- ---------------- --------------- ---------------
(549) 882 -0- 333
--------------- ---------------- --------------- ---------------
NET INCOME (LOSS)
BEFORE INCOME TAXES AND
MINORITY INTEREST (329,796) 59,260 -0- (270,536)
INCOME TAX EXPENSE -0- 20,400 -0- 20,400
--------------- ---------------- --------------- ---------------
NET INCOME (LOSS)
BEFORE MINORITY INTEREST (329,796) 38,860 -0- (290,936)
MINORITY INTEREST -0- -0- (19,430) (19,430)
--------------- ---------------- --------------- ---------------
NET INCOME (LOSS) $ (329,796) $ 38,860 $ (19,430) $ (310,366)
=============== ================ =============== ===============
Net income (loss) per weighted
average share $ (.05) $ .14 $ (.04)
=============== ================ ===============
Weighted average number of common
shares used to compute net income
(loss) per weighted average share 7,000,687 275,000 7,500,687
=============== ================ ===============
See Notes to Unaudited Pro Forma Consolidated Condensed Financial Statements.
F-5
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARY
(A Development Stage Company)
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
STATEMENT OF OPERATIONS
Year ended December 31, 1995
Pro Forma Consolidated
Dynamic P & H Adjustments Pro Forma
Net Sales $ -0- $ 3,723,013 $ -0- $ 3,723,013
Cost of sales -0- 2,370,168 -0- 2,370,168
--------------- ---------------- --------------- ---------------
GROSS PROFIT -0- 1,352,845 -0- 1,352,845
Selling and general and administrative
expenses 562,273 845,254 -0- 1,407,527
Bad debts 58,380 -0- -0- 58,380
--------------- ---------------- --------------- ---------------
620,653 845,254 -0- 1,465,907
--------------- ---------------- --------------- ---------------
NET OPERATING INCOME (LOSS) (620,653) 507,591 -0- (113,062)
OTHER INCOME (EXPENSE)
Interest income 4,233 24,310 -0- 28,543
Interest expense (1,447) (23,132) -0- (24,579)
--------------- ---------------- --------------- ---------------
2,786 1,178 -0- 3,964
--------------- ---------------- --------------- ---------------
NET INCOME (LOSS)
BEFORE INCOME TAXES AND
MINORITY INTEREST (617,867) 508,769 -0- (109,098)
INCOME TAX EXPENSE 1,600 201,000 -0- 202,600
--------------- ---------------- --------------- ---------------
NET INCOME (LOSS)
BEFORE MINORITY INTEREST (619,467) 307,769 -0- (311,698)
MINORITY INTEREST -0- -0- (153,885) (153,885)
--------------- ---------------- --------------- ---------------
NET INCOME (LOSS) $ (619,467) $ 307,769 $ (153,885) $ (465,583)
=============== ================ =============== ===============
Net income (loss) per weighted
average share $ (.29) $ 1.12 $ (.18)
=============== ================ ===============
Weighted average number of common
shares used to compute net income
(loss) per weighted average share 2,141,213 275,000 2,641,213
=============== ================ ===============
See Notes to Unaudited Pro Forma Consolidated Condensed Financial Statements.
F-6
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARY
(A Development Stage Company)
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
STATEMENT OF OPERATIONS
Three Months ended March 31, 1995
Pro Forma Consolidated
Dynamic P & H Adjustments Pro Forma
Net Sales $ -0- $ 881,102 $ -0- $ 881,102
Cost of sales -0- 660,825 -0- 660,825
--------------- ---------------- --------------- ---------------
GROSS PROFIT -0- 220,277 -0- 220,277
Selling and general and administrative
expenses -0- 195,644 -0- 195,644
--------------- ---------------- --------------- ---------------
-0- 195,644 -0- 195,644
--------------- ---------------- --------------- ---------------
NET OPERATING INCOME (LOSS) -0- 24,633 -0- 24,633
OTHER INCOME (EXPENSE)
Interest income -0- 2,980 -0- 2,980
Interest expense -0- (5,139) -0- (5,139)
Miscellaneous income -0- 63,001 -0- 63,001
Miscellaneous expense -0- (3,415) -0- (3,415)
--------------- ---------------- --------------- ---------------
-0- 57,427 -0- 57,427
--------------- ---------------- --------------- ---------------
NET INCOME (LOSS)
BEFORE INCOME TAXES AND
MINORITY INTEREST -0- 82,060 -0- 82,060
INCOME TAX EXPENSE -0- 34,200 -0- 34,200
--------------- ---------------- --------------- ---------------
NET INCOME (LOSS)
BEFORE MINORITY INTEREST -0- 47,860 -0- 47,860
MINORITY INTEREST -0- -0- (23,930) (23,930)
--------------- ---------------- --------------- ---------------
NET INCOME (LOSS) $ -0- $ 47,860 $ (23,930) $ 23,930
=============== ================ =============== ===============
Net income (loss) per weighted
average share $ .00 $ .17 $ .02
=============== ================ ===============
Weighted average number of common
shares used to compute net income
(loss) per weighted average share 1,000,000 275,000 1,500,000
=============== ================ ===============
See Notes to Unaudited Pro Forma Consolidated Condensed Financial Statements.
F-7
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARY
(A Development Stage Company)
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
STATEMENT OF OPERATIONS
Year ended December 31, 1994
Pro Forma Consolidated
Dynamic P & H Adjustments Pro Forma
Net Sales $ -0- $ 3,448,251 $ -0- $ 3,448,251
Cost of sales -0- 2,674,240 -0- 2,674,240
--------------- ---------------- --------------- ---------------
GROSS PROFIT -0- 774,011 -0- 774,011
Selling and general and administrative
expenses -0- 681,212 -0- 681,212
--------------- ---------------- --------------- ---------------
-0- 681,212 -0- 681,212
--------------- ---------------- --------------- ---------------
NET OPERATING INCOME (LOSS) -0- 92,799 -0- 92,799
OTHER INCOME (EXPENSE)
Interest income -0- 11,325 -0- 11,325
Interest expense -0- (23,500) -0- (23,500)
Loss on disposal of equipment -0- (1,032) -0- (1,032)
--------------- ---------------- --------------- ---------------
-0- (13,207) -0- (13,207)
--------------- ---------------- --------------- ---------------
NET INCOME (LOSS) BEFORE
INCOME TAXES, EXTRAORDINARY
ITEM, AND MINORITY INTEREST -0- 79,592 -0- 79,592
INCOME TAX EXPENSE (BENEFIT) -0- (4,632) -0- (4,632)
--------------- ---------------- --------------- ---------------
NET INCOME BEFORE
EXTRAORDINARY ITEM AND
MINORITY INTEREST -0- 84,224 -0- 84,224
EXTRAORDINARY ITEM
Earthquake damage, net of income tax
effect of $8,200 -0- (31,098) -0- (31,098)
--------------- ---------------- --------------- ---------------
NET INCOME (LOSS)
BEFORE MINORITY INTEREST -0- 53,126 -0- 53,126
MINORITY INTEREST -0- -0- (26,563) (26,563)
--------------- ---------------- --------------- ---------------
NET INCOME (LOSS) $ -0- $ 53,126 $ (26,563) $ 26,563
=============== ================ =============== ===============
Net income (loss) per weighted
average share - operations $ .00 $ .34 $ .06
Net loss per weighted average
share - extraordinary .00 (.11) (.02)
--------------- ---------------- ---------------
Net income per weighted average share $ .00 $ .19 $ .02
=============== ================ ===============
Weighted average number of common
shares used to compute net income
(loss) per weighted average share 1,000,000 275,000 1,500,000
=============== ================ ===============
See Notes to Unaudited Pro Forma Consolidated Condensed Financial Statements.
F-8
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
The preceding pro forma consolidated condensed balance sheets have been
derived from the balance sheets of the Company and P&H Laboratories ("P&H") at
March 31, 1996 and December 31, 1995. The balance sheets assume that the Company
acquired 50% of the outstanding stock of P&H on January 1, 1995.
(1) Reflects the sale of 500,000 shares of common stock for $1,000,000 cash.
(2) Reflects $1,000,000 cash paid to acquire 50% of the outstanding stock of
P&H.
(3) Reflects the recording of the minority interest in P&H and the elimination
of P&H's common stock
(4) Reflects cumulative adjustment to retained earnings reflecting minority
interest share of retained earnings.
The preceding pro forma consolidated condensed statements of operations
have been derived from the statements of operations of the Company and P&H as of
March 31, 1996 and 1995 and December 31, 1995 and 1994, and assumes the
companies were consolidated as of the beginning of each period presented. The
Company had no operations for the three months ended March 31, 1995 or the year
ended December 31, 1994. Therefore, the consolidated statements of operations
for these periods are that of P&H only.
The Company and P&H are not allowed to file consolidated income tax returns
because P&H is only a 50% owned subsidiary. Therefore, no adjustments have been
made to the following accounts: deferred tax benefit, income taxes payable, and
income tax expense.
F-9
SHARE PURCHASE AGREEMENT
THIS AGREEMENT is made as of the 28th day of February, 1996.
AMONG:
HAROLD & PHYLLIS SALTZMAN, TRUSTEES FOR THE HAROLD
AND PHYLLIS SALTZMAN TRUST of as to 250,000
shares, DELBERT JONES of as to 6,250 shares,
WILLIAM FISCH of as to 6,250 shares, BETTY M.
BOGUCKI AS CUSTODIAN FOR THE CHILDREN OF BETTY M.
AND RAYMOND BOGUCKI as to 2,500, and BETTY M. AND
RAYMOND BOGUCKI of as to 10,000 shares
(hereinafter called the "Vendors")
OF THE FIRST PART
AND:
DYNAMIC ASSOCIATES, INC., of 6609 N. Scottsdale Road, Suite 201
Phoenix, Arizona 85250
(hereinafter called the "Purchaser")
OF THE SECOND PART
AND:
P & H Laboratories, Inc., of 4496 Runway Street, Simi Valley, California 93062
------------------------
(hereinafter called the "Company")
OF THE THIRD PART
WHEREAS:
A. The Purchaser has offered to purchase 50% all of the issued and
outstanding shares of the Company;
B. The Vendors have each severally agreed to sell 50% of the issued and
outstanding shares of the Company to the Purchaser held by each such Vendor on
the terms and conditions set forth herein;
C. In order to record the terms and conditions of the agreement among them
the parties wish to enter into this agreement;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the
foregoing and of the sum of $1.00 paid by the Purchaser to each of the Vendors
and to the Company, the receipt of which is hereby acknowledged, the parties
hereto agree each with the other as follows:
receipt of which is hereby acknowledged, the parties hereto agree each with the
other as follows:
1. INTERPRETATION
1.1 Where used herein or in any amendments or Schedules hereto, the following
terms shall have the following meanings:
(a) "Accountants" means Singer, Lewak, Greenbaum & Goldstein, Certified
Public Accountants;
(b) "Business" means the business in which the Company is engaged, namely:
(i) the production of microwave ferrite and filter components and
assemblys;
(ii) machine shop fabricating for short-run manufacturing prototype
work and large volume runs;
(iii) engineering of microwave components and assemblys
(iv) any other enterprise that is directly related to the foregoing;
(c) "Closing Date" means the fifth business day following execution of
this Agreement or such other date as may be mutually agreed upon by
the parties hereto;
(d) "Company Financial Statements" means the Balance Sheet of the Company
as at October 31, 1995, audited by the Accountants attached hereto as
Schedule "A";
(e) "Company Shares" means the 275,000 common shares in the capital of the
Company held by the Vendors, being all of the issued and outstanding
shares of the Company;
(f) "Investing Shareholders" means the following of the Vendors: Delbert
Jones, William Fisch, Betty M. Bogucki as Custodian for the Children
of Betty M. and Raymond Bogucki and Betty M. and Raymond Bogucki
(g) "Principal Shareholders" means Harold & Phyllis Saltzman, Trustees for
the Harold and Phyllis Saltzman Trust;
1.2 All dollar amounts referred to in this agreement are in U.S. funds, unless
expressly stated otherwise.
1.3 The following schedules are attached to and form part of this agreement:
Schedule A - Company Financial Statements
Schedule B - Employment, Service & Pension Agreements
of the Company
Schedule C - Real Property & Leases of the Company
Schedule D - Encumbrances on the Company's Assets
Schedule E - Company Litigation
Schedule F - Registered Trademarks, Trade Names &
Patents of the Company
Schedule G - Arbitration Rules
2. PURCHASE OF SHARES
2.1 The Vendors each hereby covenant and agree to sell, assign and transfer to
the Purchaser, and the Purchaser covenants and agrees to purchase from each
of the Vendors 50% of the Company Shares held by each Vendor being a total
of 137,500 shares.
2.2 As consideration for the sale of the Company Shares, the Purchaser shall
pay to the Vendors $7.27 per share for a total purchase price of $1,000,000
of which the Vendors acknowledge receipt of $30,000 and the balance of
$970,000 shall be payable at closing.
2A OPTION
2A.1 Subject to the Purchaser completing the Purchase of 50% of the Company's
shares, the Vendors, and each of them, shall grant to the Purchaser the
sole and exclusive option, for a period of two years from closing (the
"Option Period") to Purchase an additional 50% of the issued and
outstanding shares of the Company at and for a price of $7.27 per share as
follows:
Vendor No. of Exercise Total Exercise
Shares Price Price
Harold & Phyllis 125,000 $7.27 $ 908,750
Saltzman, Trustees for the
Harold and Phyllis
Saltzman Trust
Delbert Jones 3,125 $7.27 23,000
William Fisch 3,125 $7.27 20,000
Betty M. Bogucki as 1,250 $7.27 9,000
Custodian for the
Children of Betty M. and
Raymond Bogucki
Raymond & Betty 5,000 $7.27 36,350
Bogucki
Total 137,502 $7.27 $ 1,000,000
The Option may be exercised by the Purchaser at any time during the Option
Period by providing notice to each of the Vendors. Upon receipt of the Notice as
aforesaid, each of the Vendors shall deliver to the Purchaser share certificates
representing the number of shares purchased against payment in cash by the
Purchaser of the appropriate exercise price.
2A.2 Subject to and without prejudice or waiver of all statutory rights of the
Vendors to seek dissolution of the Company under the California
Corporations Code, in the event that the Purchaser shall not exercise the
Option during the Option Period, then at any time for a period
of two years following the expiry of the Option Period each of the Vendors may,
by notice in writing to the Purchaser (the "Offer"), offer to sell all of their
shares of the Company to the Purchaser at a price determined by the Vendors (the
"Offer Price"). Within sixty days following the receipt of the Offer the
Purchaser shall elect, by notice in writing to the Vendor, whether or not to
accept the Offer. In the event that the Purchaser shall fail to accept the
Offer, then the Vendors shall be bound to purchase from the Purchaser and the
Purchaser shall be bound to sell to the Vendors such number of shares as shall
be set out in the Offer at the Offer Price.
3. COVENANTS, REPRESENTATIONS AND WARRANTIES
OF THE PRINCIPAL SHAREHOLDERS AND THE COMPANY
The Principal Shareholders and the Company jointly and severally covenant
with and represent and warrant to the Purchaser as follows, and acknowledge that
the Purchaser is relying upon such covenants, representations and warranties in
connection with the purchase by the Purchaser of the Company Shares:
3.1 The Company has been duly incorporated and organized, is validly existing
and is in good standing under the laws of California; it has the corporate
power to own or lease its property and to carry on the Business; it is duly
qualified as a corporation to do business and is in good standing with
respect thereto in each jurisdiction in which the nature of the Business or
the property owned or leased by it makes such qualification necessary; and
it has or will have on the Closing Date all necessary licenses, permits,
authorizations and consents to operate its Business.
3.2 The authorized capital of the Company consists of 5,000,000 shares, of
which 275,000 of such shares have been duly issued and are outstanding as
fully paid and non- assessable.
3.3 The Company Shares owned by the Principal Shareholders being 250,000 shares
are owned by them as the beneficial and recorded owner with a good and
marketable title thereto, free and clear of all mortgages, liens, charges,
security interests, pledges, encumbrances and demands whatsoever.
3.4 No person, firm or corporation has any agreement or option or any right or
privilege (whether by law, pre-emptive or contractual) capable of becoming
an agreement or option for the purchase from the Principal Shareholders of
any of the Company Shares held by him.
3.5 No person, firm or corporation has any agreement or option, including
convertible securities, warrants or convertible obligations of any nature,
or any right or privilege (whether by law, pre-emptive or contractual)
capable of becoming an agreement or option for the purchase, subscription,
allotment or issuance of any of the unissued shares in the capital of the
Company or of any securities of the Company.
3.6 The Company does not have any subsidiaries or agreements of any nature to
acquire any subsidiary or to acquire or lease any other business operations
and will not prior to the Closing Date acquire, or agree to acquire, any
subsidiary or business without the prior written consent of the Purchaser.
3.7 The Company will not, without the prior written consent of the Purchaser,
issue any additional shares from and after the date hereof to the Closing
Date or create any options, warrants or rights for any person to subscribe
for or acquire any unissued shares in the capital of the Company.
3.8 To the best of their knowledge, information and belief, the Company is not
a party to or bound by any agreement or guarantee, warranty,
indemnification, assumption or endorsement or any other like commitment of
the obligations, liabilities (contingent or otherwise) or indebtedness of
any other person, firm or corporation. The foregoing does not apply to
warranties or indemnities to customers with respect to the Company's
products or services.
3.9 To the best of their knowledge, information and belief, and in reliance of
the Financial Statements the books and records of the Company fairly and
correctly set out and disclose in all material respects, in accordance with
generally accepted accounting principles, the financial position of the
Company as at the date hereof, and all material financial transactions of
the Company relating to the Business have been accurately recorded in such
books and records.
3.10 The Company Financial Statements present fairly in all material respects
the assets, liabilities (whether accrued, absolute, contingent or
otherwise) and the financial condition of the Company as at the date
thereof and there will not be, prior to the Closing Date, any material
increase in such liabilities other than in the ordinary course of the
Company's business.
3.11
(a) To the best of their knowledge information and belief, the entering
into of this agreement and the consummation of the transactions
contemplated hereby will not result in the violation of any of the
terms and provisions of the constating documents or bylaws of the
Company or of any indenture, instrument or agreement, written or to
the best of their knowledge, information and belief oral, to which the
Company or the Principal Shareholders may be a party;
(b) The entering into of this agreement and the consummation of the
transactions contemplated hereby will not, to the best of the
knowledge, information and belief of the Company and the Principal
Shareholders, result in the violation of any law or regulation of the
United States of America or of any states in which they are resident
or in which the Business is or at the Closing Date will be carried on
or of any municipal bylaw or ordinance to which the Company or the
Business may be subject;
(c) This agreement has been duly authorized, validly executed and
delivered by the Company and the Principal Shareholders.
3.12 The Business has been carried on in the ordinary and normal course by the
Company since the date of the Company Financial Statements and will be
carried on by the Company in the ordinary and normal course after the date
hereof and up to the Closing Date.
3.13 No capital expenditures in excess of $50,000 have been made or authorized
by the Company since the date of the Company Financial Statements and no
capital expenditures in excess of $50,000 will be made or authorized by the
Company after the date hereof and up to the Closing Date without the prior
written consent of the Purchaser, which consent will not be unreasonably
withheld.
3.14 Except as disclosed in the Schedules hereto, the Company is not a party to
any written or, to the best of their knowledge, information and belief,
oral employment, service or pension agreement, and the Company does not
have any employees who cannot be dismissed on not more than one months
notice without further liability.
3.15 Except as disclosed in the Schedules hereto, the Company does not have
outstanding any bonds, debentures, mortgages, notes or other indebtedness,
and the Company is not under any agreement to create or issue any bonds,
debentures, mortgages, notes or other indebtedness.
3.16 Except as disclosed in the Schedules hereto, the Company is not the owner,
lessee or under any agreement to own or lease any real property.
3.17 Except as disclosed in the Schedules hereto, the Company owns, possesses
and has good and marketable title to its undertaking, property and assets,
and without restricting the generality of the foregoing, all those assets
described in the balance sheet included in the Company Financial
Statements, free and clear of any and all mortgages, liens, pledges,
charges, security interests, encumbrances, actions, claims or demands of
any nature whatsoever or howsoever arising.
3.18 The Company has its property insured against loss or damage by all
insurable hazards other than earthquakes or risks on a replacement cost
basis and such insurance coverage will be continued in full force and
effect to and including the Closing Date; to the best of the knowledge,
information and belief of the Company and the Principal Shareholders, the
Company is not in default with respect to any of the provisions contained
in any such insurance policy and has not failed to give any notice or
present any claim under any such insurance policy in due and timely
fashion.
3.19 Except as disclosed herein the Company does not have any outstanding
material agreements (including employment agreements) contracts or
commitment, whether written or to the best of their knowledge, information
and belief oral, of any nature or kind whatsoever, except:
(a) agreements, contracts and commitments in the ordinary course of
business;
(b) service contracts on office and manufacturing equipment;
(c) the employment, services and pension agreements described in the
Schedules hereto; and
(d) the lease described in the Schedules hereto.
3.20 To the best of their knowledge, information and belief, except as provided
in the Schedules hereto, there are no actions, suits or proceedings
(whether or not purportedly on behalf of the Company), pending or
threatened against or affecting the Company or affecting the Business, at
law or in equity, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign and neither the Company nor the
Principal Shareholders are aware of any existing ground on which any such
action, suit or proceeding might be commenced with any reasonable
likelihood of success.
3.21 To the best of their knowledge, information and belief, the Company is not
in material default or breach of any contracts, agreements, written or
oral, indentures or other instruments to which it is a party and there
exists no state of facts which after notice or lapse of time or both which
would constitute such a default or breach, and all such contracts,
agreements, indentures or other instruments are now in good standing and
the Company is entitled to all benefits thereunder.
3.22 To the best of the knowledge, information and belief of the Company and the
Principal Shareholders, the conduct of the Business does not infringe upon
the patents, trade marks, trade names or copyrights, domestic or foreign,
of any other person, firm or corporation.
3.23 To the best of the knowledge information and belief of the Company and the
Principal Shareholders, the Company is conducting and will conduct through
Closing the Business in compliance with all applicable laws, rules and
regulations of each jurisdiction in which the Business is or will be
carried on, the Company is not in material breach of any such laws, rules
or regulations and is or will be on the Closing Date fully licensed,
registered or qualified in each jurisdiction in which the Company owns or
leases property or carries on or proposes to carry on the Business to
enable the Business to be carried on as now conducted and its property and
assets to be owned, leased and operated, and all such licenses,
registrations and qualifications are or will be on the Closing Date valid
and subsisting and in good standing and that none of the same contains or
will contain any provision, condition or limitation which has or may have a
materially adverse effect on the operation of the Business.
3.24 Except as reflected in the Schedules, the Company has no loans or
indebtedness outstanding which have been made to directors, former
directors, officers, shareholders and employees of the Company or to any
person or corporation not dealing at arm's length with any of the
foregoing.
3.25 The Company has made to the best of their knowledge information and belief
full disclosure to the Purchaser of all aspects of the Business and has
made all of its books and records available to the representatives of the
Purchaser in order to assist the Purchaser in the performance of its due
diligence searches and no material facts in relation to the Business have
been concealed by the Company or the Principal Shareholders.
3.26 To the best of their knowledge, information and belief, there are no
material liabilities of the Company of any kind whatsoever, whether or not
accrued and whether or not determined or determinable, in respect of which
the Company or the Purchaser may become liable on or after the consummation
of the transaction contemplated by this agreement, other than liabilities
which may be reflected on the Company Financial Statements, liabilities
disclosed or referred to in this agreement or in the Schedules attached
hereto, or liabilities incurred in the ordinary course or business and
attributable to the period since the date of the Company Financial
Statements, none of which has been materially adverse to the nature of the
Business, results of operations, assets, financial condition or manner of
conducting the Business.
3.27 The Articles, bylaws and other constating documents of the Company in
effect with the appropriate corporate authorities as at the date of this
agreement will remain in full force and effect without any changes thereto
as at the Closing Date.
3.28 The directors and officers of the Company are as follows:
Name Position
Harold Saltzman President & Director
William Fischer Director
Ray Bogucki Director
Ed Kaftal Director
Phylis Saltzman Secretary
3.29 No claim shall be made by the Purchaser against the Company or the
Principal Shareholders as a result of any misrepresentation or as a result
of the breach of any covenant or warranty contained in this Agreement
unless the aggregate loss or damage to the Purchaser exceeds $50,000 and
such claim is made within 12 months of closing.
3.30 As used in the Agreement, the phrase "to the best of their knowledge,
information and belief" or words of like import, shall mean that Harold
Saltzman, on behalf of the Principal Shareholders and the Company, has no
actual facts or actual knowledge (as opposed to imputed, inquiry or
constructive knowledge) to materially dispute the facts or matters asserted
by the representation or warranty. Harold Saltzman and the Principal
Shareholders shall have no duty of investigation with respect to any
representation or warranty made "to the best of their knowledge,
information and belief", or words of like import, and shall not be charged
with "constructive knowledge", inquiry knowledge, "imputed knowledge" or
"deemed knowledge".
3.31 Notwithstanding any provision herein to the contrary, the representations
and warranties made hereunder by the Principal Shareholders, the Company
and the Investing Shareholders are intended solely for the benefit of the
Purchaser and many not be relied upon by any other person, entity or third
party, including, without limitation, third party investors, lenders,
advisors, brokers, promoters, or successors-in-interest to the Company
Shares being acquired by Purchaser.
4. COVENANTS, REPRESENTATIONS AND WARRANTIES
OF THE INVESTING SHAREHOLDERS
The Investing Shareholders severally covenant with and represent and warrant to
the Purchaser as follows, and acknowledge that the Purchaser is relying upon
such covenants, representations and warranties in connection with the purchase
by the Purchaser of the Company Shares:
4.1 The Company Shares owned by each of the Investing Shareholders are owned by
them as the beneficial and recorded owners with a good and marketable title
thereto, free and clear of all mortgages, liens, charges, security
interests, adverse claims, pledges, encumbrances and demands whatsoever as
follows:
Number of Percentage
Company of Issued
Name of Investing Shareholder Shares Company Shares
Delbert Jones 6,250 2.3%
William Fisch 6,250 2.3%
Betty M. Bogucki as custodian for
the Children of Betty M. Bogucki 2,500 .9%
Raymond & Betty Bogucki 10,000 3.6%
TOTAL 25,000 9.1%
4.2 No person, firm or corporation has any agreement or option or any right or
privilege (whether by law, pre-emptive or contractual) capable of becoming
an agreement or option for the purchase from the Investing Shareholders of
any of the Company Shares held by each of them.
4.3
(a) The entering into of this agreement and the consummation of the
transactions contemplated hereby will not result in the violation of
any of the terms and provisions of any indenture, instrument or
agreement, written or oral, to which the Investing Shareholders may be
a party;
(b) The entering into of this agreement and the consummation of the
transactions contemplated hereby will not, to the best of the
knowledge of the Investing Shareholders, result in the violation of
any law or regulation of the United States of America or of any state
in which they are resident;
(c) This agreement has been duly executed and delivered by the Investing
Shareholders.
5. COVENANTS, REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER
The Purchaser covenants with and represents and warrants to the Vendors and the
Company as follows and acknowledges that the Vendors are relying upon such
covenants, representations and warranties in entering into this agreement:
5.1 The Purchaser has been duly incorporated and organized, is validly existing
and is in good standing under the laws of Nevada; it has the corporate
power to own or lease its property and to carry on the Business; it is duly
qualified as a corporation to do business and is in good standing with
respect thereto in each jurisdiction in which the nature of the Business or
the property owned or leased by it makes such qualification necessary; and
it has or will have on the Closing Date all necessary licenses, permits,
authorizations and consents to operate its Business in accordance with the
terms of its Business Plan.
5.2 The directors and officers of the Purchaser are as follows:
Name Position
Jan Wallace President & Director
David Hunter Secretary & Director
5.3
(a) The entering into of this agreement and the consummation of the
transactions contemplated hereby will not result in the violation of
any of the terms and provisions of the constating documents or bylaws
of the Purchaser or of any indenture, instrument or agreement, written
or oral, to which the Purchaser may be a party;
(b) The entering into of this agreement and the consummation of the
transactions contemplated hereby will not, to the best of the
knowledge of the Purchaser, result in the violation of any law or
regulation of the United States of America or California or of any
municipal bylaw or ordinance to which the Purchaser or the Purchaser's
business may be subject;
(c) This agreement has been duly authorized, validly executed and
delivered by the Purchaser.
5.4 The Purchaser represents and warrants to the Vendors and the Company that
(i) it is purchasing the Company's Shares for its own account, for
investment purposes only, and not with a view to, or for resale
in connection with any distribution of such shares; and
(ii) it does not have any contract, arrangement or understanding with
the Company or any other person to participate in the
distribution of the Company's Shares.
5.5 Purchaser represents and warrants that:
(i) Purchaser is a sophisticated venture capitalist and either
experienced in, or knowledgeable with regard to, the business of
the Company, or is capable, by reasons of its business and
financial experience of evaluating the merits and risks of any
investment in the Company's Shares;
(ii) in evaluating the merits and risks of any investment in the
Company's Shares, the Purchaser has not relied upon the Company
or the Company's attorneys or advisors for legal or tax advice,
and has, if desired, in all cases sought the advice of its own
legal counsel and tax advisors; and
(iii)the Purchaser is able to bear the economic risk of the investment
in the Company's Shares and can otherwise be reasonably assumed
to have the capacity to protect its own interest in connection
with the investment in the Company's shares.
5.6 The Purchaser represents and warrants that it has been advised that:
(i) the sale of the Company's Shares has not ben registered under the
Securities Act of 1933 or registered or qualified under state
securities laws, and the Shares may not be offered or sold unless
the Shares are registered under the Securities Act or an
exemption from the registration requirements of the Securities
Act or applicable state securities laws if available; and
(ii) the Purchaser may not offer or sell the Company Shares unless the
Purchaser obtains the written consent of the Commissioner of
Corporations of the State of California except s may be permitted
under the
Commissioner's rules.
5.7 The Purchaser represents and warrants to the Vendors and the Company that:
(i) it has reviewed the audited balance sheet as of October 31, 1995
of the Company;
(ii) it has reviewed the Company's operations; and
(iii)it has been afforded the opportunity to ask questions of the
Company's officers and it has received satisfactory information
concerning the business and financial condition of the Company in
respect to all inquiries in respect thereof, and the Company's
shares, and it has obtained any additional information which the
Company and/or the Vendors possess or can acquire without
unreasonable effort or expense that is necessary to verify the
accuracy of information furnished.
5.8 Notwithstanding the representations and warranties of the Principal
Shareholders and the Company made herein, Purchaser represents and warrants
that Purchaser has not and shall not rely upon any such representations or
warranties of the Principal Shareholders and the Company, to warrant,
expressly or by implication, matters concerning the future profitability of
the Company, future sales, or future performance.
5.9 No claims shall be made by the Company or the Vendors against the Purchaser
as a result of any misrepresentation or as a result of the breach of any
covenant or warranty herein contained unless the aggregate loss or damage
to the Company or the Vendors exceeds $50,000 and such claim is made within
12 months of closing.
6. CONDITIONS OF CLOSING
6.1 All obligations of the Purchaser under this agreement are subject to the
fulfilment, at or prior to the Closing Date, of the following conditions:
(a) the respective representations and warranties of the Vendors and the
Company contained in this agreement or in any Schedule hereto or
certificate or other document delivered to the Purchaser pursuant
hereto shall be substantially true and correct as of the date hereof
and as of the Closing Date with the same force and effect as though
such representations and warranties had been made on and as of such
date, regardless of the date as of which the information in this
agreement or any such Schedule or certificate is given, and the
Purchaser shall have received on the Closing Date certificates dated
as of the Closing Date, in forms satisfactory to counsel for the
Purchaser and signed under seal by the respective Vendors and by two
senior officers of the Company to the effect that their respective
representations and warranties referred to above are true and correct
on and as of the Closing Date with the same force and effect as though
made on and as of such date, provided that the acceptance of such
certificates and the closing of the transaction herein provided for
shall not be a waiver of the respective representations and warranties
contained in Articles 3 and 4 or in any Schedule hereto or in any
certificate or document given pursuant to this agreement which
covenants, representations and warranties shall continue in full force
and effect for the benefit of the Purchaser;
(b) the Company shall have caused to be delivered to the Purchaser a
certificate of an officer of the Company in form and substance
satisfactory to the Purchaser, dated as of the Closing Date, to the
effect that:
(i) the Company owns, possesses and has good and marketable title to
its undertaking, property and assets, and without restricting the
generality of the foregoing, those assets described in the
balance sheet included in the Company Financial Statements, free
and clear of any and all mortgages, liens, pledges, charges,
security interests, encumbrances, actions, claims or demands of
any nature whatsoever and howsoever arising;
(ii) the Company has been duly incorporated organized and is validly
existing under the laws of California, it has the corporate power
to own or lease its properties and to carry on its business that
is now being conducted by it and is in good standing with respect
to filings with the appropriate governmental authorities;
(iii)the issued and authorized capital of the Company is as set out in
this agreement and all of the issued and outstanding shares have
been validly issued as fully paid and non-assessable;
(iv) all necessary approvals and all necessary steps and corporate
proceedings have been obtained or taken to permit the Company
Shares to be duly and validly transferred to and registered in
the name of the Purchaser; and
(v) the consummation of the purchase and sale contemplated by this
agreement, and specifically the transfer of the Company Shares to
the Purchaser, will not be in breach of any laws of California or
the United States of America and, in particular but without
limiting the generality of the foregoing, the execution and
delivery of this agreement by the Vendors and the Company has not
breached and the consummation of the purchase and sale
contemplated hereby will not be in breach of any laws of
California or the United States or of any state in which a Vendor
is resident or the Company carries on business;
and, without limiting the generality of the foregoing, that all
corporate proceedings of the Company, its shareholders and
directors and all other matters which, in the reasonable opinion
of counsel for the Purchaser, are material in connection with the
transaction of purchase and sale contemplated by this agreement,
have been taken or are otherwise favourable to the completion of
such transaction.
(c) At the Closing Date there shall have been no materially adverse
change in the affairs, assets, liabilities, or financial
condition of the Company or the Business (financial or otherwise)
from that shown on or reflected in the Company Financial
Statements.
(d) No substantial damage by fire or other hazard to the Business
shall have occurred prior to the Closing Date.
(e) The Company shall have entered into an employment contract with
Harold Saltzman obligating him to remain as Chief Executive
Officer of the Company at a salary of $125,000 per year plus
continuation of his present medical, dental and automobile
benefits including spousal benefits, for a period of two years
from closing renewable at the option of the Company for an
additional one year.
6.2 In the event any of the foregoing conditions contained in paragraph 6.1
hereof are not fulfilled or performed at or before the Closing Date to the
reasonable satisfaction of the Purchaser, the Purchaser may terminate this
agreement by written notice to the Vendors and in such event the Purchaser
shall be released from all further obligations hereunder but any of such
conditions may be waived in writing in whole or in part by the Purchaser
without prejudice to its rights of termination in the event of the
non-fulfilment of any other conditions or conditions.
6.3 All obligations of the Vendors under this Agreement are subject to
fulfilment, at or prior to the Closing Date, of the following conditions.
(a) The respective representations and warranties of the Purchaser
contained in this Agreement shall be substantially true and correct as
of the date hereof and as of the Closing Date with the same force and
effect as though such representations and warranties have been made on
and as of such date, regardless of the date as of which the
information in this Agreement is given, and the Vendors shall have
received on the Closing Date the certificates dated as of the Closing
Date, in form satisfactory to counsel for the Vendors and signed under
seal by their Purchaser to the effect that their respective
representations and warranties referred to above are true and correct
on and as of the Closing Date with the same force and effect as though
made on and as of such date, provided that the acceptance of such
certificates and the closing of the transaction hereunder shall not be
a waiver of the respective representations and warranties contained in
Article 5 or any document given pursuant to this Agreement which
covenants, representations and warranties shall continue in full force
and effect for the benefit of Vendors.
(b) The Purchaser shall have caused to be delivered to Vendors the
certificate of an officer of the Purchaser in form and substance
satisfactory to Vendors, dated as the Closing Date, to the effect that
the matters described in article 5 have been satisfied in full.
6.4 In the event any of the foregoing conditions described in 6.3 are not
fulfilled or performed at or before the Closing Date to the reasonable
satisfaction of the Vendors, the Vendors may terminate this Agreement by
written notice to the Purchaser and in such event Vendors shall be released
from all future obligations hereunder provided however any of such
conditions may be waived in writing in whole or in part by Vendors without
prejudice to their rights of termination in the event of the non-fulfilment
of any other conditions or terms.
7. POST CLOSING
7.1 The parties agree that during the period from Closing until the earlier of
the exercise by the Purchaser of the Option or two years from closing, the
parties will cause their shares to be voted, and take such steps as may be
necessary, to ensure that the board of directors of the Company shall
consist of seven persons, three of which shall be nominated by the
Purchaser and three of which shall be nominated by the Vendors. The
remaining director shall be appointed by the mutual agreement of the
Purchaser and the Vendors, or failing agreement, each of the Purchaser and
the Vendor will propose a fifth director and the fifth director will be
decided by an arbitrator appointed under the laws applicable to commercial
arbitration in the State of California.
8. CLOSING ARRANGEMENTS
8.1 The closing shall take place on the Closing Date at the offices of the
Company.
8.2 On the Closing Date, upon fulfilment of all the conditions set out in
Article 6 which have not been waived in writing by the Purchaser then:
(a) the Vendors shall deliver to the Purchaser:
(i) certificates representing all the Company Shares duly endorsed in
blank for transfer or with a stock power of attorney (in either
case with the signature guaranteed by the appropriate official)
with all eligible security transfer taxes paid;
(ii) the certificates and officer's certificate or opinion referred to
in paragraph 6.2;
(iii)evidence satisfactory to the Purchaser and its legal counsel of
the completion by the Company and the Vendors of those acts
referred to in paragraph 6.2;
(b) the Principal Shareholders and the Company shall cause the transfers
of the Company Shares into the name of the Purchaser, to be duly and
regularly recorded in the books and records of the Company;
(c) the Purchaser shall deliver to the Vendors bank drafts or certified
cheques in respect of the Purchase Price.
9. RESTRICTIONS ON TRANSFERABILITY
9.1 The Purchasers shall not sell, transfer, assign, pledge, hypothecate, or
otherwise dispose of the Company Shares unless:
(i) the Company Shares have been registered under the Securities Act of
1933 and qualified under applicable state laws; or
(ii) the Company and the Vendors have received an opinion of counsel,
reasonably satisfactory to them, stating the contemplated disposition
of the Company Shares is exempt from the registration requirements of
such Act and regulations of the Securities and Exchange Commission
thereunder and applicable state securities laws and the rules and
regulations of any state securities agencies thereunder, and a copy of
the written consent of the Commissioner of Corporations of the State
of California to the contemplated disposition of the Company Shares or
an opinion of counsel, reasonably satisfactory to the Company and the
Vendors, stating that such written consent is not required.
9.2 The certificates evidencing the Company Shares shall bear on their face a
legend, prominently stamped or printed thereon in capital letter of not
less than 10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
9.3 The certificates evidencing the Company Shares shall be stamped or
otherwise imprinted on their face with an additional legend in
substantially the following form:
"The transfer of the Shares represented by this certificate is subject to the
conditions specified in Section ______ of the Share Purchase Agreement dated the
_______ day of ______________, 199___, and no transfer of such shares shall be
valid or effective until such conditions have been fulfilled. As set forth in
Section ____, among other things, such shares have not been registered under the
Securities Act of 1933 or qualified under any state securities laws. The shares
represented by this certificate may not be sold or transferred in the absence of
(A) an effective registration statement for the shares under such Act or
qualification under such laws or (B) an opinion of counsel reasonably
satisfactory to the Company and the vendors that such registration and
qualification are, in the circumstances, not required, and the written consent
of the California Commissioner of Corporations or an opinion of counsel
reasonably satisfactory to the Company and the Vendors that such written consent
is not required."
10. GENERAL PROVISIONS
10.1 Time shall be of the essence of this Agreement.
10.2 This Agreement contains the whole Agreement between the parties hereto in
respect of the purchase and sale of the Company Shares and there are no
warranties, representations, terms, conditions or collateral agreements
expressed, implied or statutory, other than as expressly
set forth in this agreement. The parties acknowledge that no agent, broker
or person was or is authorized to make any written or oral representations
or warranties except those representations and warranties expressly set
forth herein. Any such purported representation or warranty hot contained
herein may not be relied upon and will be of no force and effect upon the
parties. This Agreement may only be amended, modified, altered or revised
in a writing duly executed by all parties to the Agreement.
10.3 Subject to the provisions of paragraph 3.31, this Agreement shall enure to
the benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. The Company Shares herein acquired by
Purchaser shall contain a legend that the Company Shares received are
subject to all existing restrictions including restrictions imposed by
federal requirements, California law, and the rights of the Vendors and
Purchaser as set forth in paragraph 2A.2 above. The Purchaser may not
assign this Agreement prior to the consummation of the purchaser of fifty
percent (50%) of the Company Shares by Purchaser. Thereafter, Purchaser may
not assign this Agreement without the consent of the Principal Shareholders
and the Company, however consent shall not be unreasonably withheld.
10.4 Any notice to be given under this agreement shall be duly and properly
given if made in writing and by delivering or telecopying the same to the
addressee at the address as set out on page one of this agreement. Any
notice given as aforesaid shall be deemed to have been given or made on, if
delivered, the date on which it was delivered or, if telecopied, on the
next business day after it was telecopied. Any party hereto may change its
address for notice from time to time by notice given to the other parties
hereto in accordance with the foregoing.
10.5 This agreement may be executed in one or more counter-parts, each of which
so executed shall constitute an original and all of which together shall
constitute one and the same agreement.
10.6 This agreement shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the laws of the State of
California and each of the parties hereto irrevocably attorns to the
jurisdiction of the Courts of the State of California
10.7 Notwithstanding any provision in the agreement to the contrary, the
Purchaser expressly acknowledges, understands and agrees that, except in
the case of a breach of paragraph 2A.1 of this Agreement, the Principal
Shareholders', the Company's and the Investing Shareholders' maximum
liability to the Purchaser, including without limitation, any alleged
liability for damages, attorney's fees and costs, arising out of or related
to the contemplated transactions, the Business carried out by the Company,
the default in the provisions of the Agreement to be performed by the
Principal Shareholders, the Investing Shareholders, or the Company, or
otherwise, shall be limited to the amount equal to the actual monies paid
to the respective Principal Shareholders, Investing Shareholders, or the
Company for the Company Shares being acquired. The parties initial set
forth adjacent to this paragraph acknowledge the parties negotiation and
express agreement to the foregoing provision limiting liability as herein
described.
10.8 In the event of a dispute arising under or pertaining to this Agreement,
such dispute shall be submitted to JAMS Endispute ("JAMS") for binding
arbitration. The parties may agree on a retired judge from the JAMS panel
at the Los Angeles, California office. If they are unable to agree within
twenty (20) days, JAMS will provide a list of three (3) available judges
and each party may strike one (1). The remaining judge will serve as the
sole arbitrator at the arbitration
and shall render an award in accordance with the laws, rules and governing
principles of California law through proceedings conducted at Los Angeles.
A party wishing to commence arbitration may commence the procedure by
sending written notice of the intention to arbitrate by registered or
certified mail to all parties and to JAMS. The notice must provide a
description of the dispute, the amount involved and the remedy sought. The
hearing and the rights of the parties in connection with the arbitration
shall be subject to the JAMS streamlined Arbitration Rules and Procedures,
a copy of which is attached hereto as Exhibit "G". The prevailing party in
the arbitration shall be entitled to recover attorney's fees and costs.
Upon rendering the decision, the Award of the Arbitrator shall be
judicially enforced by Judicial Decree in accordance with prevailing law.
10.9 Notwithstanding any provision herein to the contrary, the attorney fees and
accounting fees incurred by the Vendors and/or the Company in connection
with or pertaining to the contemplated transaction and this Agreement shall
be charged to and paid by the Company either before or after the closing of
the transaction. Following the consummation of the transaction, any
additional attorney fees or accounting fees incurred by the Company as a
direct result of public recording requirements of the Purchaser, including
without limitation, the costs and expense of preparation and the filing of
public reports or compliance with public reporting requirements of the
Purchaser shall be reimbursed by the Purchaser to the Company upon request.
IN WITNESS WHEREOF the parties hereto have executed this agreement as of the day
and year first above written.
SIGNED, SEALED AND DELIVERED
BY HAROLD & PHYLLIS SALTZMAN,
TRUSTEES FOR THE HAROLD AND
PHYLLIS SALTZMAN TRUST in the
presence of: __________________________
Signature
Signature
Name
Address
SIGNED, SEALED AND DELIVERED
BY DELBERT JONES
in the presence of:
---------------------------
Signature
Signature
Name
Address
SIGNED, SEALED AND DELIVERED
BY WILLIAM FISCH
in the presence of:
------------------------------
Signature
Signature
Name
Address
SIGNED, SEALED AND DELIVERED
BY BETTY M. BOGUCKI AS
CUSTODIAN FOR THE CHILDREN OF
BETTY M. AND RAYMOND BOGUCKI
in the presence of:
----------------------------
Signature
Signature
Name
Address
SIGNED, SEALED AND DELIVERED
BY BETTY M. BOGUCKI AND
RAYMOND BOGUCKI
in the presence of:
-----------------------------
Signature
Signature _____________________________
Signature
Name
Address
THE COMMON SEAL OF
DYNAMIC ASSOCIATES, INC.
was hereunto affixed in the
presence of:
c/s
Authorized Signatory
Authorized Signatory
THE COMMON SEAL OF
P&H LABORATORIES, INC.
was hereunto affixed in the
presence of:
c/s
Authorized Signatory
Authorized Signatory
SCHEDULE "A"
to that Share Purchase Agreement
dated as of the 28th day of February, 1996.
COMPANY FINANCIAL STATEMENTS
SEE ATTACHED.
CONTENTS
Page
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Balance Sheet
As of October 31, 1995 2-3
Statements of Income and Retained Earnings
For the Ten Months Ended
October 31, 1995 4
Statements of Cash Flows
For the Ten Months Ended
October 31, 1995 5-6
Notes to Financial Statements
As of October 31, 1995 7-11
SUPPLEMENTAL INFORMATION
Schedule of Cost of Goods Sold
For the Ten Months Ended
October 31, 1995 12
Schedule of Selling, General, and Administrative Expenses
For the Ten Months Ended
October 31, 1995 13
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
P & H Laboratories
Simi Valley, California
Members of the Board:
We have audited the accompanying balance sheet of P & H Laboratories as of
October 31, 1995. This financial statement is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
Because we were not engaged to audit the statements of income and retained
earnings, and cash flows, we did not extend our auditing procedures to enable us
to express an opinion on results of operations and cash flows for the ten months
ended October 31, 1995. Accordingly, we express no opinion on them.
In our opinion, the balance sheet referred to in the first paragraph presents
fairly, in all material respects, the financial position of P & H Laboratories
as of October 31, 1995, in conformity with generally accepted accounting
principles.
Our audit was made for the purpose of forming an opinion on the balance sheet
referred to above. The accompanying supplemental information on pages 12 and 13
is presented for the purpose of additional analysis and is not a required part
of the basic financial statements. Because we were not engaged to audit this
information, we did not extend our auditing procedures to enable us to express
an opinion on it. Accordingly, we express no opinion on this information.
/s/ Singer, Lewak, Greenbaum & Goldstein
ACCOUNTANTS, A PROFESSIONAL CORPORATION
Los Angeles, California
November 29, 1995
1
P & H LABORATORIES
BALANCE SHEET
As of October 31, 1995
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Note 3) $ 890,001
Accounts receivable, net of allowance for
doubtful accounts of $20,000 (Notes 4 and 5) 354,987
Inventories (Notes 2 and 4) 809,764
Receivable from officer (Note 8) 30,300
Prepaid expenses and other current assets 4,080
Deferred income tax 77,000
----------------
TOTAL CURRENT ASSETS 2,166,132
----------------
MACHINERY AND EQUIPMENT (Note 2)
Machinery and equipment 1,350,501
Furniture and fixtures 195,603
Leasehold improvements -
----------------
1,546,104
Less accumulated depreciation and amortization (1,386,904)
----------------
159,200
PROPERTY UNDER CAPITAL LEASES (Note 2)
Equipment 59,315
Less accumulated depreciation (44,458)
----------------
14,857
----------------
OTHER ASSETS
Deposits 21,315
----------------
TOTAL ASSETS $ 2,361,504
================
The accompanying notes are an integral part of these financial statements.
2
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses (Note 8) $ 305,692
Income taxes payable (Note 2) 170,205
Current portion of long-term debt (Note 4) 85,020
Current portion of capital lease obligation (Note 2) 2,590
----------------
TOTAL CURRENT LIABILITIES 563,507
LONG-TERM DEBT, Net of current portion above (Note 4) 180,724
DEFERRED INCOME TAX (Note 2) 48,000
----------------
TOTAL LIABILITIES 792,231
----------------
COMMITMENT (Note 6)
STOCKHOLDERS' EQUITY
Common stock, $.10 par value;
5,000,000 shares authorized,
275,000 shares issued and outstanding 27,500
Additional paid-in capital 22,500
Retained earnings 1,519,273
----------------
TOTAL STOCKHOLDERS' EQUITY 1,569,273
----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,361,504
================
The accompanying notes are an integral part of these financial statements.
3
P & H LABORATORIES STATEMENT OF INCOME AND
RETAINED EARNINGS For the Ten Months Ended October 31, 1995
(See Independent Auditor's Report)
UNAUDITED
% of
Net
Amount Sales
NET SALES (Note 5) $ 3,035,519 100.0%
COST OF GOODS SOLD (Schedule) 1,914,922 63.1
------------------ ----------------
GROSS PROFIT 1,120,597 36.9
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES (Schedule) 716,859 23.6
------------------ ----------------
INCOME FROM OPERATIONS 403,738 13.3
------------------ ----------------
OTHER INCOME (EXPENSE)
Interest income 18,711 0.6
Interest expense (19,610) (0.6)
------------------ ----------------
TOTAL OTHER INCOME (EXPENSE) (899) -
------------------ ----------------
INCOME BEFORE PROVISION FOR INCOME TAXES 402,839 13.3
PROVISION FOR INCOME TAXES (Note 2)
Current 190,000 6.3
Deferred (29,000) (1.0)
------------------ ----------------
161,000 5.3
------------------ ----------------
NET INCOME 241,839 8.0%
================
RETAINED EARNINGS - January 1, 1994 1,277,434
------------------
RETAINED EARNINGS - October 31, 1995 $ 1,519,273
==================
The accompanying notes are an integral part of these financial statements.
4
P & H LABORATORIES
STATEMENT OF CASH FLOWS
For the Ten Months Ended October 31, 1995
(See Independent Auditor's Report)
UNAUDITED
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 3,326,095
Cash paid to suppliers and employees (2,602,913)
Interest income received 18,711
Interest expense paid (19,847)
Income taxes received 7,292
Income taxes paid (43,460)
----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 685,878
----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (7,513)
CASH FLOWS FROM FINANCING ACTIVITIES
(Decrease) in book overdraft (8,905)
Principal payments on long-term debt (53,622)
Borrowings on long-term debt 81,700
Principal payments on capital lease obligation (10,358)
----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 8,815
----------------
NET INCREASE IN CASH DURING PERIOD 687,180
CASH AND CASH EQUIVALENTS - Beginning of Period 202,821
----------------
CASH AND CASH EQUIVALENTS - End of Period $ 890,001
================
The accompanying notes are an integral part of these financial statements.
5
P & H LABORATORIES
STATEMENT OF CASH FLOWS (Continued)
For the Ten Months Ended October 31, 1995
(See Independent Auditor's Report)
UNAUDITED
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net income $ 241,839
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 42,698
Deferred income tax (29,000)
(Increase) decrease in:
Inventories (138,467)
Accounts receivable 406,228
Prepaid expenses and other current assets (950)
Insurance receivable 63,001
Other assets 10,320
Increase (decrease) in:
Accounts payable and accrued expenses 52,029
Customer refund payable (115,652)
Income tax payable 153,832
----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 685,878
================
The accompanying notes are an integral part of these financial statements.
6
P & H LABORATORIES
NOTES TO FINANCIAL STATEMENTS
As of October 31, 1995
(See Independent Auditor's Report)
NOTE 1 - BUSINESS ACTIVITY
The Company is a California corporation that manufactures highly
technologically advanced microwave components and subsystems for the
communications and aerospace industries. The Company grants credit to
its customers, substantially all of whom are located in the United
States.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market. At October 31, 1995, inventories are comprised of the
following:
Raw materials $ 214,777
Work in process 594,987
----------------
$ 809,764
================
Property and Equipment
Property and equipment are stated at cost. The Company provides for
depreciation and amortization using the straight-line and accelerated
methods over the estimated useful lives of the principal classes of
property, as follows:
Machinery and equipment 8 years
Furniture and fixtures 8 years
Leasehold improvements 10 years
Warranty Costs
The Company provides, by a current charge to income, an amount it
estimates will be needed to cover future warranty obligations for
products sold during the year. The accrued liability for warranty
costs is included in "Accounts payable and accrued expenses" in the
accompanying balance sheet.
7
P & H LABORATORIES
NOTES TO FINANCIAL STATEMENTS
As of October 31, 1995
(See Independent Auditor's Report)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences, and
operating loss carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences
are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more
likely than not that some portion of all of the deferred tax assets
will not be realized. The valuation allowance at October 31, 1995 was
zero. Deferred tax assets and liabilities are adjusted for the effects
of changes in tax laws and rates on the date of enactment. For the ten
months ended October 31, 1995, temporary differences arose primarily
from California net operating loss carryforward and differences in the
timing of recognizing expenses for financial reporting and income tax
purposes. Such differences include depreciation, bad debt allowances,
and various accrued operating expenses.
At October 31, 1995, the Company had approximately $90,000 in state
net operating loss carryforwards available to offset future state
taxable income through the year 2000.
Property Under Capital Leases
The Company leases equipment under non-cancelable leases that are
classified as capital leases. The leased equipment has been
capitalized, and the related obligations have been recorded at the
fair value of the asset at the inception of the lease. The leased
equipment is depreciated using the accelerated method over a period of
eight years, and interest expense is recognized over the term of the
lease. Depreciation expense of $3,910 related to assets under capital
leases are included with other depreciation.
NOTE 3 - CASH AND CASH EQUIVALENTS
For purpose of reporting cash flows, the Company considers all
highly-liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
8
P & H LABORATORIES
NOTES TO FINANCIAL STATEMENTS
As of October 31, 1995
(See Independent Auditor's Report)
NOTE 3 - CASH AND CASH EQUIVALENTS (Continued)
The Company maintains its cash balances in two banks located in
Southern California. The balances at each bank are insured by the
Federal Deposit Insurance Corporation up to $100,000. As of October
31, 1995, the uninsured portion of the balances held at these banks
aggregated to $499,450.
NOTE 4 - LONG-TERM DEBT
Notes payable - S.B.A. Payable in monthly installments
of $4,675, including interest at 4%. Payments begin
June 1995. Debt matures June 2010 and is guaranteed
by the Company's president/stockholder. These notes
are subordinated to the bank note. $ 106,548
Note payable - bank. Payable in monthly installments of
$3,317 plus interest at prime plus 1% per annum and
is secured by accounts receivable, other
rights to payment, general intangibles, inventory, and
equipment. Debt matures October 1999. 159,196
265,744
Less current portion 85,020
--------------
$ 180,724
==============
Scheduled maturities of these obligations are as follows:
Year ending October 31,
1996 $ 85,020
1997 48,187
1998 48,528
1999 48,864
2000 9,449
Thereafter 25,696
--------------
$ 265,744
==============
9
P & H LABORATORIES
NOTES TO FINANCIAL STATEMENTS
As of October 31, 1995
(See Independent Auditor's Report)
NOTE 5 - MAJOR CUSTOMERS
During the ten months ended October 31, 1995, sales to three customers
represented 23.05%, 17.17% and 14.95% of total sales, respectively. As
of October 31, 1995, accounts receivable from these three customers
totaled $256,846.
NOTE 6 - COMMITMENT
Operating Lease
The Company leases its facility from the principal stockholder under
an operating lease that requires minimum monthly payments of $15,164.
The term of the lease is for two years and two months expiring
February 28, 1998. The lease specifies that the Company is obligated
to pay real property taxes, insurance, and utility bills.
As of October 31, 1995, future minimum lease payments are as follows:
Year ending October 31,
1996 $ 181,968
1997 181,968
1998 30,328
-------------
$ 394,264
=============
Rent expense for the ten months ended October 31, 1995 was $163,771.
10
P & H LABORATORIES
NOTES TO FINANCIAL STATEMENTS
As of October 31, 1995
(See Independent Auditor's Report)
NOTE 7 - 401(K) SAVINGS PLAN
Employees of the Company may participate in a 401(K) savings plan
whereby the employees may elect to make contributions pursuant to a
salary reduction agreement upon meeting age and length-of-service
requirements. Matching contributions by the Company are discretionary.
No matching contributions were made for the ten months ended October
31, 1995.
NOTE 8 - RELATED PARTY TRANSACTIONS
Included in accounts payable and accrued expenses is accrued bonus of
$50,000 to an officer/stockholder.
Included in accounts payable and accrued expenses is accrued rent of
$12,130 to an officer/stockholder.
The receivable from the officer/stockholder is non-interest bearing
and is due when certain documentation is received from a government
agency.
11
P & H LABORATORIES
NOTES TO FINANCIAL STATEMENTS
As of October 31, 1995
(See Independent Auditor's Report)
SUPPLEMENTAL INFORMATION
12
P & H LABORATORIES
SCHEDULE OF COST OF GOODS SOLD
For the Ten Months Ended October 31, 1995
(See Independent Auditor's Report)
UNAUDITED
% of
Net
Amount Sales
Beginning inventory $ 671,297 22.1%
Depreciation and amortization 36,744 1.2
Employee benefits 51,766 1.7
Equipment rental 400 -
Insurance 32,356 1.1
Janitorial 8,707 0.3
Labor - direct 596,051 19.6
Labor - indirect 439,999 14.5
Outside services 11,204 0.4
Payroll taxes 90,234 3.0
Purchases 511,492 16.9
Rent 131,017 4.3
Repairs and maintenance 31,076 1.0
Supplies 76,128 2.5
Taxes and licenses 13,912 0.5
Utilities 22,303 0.7
----------------- -----------------
Total goods available for sale 2,724,686 89.8
Less ending inventory 809,764 26.7
----------------- -----------------
TOTAL COST OF GOODS SOLD $ 1,914,922 63.1%
================= =================
12
P & H LABORATORIES
SCHEDULE OF SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
For the Ten Months Ended October 31, 1995
(See Independent Auditor's Report)
UNAUDITED
% of
Net
Amount Sales
Automobile and delivery $ 17,041 $ 0.6%
Bad debt 10,187 0.3
Bank charges 6,576 0.2
Business travel 9,916 0.3
Commissions 110,204 3.6
Depreciation and amortization 5,955 0.2
Dues and subscriptions 1,228 -
Employee benefits 12,942 0.4
Insurance 8,089 0.3
Janitorial 2,177 0.1
Litigation settlement 35,000 1.2
Miscellaneous 7,399 0.2
Office expense 13,265 0.4
Payroll taxes 22,765 0.7
Postage 1,761 0.1
Professional fees 106,707 3.5
Rent 32,753 1.1
Repairs and maintenance 23,750 0.8
Salaries 267,161 8.8
Taxes and licenses 5,083 0.2
Telephone 11,324 0.4
Utilities 5,576 0.2
----------------- -----------
TOTAL SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES $ 716,859 23.6%
================= ===========
13
SCHEDULE "B"
to that Share Purchase Agreement
dated as of the 28th day of February, 1996.
EMPLOYMENT, SERVICE & PENSION AGREEMENTS OF THE COMPANY
1. J.D. Landscape Maintenance Service Agreement (Month to month);
2. Accurate Office Products Service Agreement (3) dated 9-28-95 (Expiration
April 12, 1996);
3. Magnum Janitorial Contract re: janitorial service for the Premises dated
11/21/91 (Month to month);
4. Marshall Alarm Service Agreement dated 8/22/94 (Month to month;
5. Portable Storage Corp. Rental Agreement dated 8/22/94 (Month to month);
6. Digital Telecommunications, Corp. service Agreement dated 9/1/95
(Expiration August 20, 1996; option + 2 years);
7. Baker Security Systems, Inc. Patrol Service Agreement dated 10/24/94 (Month
to month);
8. Vnmark Software (formerly Prime) Service Agreement dated 2-21-92 (Month to
month);
9. Computer U.S.A. (formerly Prime) Agreement (Month to month);
10. Data Works (formerly Madic-Compufact) Software Maintenance Contract (Month
to month)
11. Public Storage Investors Rental Agreement dated 10/5/88 (Month to month);
12. Lincoln National Life Insurance Company Annuity Contract (401K)
Plan-effective November 27, 1991 (Month to month; see contract for
cancellation conditions);
Termination conditions of "month to month" agreements require written 30 or
60 day termination notification.
14
SCHEDULE "C"
to that Share Purchase Agreement
dated as of the 28th day of February, 1996.
REAL PROPERTY & LEASES OF THE COMPANY
1. Standard Industrial Lease dated August 1, 1990, as amended by First
Amendment dated December 5, 1995, by and between Harold Saltzman and
Phyllis Saltzman and the Company for the Premises located at 4496 Runway
St., Simi Valley, CA 93062. (Expiration date February 28, 1998);
2. Automobile Lease re: H. Saltzman Automobile re: Smart Lease GMAC Account
No. 02383. (Expiration date May 30, 1996);
3. (See Rental Lease described in Schedule "B").
SCHEDULE "D"
to that Share Purchase Agreement
dated as of the 28th day of February, 1996.
ENCUMBRANCES ON THE COMPANY'S ASSETS
1. Promissory Note in favor of California United Bank executed by the Company
in the original principal amount One Hundred Ninety-Nine Thousand Dollars
($199,000.00) dated October 11, 1994 secured by a UCC-1 Financing Statement
on the assets of the Company therein described and as described in the loan
documentation. (Balance of $159, 196.00 as of October 31, 1995);
2. SBA loan number EIDL 70328530-03 executed by the Company in the original
principal amount of One Hundred Eleven Thousand Dollars ($111,000.00) dated
June 2, 1994 secured by a UCC-1 Financing Statement on the assets of the
Company therein described, secured by the other SBA Deeds of Trust given on
the other SBA loans described herein and as otherwise secured as described
in the loan documentation. (Balance of $69,386.13 as of October 31, 1995);
3. SBA loan number DLH 70326930-03 executed by Harold Saltzman and Phyllis Kay
Saltzman in the original principal amount of Thirty Thousand Three Hundred
Dollars ($30,300.00) dated June 2, 1994 whereby the borrower Harold
Saltzman and Phyllis K. Saltzman have pledged as additional collateral
among other matters, the SBA Deeds of Trust given on the other SBA loans
described herein and as otherwise secured as described in the loan
documentation;
4. SBA loan number DLB 70092130-01 executed the Company in the original
principal amount of Four Hundred Seventy Thousand Eight Hundred Dollars
($470,800.00) secured by a UCC-1 Financing Statement on the assets of the
Company therein described, secured by the other SBA Deeds of Trust given on
the other SBA loans described herein and as otherwise secured as described
in the loan documentation. (Balance of $37,161.76 as of October 31, 1995);
5. SBA loan number DLB 70327830-06 executed by Harold Saltzman and Phyllis Kay
Saltzman in the original principal amount of Two Hundred Seventy-Four
Thousand One Hundred Dollars ($274,100.00) whereby the borrower Harold
Saltzman and Phyllis K. Saltzman have pledged as additional collateral
among other matters, the SBA Deeds of Trust given on the other SBA loans
described herein and as otherwise secured as described in the loan
documentation.
THE ABOVE CONTAINS ONLY A SUMMARY OF THE ENCUMBRANCES AGAINST THE ASSETS OF THE
COMPANY AND PURCHASER IS ADVISED TO REVIEW THE ACTUAL LOAN DOCUMENTATION AND
SECURITY DOCUMENTS HEREIN DESCRIBED TO DETERMINE THE SCOPE AND EXTENT OF THE
ENCUMBRANCES.
SCHEDULE "E"
to that Share Purchase Agreement
dated as of the 28th day of February, 1996.
COMPANY LITIGATION
NONE.
SCHEDULE "F"
to that Share Purchase Agreement
dated as of the 28th day of February, 1996.
REGISTERED TRADEMARKS, TRADE NAMES & PATENTS
OF THE COMPANY
NONE.
SCHEDULE "G"
to that Share Purchase Agreement
dated as of the 28th day of February, 1996.
ARBITRATION RULES
SEE ATTACHED.
MEMORANDUM OF AGREEMENT
RE: Share Purchase Agreement dated February 28, 1996
as amended (re: the "Purchase Agreement")
This will confirm our agreement with respect to the closing of the Purchase
Agreement. The undersigned have agreed that notwithstanding that the Purchase
Agreement requires the payment to the Vendors of $1,000,000. at closing, the
parties have agreed to close in escrow on the following basis:
a. the Purchaser will pay $300,000 to the Vendors;
b. the Purchaser will issue a post dated cheque for $700,000, payable May
4, 1996. (the "Post Dated Cheque");
c. the Purchaser will pay $12,756.15 for interest to todays date;
d. the Vendors will endorse the share certificates in blank for transfer
to the Purchaser on payment of the Post Dated Cheque and will deliver
the same to Ray Bogucki, Attorney at Law ("the Escrow Agent") and
hereby instruct the Escrow Agent to deliver the same to the Company to
obtain appropriate certificates in the name of the Purchaser upon
confirmation of payment of the Post Dated Cheque;
e. the Vendors will repay to the Purchaser the deposit of $30,000 which
was paid by the Purchaser on signing of the Purchase Agreement;
f. in the event that the Purchaser's bank shall fail to honor the Post
Dated Cheque on it's presentment for payment, the Purchaser shall
forfeit as liquidated damages the $300,000 paid today and shall not be
entitled to any right title or interest in the shares of the Company,
nor any other rights and remedies pursuant to the Purchase Agreement
or otherwise;
g. Messrs. Kaftal, Anderson, and Moll shall deliver to the Escrow Agent
undated resignations as directors of the company and hereby instruct
the Escrow agent to date and deliver the resignations to the company
should the Purchaser's bank fail to honor the post dated cheque;
h. the provisions of paragraphs 10.2, 10.5, 10.8, and 10.9 of the
Purchase Agreement shall apply mutatis mutandus to this agreement.
The undersigned hereby confirm the terms of closing of the Purchase Agreement as
set out above and agree that in the event of a conflict between the above and
the Purchase Agreement, the above provisions shall govern.
Dated at Simi Valley, California, this 23rd day of April 1996.
Dynamic Associates, Inc. P&H Laboratories, Inc.
per per
Ray Bogucki in his capacity
as Escrow Agent
Jones Family Trust
per
Delbert Jones
William Fisch
Betty M. Bogucki as Custodian for the children of
Betty M. and Raymond Bogucki
Betty M. Bogucki
Raymond Bogucki
Betty M. Bogucki
Harold & Phyllis Saltzman Family Trust
per
Harold Saltzman
Phyllis Saltzman by her Attorney In Fact Harold Saltzman
Ed Kaftal
Harold Moll
Logan Anderson