SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
( ) Preliminary Proxy Statement
( ) Confidential, for Use of the Commission Only (as
permitted by Rule 14a-6(e)(2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material under Section 240.14a-12
DYNAMIC ASSOCIATES, INC.
- ----------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- ----------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than
Registrant)
Payment of Filing Fee (Check the appropriate box):
( ) No fee required
( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
1) Title of each class of securities to which transaction
applies: Common Shares
2) Aggregate number of securities to which transaction
applies: 5,341,666
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth
the amount on which the filing fee is calculated and
state how it was determined): $0.01 which is the average
of the high and low prices reported on March 6, 2001, by
the OTC Bulletin Board.
4) Proposed maximum aggregate value of transaction:
$53,417
5) Total fee paid: $15
(X) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
DYNAMIC ASSOCIATES, INC.
6617 N. Scottsdale Road, Suite 103
Scottsdale, Arizona 85253
March 26, 2001
Dear Shareholder:
You are cordially invited to attend a special meeting of
shareholders of Dynamic Associates, Inc., which will be
held on April 6, 2001 at 10:00 a.m., Pacific Standard Time
at Suite 500, 2300 West Sahara Avenue, Las Vegas, Nevada
89102.
Details of the business to be conducted at the special
meeting are given in the attached Notice of Special Meeting
of Shareholders and Proxy Statement.
Whether or not you attend the special meeting it is
important that your shares be represented and voted at the
meeting. Therefore, I urge you to sign, date, and promptly
return the enclosed proxy. If you decide to attend the
special meeting and vote in person, you will of course have
that opportunity.
On behalf of the board of directors, I would like to
express our appreciation for your continued interest in the
affairs of Dynamic Associates, Inc.
Sincerely,
/s/ Jan Wallace
Jan Wallace
CEO and Chairman
DYNAMIC ASSOCIATES, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
March 26, 2001
To the Shareholders:
Notice is hereby given that a special meeting of the
holders of shares of common stock of Dynamic Associates,
Inc., a Nevada corporation ("Dynamic Associates") will be
held at Suite 500, 2300 West Sahara Avenue, Las Vegas,
Nevada 89102 on April 6, 2001 at 10:00 a.m., Pacific
Standard Time, for the following purposes:
1. To consider and vote upon the merger of Tele-Lawyer,
Inc., a Nevada corporation, with Dynamic Associates wherein
Dynamic Associates will be the surviving entity.
2. To transact such other business as may properly come
before the meeting.
Only shareholders of record at the close of business on
March 8, 2001 are entitled to notice of, and to vote at,
this meeting.
Rights of dissenting shareholders:
With respect to the proposed merger, shareholders are
entitled to assert dissenters' rights under Nevada Revised
Statutes 92A.300 to 92A.500. A discussion of these rights
is included in the proxy statement included herewith, which
discussion is incorporated into this Notice by this
reference. Also incorporated into this Notice by reference
is a copy of Nevada Revised Statutes 92A.300 to 92A.500
which is attached to the enclosed proxy statement as
Appendix B.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Jan Wallace
Jan Wallace
CEO and Chairman
Las Vegas, Nevada
March 26, 2001
IMPORTANT
Whether or not you expect to attend in person, we urge you
to sign, date, and return the enclosed Proxy at your
earliest convenience. This will ensure the presence of a
quorum at the meeting. PROMPTLY SIGNING, DATING, AND
RETURNING THE PROXY WILL SAVE DYNAMIC ASSOCIATES THE
EXPENSE AND EXTRA WORK OF ADDITIONAL SOLICITATION. Sending
in your Proxy will not prevent you from voting your stock
at the meeting if you desire to do so, as your Proxy is
revocable at your option.
DYNAMIC ASSOCIATES, INC.
6617 N. Scottsdale Road, Suite 103
Scottsdale, Arizona 85253
March 26, 2001
PROXY STATEMENT FOR SPECIAL MEETING
OF SHAREHOLDERS
TO BE HELD April 6, 2001
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROXY STATEMENT IN CONNECTION WITH THE SOLICITATION OF
PROXIES MADE HEREBY, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY DYNAMIC ASSOCIATES OR ANY OTHER
PERSON.
SUMMARY TERM SHEET FOR THE MERGER
This summary term sheet for the merger highlights selected
information from this proxy statement regarding the merger
and the merger agreement and may not contain all of the
information that is important to you as a Dynamic
Associates shareholder. Accordingly, we encourage you to
carefully read this entire document and the documents to
which we have referred you.
You are being asked to consider and vote upon a proposal to
approve the merger of Dynamic Associates, Inc., a Nevada
corporation ("Dynamic Associates") with Tele-Lawyer, Inc.,
a Nevada corporation ("Tele-Lawyer") pursuant to the terms
and conditions of the merger agreement and the first
amendment to merger agreement (collectively, "merger
agreement"), attached to this proxy statement as Appendices
A1 and A2. As you consider how to vote, it is important
that you understand the following:
* Before the merger takes place, it is a requirement
that Dynamic Associates pay off or settle all of its
liabilities, including any notes that might be
outstanding. To accomplish this it may be necessary
for Dynamic Associates to issue additional common
shares of stock in exchange for the cancellation of
debt. This will dilute your current stock position.
See the discussion under the heading "MERGER
DESCRIPTION" beginning on page 10.
* Before the merger takes place, only 250,000 common
shares of Dynamic Associates can be issued and
outstanding. If all of the note holders of Dynamic
convert their debt to common stock as provided by the
merger agreement, there will be approximately
76,231,429 shares of Dynamic common stock issued and
outstanding at the time the merger is consummated.
Therefore, Dynamic Associates common stock will
undergo a reverse split on a basis of approximately
one share for every 305 shares presently outstanding,
assuming all of the current note holders convert their
debt to common stock. See the discussion under the
heading "MERGER DESCRIPTION" beginning on page 10.
1
* Other than the potential beneficial economic impact to
Dynamic Associates brought about by the acquisition of
Tele-Lawyer, in the merger you will receive no
consideration by virtue of your position as a
shareholder of Dynamic Associates. After the merger
you will continue to own the Dynamic Associates shares
you now own after giving effect to the reverse split.
See the discussion under the heading "MERGER
DESCRIPTION" beginning on page 10.
* In the merger, Dynamic Associates will issue
approximately 5,341,666 common shares in exchange for
all of the shares of Tele-Lawyer presently
outstanding. After the merger, Dynamic Associates
will own 100% of Tele-Lawyer and the present Dynamic
Associates shareholders will own as a group
approximately 4.5% of Dynamic Associates. See the
discussion under the heading "MERGER DESCRIPTION"
beginning on page 10.
* The board of directors of Dynamic Associates
unanimously supports the merger. See the discussion
under the heading "DYNAMIC ASSOCIATES' BOARD
RECOMMENDATION" beginning on page 13.
* The special meeting will be held at 10:00 a.m. Pacific
Standard Time on April 6, 2001, at Suite 500, 2300
West Sahara Avenue, Las Vegas, Nevada 89102. You can
vote by attending the meeting or by filling out and
sending in your proxy. See the discussions under the
headings "GENERAL" at page 3 and "VOTE REQUIRED AND
VOTING" at page 4.
* If you send in your proxy and then, sometime before
the meeting, change your mind about how you want to
vote, you can revoke your proxy. See the discussion
under the heading "REVOCATION OF PROXY" at page 4.
* If you do not agree with the merger and the merger
takes place, you can demand and receive payment for
your Dynamic Associates shares at their market value
immediately before the merger. To receive payment,
you must take certain actions describe on page 5 under
the heading "RIGHTS OF DISSENTING SHAREHOLDERS", and
as described in Appendix B.
* You can receive information about Dynamic Associates
in addition to the information in this proxy statement
by contacting Dynamic Associates or the SEC or the web
site of the SEC. See the discussions under the
headings "RECORDS AVAILABLE TO UNAFFILIATED
SHAREHOLDERS" at page 12 and "WHERE YOU CAN FIND MORE
INFORMATION" at page 17.
* This proxy statement contains forward-looking
statements based upon expectations of the future
success of Tele-Lawyer. External factors could cause
actual results to differ. See the discussion under
the heading "FORWARD-LOOKING STATEMENTS" beginning on
page 16.
2
THE SPECIAL MEETING
GENERAL
This proxy statement is furnished in connection with the
solicitation of proxies by the board of directors of
Dynamic Associates to be voted at a special meeting of
shareholders of Dynamic Associates (the "special meeting"),
which will be held at 10:00 a.m. Pacific Standard Time on
April 6, 2001, at Suite 500, 2300 West Sahara Avenue, Las
Vegas, Nevada 89102. The purpose of the special meeting is
to consider and vote upon the merger of Tele-Lawyer with
and into Dynamic Associates wherein Dynamic Associates will
be the surviving entity. A copy of the merger agreement
and the first amendment to merger agreement are attached to
this proxy statement as Appendices A1 and A2. This proxy
statement and the enclosed form of proxy are first being
mailed to Dynamic Associates shareholders on or about March
26, 2001.
RECORD DATE; SOLICITATION OF PROXIES
The board of directors of Dynamic Associates has fixed the
close of business on March 8, 2001 as the record date for
the determination of shareholders entitled to notice of and
to vote at the special meeting. At the record date, there
were approximately 57,071,435 shares of common stock
issued, outstanding, and entitled to vote at the special
meeting. Holders of common stock are entitled to one vote
at the special meeting for each share of common stock held
of record at the record date. There are no separate voting
groups or separate series of stock.
In addition to the solicitation of proxies by the board of
directors through use of the mails, proxies may also be
solicited by Dynamic Associates and its directors, officers
and employees (who will receive no additional compensation
therefor) by telephone, telegram, facsimile transmission or
other electronic communication, and/or by personal
interview. Dynamic Associates will reimburse banks,
brokerage houses, custodians and other fiduciaries who hold
shares of common stock in their name or custody, or in the
name of nominees for others, for their out-of-pocket
expenses incurred in forwarding copies of the proxy
materials to those persons for whom they hold such shares.
Dynamic Associates will bear the costs of the special
meeting and of soliciting proxies therefor, including the
cost of printing and mailing this proxy statement and
related materials. Dynamic Associates has spent
approximately $6,000 in legal and other expenses in the
preparation of this proxy statement and other expenses
connected with the solicitation of security holders. It is
anticipated that Dynamic Associates will spend an
additional $2,500 in solicitation of security holders
before the meeting is held.
Any questions or requests for assistance regarding Dynamic
Associates' proxies and related materials may be directed
in writing to Grace Sim, at 6617 N. Scottsdale Road, Suite
103 Scottsdale, Arizona 85253.
3
VOTE REQUIRED AND VOTING
In order to obtain shareholder approval of the merger,
fifty percent (50%) of the issued and outstanding shares of
common stock entitled to vote as of the record date,
represented in person or by proxy, is required to vote in
favor of the merger at the special meeting. Any other
matter that may be properly brought before the meeting may
be approved if only a quorum of twenty-five percent (25%)
of the issued and outstanding shares of common stock
entitled to vote as of the record date are represented in
person or by proxy, and fifty percent (50%) of the shares
so represented vote in favor of the matter or matters.
Abstentions may be specified and will be counted as present
for the purpose of determining the existence of a quorum.
You can vote by either attending the special meeting in
person or by filling out and sending in your proxy. Shares
of common stock that are represented by properly executed
proxies, unless such proxies shall have previously been
properly revoked (as provided herein), will be voted in
accordance with the instructions indicated in such proxies.
If no contrary instructions are indicated, such shares will
be voted FOR the merger, and in the discretion of the
persons named in the proxy as proxy appointees, as to any
other matter that may properly come before the special
meeting (of which Dynamic Associates is not presently
aware). Shares represented by proxies that have voted
against the propositions presented at the meeting cannot be
used to postpone or adjourn the meeting in order to solicit
more votes for the proposition.
Brokers who hold shares in a street name have the authority
to vote when they have not received instructions from the
beneficial owners. Brokers who do not receive instructions
but who are present, in person or by proxy, at the special
meeting will be counted as present for quorum purposes.
OTHER MATTERS
It is not expected that any matters other than those
referred to in this proxy statement will be brought before
the special meeting. If other matters are properly
presented, however, the persons named as proxy appointees
will vote in accordance with their best judgment on such
matters. The grant of a proxy also will confer
discretionary authority on the persons named as proxy
appointees to vote in accordance with their best judgment
on matters incident to the conduct of the special meeting.
REVOCATION OF PROXY
Any shareholder may revoke his, her or its proxy (other
than an irrevocable proxy coupled with an interest) at any
time before it is voted, by: (1) filing with the corporate
secretary of Dynamic Associates an instrument revoking the
proxy; (2) returning a duly executed proxy bearing a later
date; or (3) attending the special meeting and voting in
person. Attendance at the special meeting will not by
itself constitute revocation of a proxy.
4
RIGHTS OF DISSENTING SHAREHOLDERS
With respect to the proposed merger, shareholders are
entitled to assert dissenters' rights under Nevada Revised
Statutes 92A.300 to 92A.500. A copy of Nevada Revised
Statutes 92A.300 to 92A.500 is attached to this proxy
statement as Appendix B. It is important that all
shareholders review all of the provisions of Appendix B in
order to be aware of all of their rights with respect to
the proposed merger.
A shareholder who wishes to assert dissenter's rights must
deliver to Dynamic Associates before the vote is taken at
the special meeting, notice of his or her intent to demand
payment for his or her shares if the merger is consummated
and must not vote his or her shares in favor of the
proposed action, otherwise his or her right to dissent and
receive payment for his or her shares is lost. Said notice
may be delivered to the attention of the secretary of
Dynamic Associates, Grace Sim, at 6617 N. Scottsdale Road,
Suite 103, Scottsdale, Arizona 85253 or may be delivered in
person at the location of the special meeting immediately
prior to the start of the special meeting.
If the merger is authorized at the special meeting, Dynamic
Associates will within 10 days of the approval provide a
dissenters' notice to all shareholders who complied with
the terms and conditions of the preceding paragraph. The
dissenters' notice will give instructions to each dissenter
as to how to make demand for and receive payment for his
common shares. Note that to obtain payment for shares, the
instructions set forth above must be followed. It is not
sufficient to merely vote against the merger at the special
meeting.
5
THE MERGER
THE COMPANIES
Dynamic Associates
- ------------------
Dynamic Associates is engaged in managing the operation of
psychiatric/geriatric units for various hospitals through
Perspectives Health Management Corp., a Nevada corporation
and a wholly owned subsidiary of Dynamic Associates
("PHMC"). PHMC provides elderly healthcare and gero-
psychology services to small healthcare facilities unable
to provide these services in house. The program conforms
to the guidelines of the JCAHO Accreditation Manual for
Hospitals and Medical Standards. The program is reimbursed
at cost by Medicare when established as a distinct part
unit of a Hospital that qualifies for an exemption from the
Medicare Prospective Payment System ("PPS"). The PPS
exemption provides for a cost plus reimbursement system for
the unit, which allows the hospital to receive full
reimbursement of the direct operating expenses, plus an
allocation to the unit of a substantial portion of the
hospital's overall overhead and capital costs.
Dynamic Associates is a Nevada corporation. Its executive
offices are located at 6617 N. Scottsdale Road, Suite 103,
Scottsdale, Arizona 85253; telephone (480) 315-8600.
Financial information about Dynamic Associates is attached
hereto as Appendix C.
Tele-Lawyer
- -----------
Tele-Lawyer is in the business of arranging for the
provision of legal advice and information to consumers of
legal services through licensed attorneys. Tele-Lawyer
also produces and sells specialized phone conferencing
applications to professionals and associations. The
specialized phone conference applications are most often in
the form of continuing education programs for attorneys
called Tele-Seminars. Tele-Lawyer is in the process of
expanding its product and service offerings, as well as its
geographic coverage, in order to create a nationwide hub
for access to legal services. This expansion involves a
number of enhancements to its website and phone services
that will include the following services and products:
1. Legal Information
2. Referrals
3. Filing Services
4. Legal Forms
5. Form Preparation
6. Mediation (Dispute Resolution)
7. Legal Advice
8. Documentation Services
9. Resale of Web site and Operator Phone Services
10. Tele-Seminar Phone Conferencing
11. Attorney Virtual Office Rentals
6
12. Bidding for Attorneys
13. Legal Books
Tele-Lawyer is a Nevada corporation. Its executive offices
are located at 2300 W. Sahara Ave., Suite 5000, Las Vegas,
NV 89102; telephone (702) 312-6255. Financial information
about Tele-Lawyer is attached hereto as Appendix D.
History & Development
Tele-Lawyer was formed in May of 1989 and opened for
business in October 1989 as the first pay-as-you-go legal
information and advice phone service. As originally
conceived and still offered today, the Tele-Lawyer service
provides consumers quick, convenient access to legal advice
and information over the telephone. The client/caller
phones into the service, tells an operator what kind of
legal question they have, and then the operator directs the
call to a licensed, experienced attorney. The attorney
reviews the facts with the client, and then answers
questions and provides general legal advice and
information.
Publicity and attention to the service from inception was
significant, with positive stories finding their way into
most of the major newspapers throughout the country within
the first year of operation. In addition, Tele-Lawyer
quickly was recognized and received numerous awards from
several different legal, phone and consumer organizations,
including the American Bar Association's prestigious Louis
M. Brown award for access to legal services in 1995.
Notwithstanding the praise and acknowledgement of the press
and related organizations, it quickly became evident that
traditional means of marketing could not generate the
volume of calls necessary to support and grow the business.
As a result, Tele-Lawyer went through a series of changes
in operation and direction. One such change was the
creation of its Tele-Seminar and Tele-Meeting services in
1992 and 1993.
Tele-Seminars are continuing education programs offered to
professionals over the phone. Currently, Tele-Lawyer
offers both live and recorded programs produced by various
non-profit organizations. These organizations will
typically find the speakers, design the program content and
do the marketing. Tele-Lawyer will then handle everything
else to present and operate the program over the phone.
Currently, Tele-Lawyer is involved in expanding its
business operations to increase the number, type and
geographic coverage of the services it offers in order to
create a central hub or starting place for access to legal
services nationwide. This expansion includes selling
website and phone services to legal service providers, bar
associations and federal and state courts as well as
creating a range of unbundled legal services available to
the general public through these non-profit groups and
Tele-Lawyer's own website and hotline phone service. Tele-
Lawyer's direct consumer website services can be found at
www.internetlawcenter.com. Tele-Lawyer's direct consumer
phone services can be accessed at 1-800 835-3529.
7
Competition
While direct competition to all the Tele-Lawyer services is
currently few, indirect competition is plentiful and
active. A few providers of pay-as-you-go legal advice and
information services exist, including Divorce Help Line in
Santa Cruz, California and the Legal Advice Line in
Baltimore, Maryland. These companies, to one extent or
another, provide legal advice over the phone for a fee.
Limitations are generally centered on the geographic region
and the legal subject matter covered. In addition, there
are virtually hundreds of legal aid and other non-profit
services that offer legal advice either over the phone or
in person, generally for free and only to low income
qualifying individuals in a specific geographic region for
certain types of legal problems.
With regard to the Tele-Seminar service, there are a number
of conferencing companies that offer services similar to
Tele-Lawyer's Tele-Seminar programs. While the competition
in conferencing services in general is strong and getting
stronger, there are only a few conferencing services that
seek out and market to the continuing education market as
part of their product offerings.
On the Internet, there are virtually thousands of legal and
law related sites. For consumers, some offer legal
information for free or on a subscription basis. Some
offer forms and to a limited extent form preparation, and
some even provide legal advice through e-mail exchanges.
Finder and referral lists can also be found in plenty for
persons seeking attorneys and other legal sources of
information. Lawyers also have access to these sites as
well as a number of sites specifically designed for their
legal research and referrals.
A short sample listing of legal websites include the
following:
* Findlaw.com
* Uslaws.com
* Lawguru.com
* Priweb.com
* Lawyersweekly.com
* Law.Cornell.edu
* Legal.gsa.gov
* Westlaw.com
* Martindale.com
* Lawyers.com
* Lawoffice.com
* Legal-bid.com
* Probono.net
* Legaladviceline.com
* Ask-a-Lawyer.com
* Divorce-Forms.com
* Mylawyer.com
* Thelaw.com
8
Marketing
Tele-Lawyer's marketing efforts are centered on sales to,
and strategic partnerships with, non-profit associations
and government agencies, such as legal aids, bar
associations and the nation's courts. These clients are
contacted by Tele-Lawyer sales representatives at
conferences and through direct mail efforts and sold on the
concept of using Tele-Lawyer's technology and services as
part of their operations. These efforts have resulted in
several agreements with such groups.
Employees
Tele-Lawyer currently has 15 full time employees including
its President and CEO Michael Cane, Vice President and
Director of Business Development Elliot Schear, and
Treasurer and Chief Financial Officer Steven Fellows.
There are also two directors employed by Tele-Lawyer --
Sara Wessells the Director of Operations, and Alfredo
Gonzalez the Director of Technology.
In addition, Tele-Lawyer contracts for the services of a
number of independent consultants and programmers in its
operations.
None of Tele-Lawyer's employees are subject to collective
bargaining agreements, nor have they been on strike, or
threatened to strike, within the past three years. Tele-
Lawyer has no supplemental benefit or incentive
arrangements with its employees other than an incentive
stock option and health care plan.
Trademarks and Intellectual Property
The Company holds a number of US trademarks issued by the
US Patent and Trademark Office. These include:
1. TELE-LAWYER -- both word and design
2. INFOLAW
3. 1-900 ATTORNEY
4. INTERNETLAWCENTER.COM
In addition, without holding a specified US trademark, the
Company uses the following marks that it believes it has
rights to under common law:
1. TELELAW
2. TELE-SEMINARS
Research and Development Expenditures
The Company has not conducted any research and development
activities.
9
Subsidiaries
The Company does not have any subsidiaries
BACKGROUND OF THE MERGER
One hundred percent of the business operations of Dynamic
Associates are through its wholly owned subsidiary PHMC.
Operating revenues are generated primarily from Medicare
reimbursements. Due in part to changes in the Medicare
payment system, it has become increasingly difficult to
achieve profitable operations in PHMC. Dynamic Associates
management has therefore determined to sell PHMC. Absent
the acquisition of some other business or product, upon the
sale of PHMC, Dynamic Associates would be without business
operations or significant assets. Dynamic Associates'
management believes the business of Tele-Lawyer is a viable
business concept with a potentially bright future. Through
the merger, Dynamic Associates would acquire Tele-Lawyer's
business operations as Dynamic Associates faces the
prospect of selling PHMC. Management hopes this will
revive Dynamic Associates' future financial prospects.
MERGER DESCRIPTION
Tele-Lawyer will be merged with and into Dynamic Associates
with Dynamic Associates being the surviving entity and
Tele-Lawyer either ceasing to exist or operating as a
wholly owned subsidiary of Dynamic. The merger calls for
each of the Tele-Lawyer shareholders to receive one share
of Dynamic Associates common stock for each share of Tele-
Lawyer common stock they hold. In addition, each holder of
an option or warrant to purchase Tele-Lawyer common stock
under its incentive stock option plan shall be entitled to
receive an option to purchase the same number of shares of
Dynamic Associates stock under the same terms as provided
in their option or warrant agreement.
Currently, Tele-Lawyer has issued options to purchase
325,000 common shares at $1 per share and options to
purchase an additional 386,000 common shares at $3 per
share. In addition, Tele-Lawyer has issued warrants to
purchase 450,000 common shares at $3 per share.
In brief, the merger agreement is conditioned, among other
things, upon the following:
* Dynamic Associates shall extinguish all of its
outstanding debt, including all existing notes,
through a conversion to common stock or otherwise.
* Dynamic Associates shall have settled and/or paid all
outstanding claims, liabilities, actions or lawsuits
to the satisfaction of Tele-Lawyer.
* Dynamic Associates shall have extinguished all of its
outstanding warrants, options and any other rights to
acquire any shares of its common stock.
* Dynamic Associates shall purchase or caused to be
purchased 100,000 common shares of Dynamic Associates
at a price of $3.00 per share.
* After conversion of all debt to equity, settlement of
all liabilities, extinguishments or exercise of all
warrants and options, and after all other actions so
that the
10
issuance of further capital shares of Dynamic
Associates is unnecessary to accomplish the objectives
of the bullet points set forth immediately above,
Dynamic Associates shall enact a reverse split of its
shares so as to have at the consummation of the merger
no more than 250,000 shares of common stock
outstanding.
Dynamic Associates shareholders will receive no
consideration in the merger. It should be noted, however,
that the number of Dynamic Associates shares held by a
shareholder as of the merger date will be reverse split on
approximately a 1 for 305 basis prior to the consummation
of the merger, if all of the note holders convert their
debt to common stock as required by the merger agreement.
By operation of the merger, Tele-Lawyer shareholders will
then be issued approximately 5,341,666 Dynamic Associates
common shares in exchange for their shares in Tele-Lawyer.
Accordingly, following the merger, current Dynamic
Associates shareholders will own approximately 4.5% of the
post merger company. Other than as set forth herein with
respect to the number of shares, shares held by Dynamic
Associates shareholders after the merger will have the same
rights and preferences as shares held prior to the merger.
All numbers in the preceding paragraph are approximations.
If Dynamic Associates finds it necessary to issue
additional common shares prior to the merger for purposes
of retiring notes or other debt and liabilities, it is
likely the reverse split of Dynamic Associates shares prior
to the merger will be greater than 1 for 305, giving a
Dynamic Associates shareholder a smaller percentage
ownership of the post merger company. Also, Tele-Lawyer
continues to raise money at the present time pursuant to a
private offering. If Tele-Lawyer is successful in raising
additional funds through the sale of its stock prior to the
merger, current Dynamic Associates shareholders will own
less of the post merger company than as set forth in the
preceding paragraph.
CHANGE IN CONTROL
Pursuant to the terms and conditions of the merger
agreement, immediately following the merger, the officers
and directors of Dynamic Associates will be replaced by the
officers and directors of Tele-Lawyer.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Mr. Michael Cane, the principal shareholder of Tele-Lawyer
is a practicing attorney and securities counsel to Dynamic
Associates. Other than as securities counsel, he has had
no business relationship with Dynamic Associates. In the
merger, Mr. Cane he will receive one share of Dynamic
Associates common stock for each share of Tele-Lawyer
common stock that he holds, the same consideration given
every other shareholder of Tele-Lawyer. He will also
receive an option to purchase shares of Dynamic common
stock in exchange for his current option to purchase shares
of Tele-Lawyer common stock at the same price and on the
same terms. This is the same consideration given every
other option holder of Tele-Lawyer. As a current officer
and director of Tele-Lawyer, following the merger he will
be an officer and director of Dynamic Associates. Mr. Cane
has not and will not be representing Dynamic Associates
with regard to the merger.
11
There are no other business relationships, other than the
merger described herein, between Dynamic Associates and
Tele-Lawyer, nor between them and any of the affiliates of
the other. Also, there will be no securities purchased
from any officer, director or affiliate of Tele-Lawyer in
connection with the merger.
ACCOUNTING TREATMENT AND FEDERAL TAX CONSEQUENCES
The merger between Dynamic Associates and Tele-Lawyer will
be accounted for as a recapitalization. The merger will be
measured at the estimated fair market value of Dynamic
Associates immediately prior to the transaction. We do not
anticipate any federal income tax consequences as a result
of the merger that are material to Dynamic Associates or to
the shareholders of Dynamic Associates.
STOCK ISSUED TO TELE-LAWYER SHAREHOLDERS
The shareholders of Tele-Lawyer will be receiving common
shares of Dynamic Associates in the merger, which shares
are exempt from registration under the Securities Act of
1933. The corporate charter of Dynamic Associates does not
authorized the issuance of preferred shares nor does it
allow the issuance of common shares pursuant to more than
one designation and that designation may not be issued in
series. All common shares are allowed one vote per share
on any matter that comes before the shareholders and votes
may not be cumulated in the election for directors. No
common shares have preemption rights and in the event of
liquidation, no common shares have preference over any
other shares. Neither the charter nor the bylaws of
Dynamic Associates contain any provision that would delay,
defer or prevent a change in control of Dynamic Associates.
Dynamic Associates will take steps reasonably necessary to
assure that Dynamic Associates common shares received by
Tele-Lawyer shareholders in the merger will be eligible for
trading on the OTC Bulletin Board under Dynamic Associates'
symbol, DYAS.
RECORDS AVAILABLE TO UNAFFILIATED SHAREHOLDERS
Dynamic Associates will upon written request make available
to any unaffiliated shareholder, at no charge, copies of
any corporate records available to the public generally or
which do not contain information proprietary to Dynamic
Associates and which may be helpful to such shareholder in
making his or her voting decision. Dynamic Associates will
not obtain counsel or appraisal services at its expense for
individual unaffiliated shareholders.
COMPLIANCE WITH REGULATORY REQUIREMENTS
There are no federal or state regulatory requirements that
must be complied with or federal or state regulatory
approvals that must be obtained in connection with the
merger.
12
DYNAMIC ASSOCIATES' BOARD RECOMMENDATION
The board of directors of Dynamic Associates recommends
that shareholders of Dynamic Associates vote in favor of
the merger at the special meeting of shareholders. This
recommendation is for the reasons stated in the section
under the heading "BACKGROUND OF THE MERGER". The board of
directors believes the merger has a greater possibility of
producing a return for Dynamic Associates shareholders than
will result by staying with Dynamic Associates present
business format.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, as of March 8, 2001,
information regarding the beneficial ownership of shares by
each person known by Dynamic Associates to own five percent
or more of the outstanding shares, by each of the directors
and by the officers and by each director and officer as a
group.
Title Amount and
of Name of Nature of Percentage
Class Beneficial Owner Beneficial Ownership of Class
- ------- ---------------- -------------------- ----------
Class A Common Giano Capital Ltd
C/O Caledonian Bank & Trs
Caledonian House 8,551,860 14.98%
PO Box 1043
Grand Cayman, BWI
Class A Common The Upper Mill Capital Appreciation Fund
The Upper Mill 6,536,667 11.45%
Kingston Rd.
Ewell
Surry, KT17F UK
Class A Common VMR High Octane Fund Ltd
C/O Morgan Stanley & Co. 5,655,262 9.91%
One Pierrepont Plaza
7th Floor
Brooklyn, NY 11201
Class A Common Jan Wallace 550,000 0.96%
(President & Director)
6929 East Cheney
Paradise Valley, AZ 85253
13
Class A Common Grace Sim 20,000 0.03%
(Secretary/Treasurer, Director)
6617 North Scottsdale Road,
Suite 103
Scottsdale, AZ 85250
Class A Common All officers and 570,000 0.99%
directors as a group (2 persons)
- -------------------------------------------------------------------
It should be noted that it is likely there will be a change
in control of Dynamic Associates in the near future. The
merger agreement calls for the merger of Tele-Lawyer into
Dynamic Associates on or before 15 days following the
approval of the merger by Dynamic Associates' shareholders.
Immediately following the merger, the officers and
directors of Dynamic Associates will be replaced by the
officers and directors of Tele-Lawyer.
The following are the names of the officers and directors
of Tele-Lawyer, their present positions with the Company,
and some brief information about their background.
Name Age Offices Held
- ---- --- ------------
Michael Cane 46 Director, President
Elliot Schear 49 Director, Vice President of Business
Development
Steven Fellows 32 Treasurer and Chief Financial Officer
Alfredo Gonzalez 28 Director of Technology
Sara Wessells 38 Director of Legal Services
Michael Cane has been the President, Chief Executive
Officer and a director of Tele-Lawyer since its inception
in 1989. Mr. Cane attended the University of California,
Irvine where he received a B.A. degree in Economics in June
1975 with high honors. He then went on to receive his Juris
Doctor degree from the University of Southern California
School Of Law in May of 1978, also receiving high honors.
Among these honors were Order of the Coif, Phi Beta Kappa,
Summa Cum Laude, Dean's Honor List, and The American
Jurisprudence Award in Constitutional Law. He is a licensed
member of the Nevada, Washington, California and Hawaii State
Bars, the U.S. Tax Court and maintains Real Estate Broker
licenses in Nevada, California and Hawaii. In addition to
his role with Tele-Lawyer, during the past several years, Mr.
Cane has also been a Professor of law at Western State
University School of Law (August 1991 to July 1997) and the
managing member of Cane and Company, a private law practice
(August 1998 to present). He is also the author of four
books in the Five Minute Lawyer books series published by
Dell in May of 1995 (Divorce, Taxes, Bankruptcy and Estate
Planning).
Elliot Schear has been a director of Tele-Lawyer since 1999
and involved in its marketing efforts of the Company's
Tele-Seminar products since 1994. Mr. Schear graduated from
University of California, Los Angeles with a BA degree in
Political Science in 1974 and then received his Masters in
Public Relations from the University of Southern California
in 1978. Over the past several years, Mr. Schear has
created and sold several businesses, including a network of
metal working trade publications known as the
14
Machine
Shopper, and a local community newspaper in the Los Angeles
area. From 1989 to 1999, Mr. Schear was an owner of a
business brokerage company in Los Angeles known as
International Business Sales.
Steven D. Fellows has been the Company's Chief Financial
Officer since May 2000. Mr. Fellows received his Masters
of Accountancy from Brigham Young University in Provo,
Utah. From 1991-1993, he worked as an independent systems
consultant performing systems implementation and financial
accounting services for small businesses. From 1993 -
1998, he worked for Arthur Anderson LLP in San Francisco,
CA where he received an early promotion to manager and
handled the accounts of private and publicly held
companies, including Fortune 500 businesses. From 1998 to
2000, Mr. Fellows was Chief Financial Officer of VROOM.com
in Dallas, TX, where he oversaw all financial and
accounting aspects of the business.
Alfredo Gonzalez has been the Company's Director of
Technology since August 2000. Mr. Gonzalez received a
degree in electronics engineering from San Juan College in
San Juan, Puerto Rico. He brings over 10 years of
experience in technology design, development and
implementation to Tele-Lawyer. In 1990, he founded
Professional Audio Designers, a leading edge audio company
specializing in computer controlled sound reinforcement
systems. In 1996, he founded Pro Auction Systems, Inc., an
online trading company. In 1997, he became the Director of
Technology of A-1 Audio, Inc. where he managed all MIS
functions and developed and managed the company's web
presence. Mr. Gonzalez has also used his skills to consult
with a number of companies nationwide, specializing in
computer networks and the Internet, including the concept,
design, and programming of web sites.
Sara Wessells has been the Company's Director of Operations
since October of 2000. Ms. Wessells brings over 15 years
of experience in technology development and training. Most
recently, she was the President of Information Services
Associates, a consulting firm specializing in software
customization and training for the Legal Industry. She
holds a Bachelor's Degree in Economics from the University
of California, Santa Cruz and is certified to work with a
variety of software packages designed for the Legal Market.
The following table sets forth, as of March 8, 2001,
information regarding the beneficial ownership of shares by
each person known by Tele-Lawyer, Inc. to own five percent
or more of the outstanding shares, by each of the directors
and by the officers and by each director and officer as a
group.
Title
of Name and address Amount of Percent
Class of Beneficial Owner Beneficial Ownership of Class*
- ------- ------------------- -------------------- ----------
Common Stock Michael A. Cane 2,843,750(1) 53.24%
(President, Director)
2300 W. Sahara Ave., Suite 500
Las Vegas, NV 89102
15
Common Stock Brian Mekelburg 625,000 11.70%
8631 West 3rd St., #1035
Los Angeles, CA 90048
Common Stock Myrna Lee Mekelburg 600,000 11.23%
3111 Belair Dr., #17G
Las Vegas, NV 89109
Common Stock VMR 333,333 6.24%
65824 Schwalbach am Taunus
Germany
Common Stock Herb Cane 312,500 5.85%
2636 Arimo
Henderson, NV
Common Stock Elliot Schear 0(2) 0%
(Director)
23915 Strathern St.
West Hills, CA 91304
Common Stock Stephen Fellows 0(3) 0%
(CFO)
2300 W. Sahara Ave., Suite500
Las Vegas, NV 89102
Common Stock Alfredo Gonzalez 0(4) 0%
(Director of Technology)
2300 W. Sahara Ave., Suite500
Las Vegas, NV 89102
Common Stock Sara Wessells 0(5) 0%
(Director of Operations)
2300 W. Sahara Ave., Suite500
Las Vegas, NV 89102
Common Stock All Officers and Directors 2,843,750 53.24%
as a Group (5 persons)
- ---------------------------------------------------------------------
* Based on 5,341,666 shares of common stock outstanding as
of September 15, 2000.
(1) Mr. Cane also holds stock options to purchase 50,000
shares at a price of $1.00.
(2) Mr. Schear also holds stock options to purchase 50,000
shares at a price of $1.00 and 50,000 shares at a price of
$3.00 per share.
(3) Mr. Fellows also holds stock options to purchase
100,000 shares at a price of $3.00, part of which are not
yet vested.
(4) Mr. Gonzalez also holds stock options to purchase
60,000 shares at a price of $3.00, part of which are not
yet vested.
(5) Ms. Wessells also holds stock options to purchase
60,000 shares at a price of $3.00, part of which are not
yet vested.
16
FORWARD -LOOKING STATEMENTS
This proxy statement includes statements that are not
historical facts. These statements are "forward-looking
statements" as defined in the Private Securities Litigation
Reform Act of 1995 and are based, among other things, on
our current plans and expectations relating to expectations
of anticipated growth in the future and future success
under various circumstances. As such, these forward-
looking statements involve uncertainty and risk. External
factors that could cause our actual results to differ
materially from our expectations include:
* Tele-Lawyer's ability to develop its business plan to
the extent anticipated;
* The public's willingness to accept the delivery of
legal services in the manner and by the methods being
proposed by Tele-Lawyer; and
* Tele-Lawyer's ability to compete successfully within
the legal services industry.
Other factors and assumptions not identified above could
also cause the actual results to differ materially from
those set forth in any forward-looking statement. We do
not undertake any obligation to update the forward-looking
statements contained in this proxy statement to reflect
actual results, changes in assumptions, or changes in other
factors affecting these forward-looking statements.
FUTURE STOCKHOLDER PROPOSALS
It is anticipated that the release date for Dynamic
Associates' proxy statement and form of proxy for its next
annual meeting of shareholders will be April 6, 2002. The
deadline for submittals of shareholder proposals to be
included in that proxy statement and form of proxy is 120
days prior to that date. The date after which a notice of
a shareholder proposal submitted independent of Dynamic
Associates' proxy statement and form of proxy is considered
untimely is 45 days prior to April 6, 2002.
WHERE YOU CAN FIND MORE INFORMATION
Dynamic Associates is subject to the informational
requirements of the Securities Exchange Act of 1934, as
amended. Dynamic Associates files reports, proxy
statements and other information with the SEC. You may
read and copy these reports, proxy statements and other
information at the SEC's Public Reference Section at 450
Fifth Street, N.W., Washington, D.C. 20549. You may obtain
information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. The SEC also
maintains an Internet website, located at www.sec.gov, that
contains reports, proxy statements and other information
regarding companies and individuals that file
electronically with the SEC.
By Order of the Board of Directors
of Dynamic Associates, Inc.
/s/ Jan Wallace
_______________________________
Jan Wallace
CEO and Chairman
17
DYNAMIC ASSOCIATES, INC.
PROXY
FOR THE SPECIAL MEETING OF THE SHAREHOLDERS OF DYNAMIC
ASSOCIATES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Jan Wallace with full power of
substitution as proxy to vote the shares which the undersigned is
entitled to vote at the special meeting of Dynamic Associates,
Inc., a Nevada corporation ("Dynamic Associates"), to be held at
Suite 500, 2300 West Sahara Avenue, Las Vegas, Nevada 89102, on
April 6, 2001 at 10:00 a.m. Pacific Standard Time, and at any
adjournments thereof.
Please mark your votes as indicated [X] Total Number of
Shares Held: _________
This proxy when properly signed will be voted in the manner
directed herein by the undersigned shareholder. IF NO DIRECTION
IS MADE, THIS PROXY WILL BE VOTED FOR THE PROPOSAL.
1. Merger by and between Dynamic Associates and Tele-Lawyer,
Inc., a Nevada corporation.
FOR merger NOT FOR merger
[_] [_]
In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the meeting.
IMPORTANT - PLEASE SIGN AND RETURN PROMPTLY. When shares are held
by joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee, or guardian, please give full
title as such. If a corporation, please sign in full corporate
name by President or other authorized officer. If a partnership,
please sign in partnership name by an authorized person.
Signature(s) Dated: ________________, 2001
___________________________ ___________________________
APPENDIX A
AGREEMENT AND PLAN OF MERGER
between
DYNAMIC ASSOCIATES, INC.
"Dynamic"
and
TELE-LAWYER, INC.
"Tele-Lawyer"
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is entered
into on November 28, 2000, by and between DYNAMIC ASSOCIATES, INC.,
a Nevada corporation ("Dynamic"), and TELE-LAWYER, INC., a Nevada
corporation ("Tele-Lawyer").
R E C I T A L S:
----------------
WHEREAS, the parties believe that a business combination
between Dynamic and the Tele-Lawyer is in the best interest of the
parties to this Agreement and their respective stockholders; and
WHEREAS, the respective Boards of Directors and shareholders
of the parties have approved, or will meet to consider and approve,
the merger of Tele-Lawyer with and into Dynamic, upon the terms and
conditions set forth in this Agreement and Plan of Merger in
accordance with Chapter 92A "Mergers and Exchanges of Interest" of
the Nevada Revised Statutes; and
WHEREAS, each party hereto wishes to adopt this Agreement and
Plan of Merger, together with the forms of Certificates of Merger
attached hereto as Exhibit A (the "Certificates of Merger") as a
"plan of reorganization" within the meaning of Section 368(a) of
the Internal Revenue Code, and to cause the Merger to qualify as a
reorganization under the provision of Section 368(a)(1)(A) of the
Code, whereby each share of capital stock of Tele-Lawyer (the
"Tele-Lawyer Common Stock") will be canceled and whereby Dynamic
will be the surviving entity of a merger with Tele-Lawyer.
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained in this Agreement and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound hereby,
agree as follows:
ARTICLE I. THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section
1.3 hereof) and subject to and upon the terms and conditions of
this Agreement, Tele-Lawyer will be merged with and into Dynamic
(the "Merger"). Following the Merger, Dynamic will continue as the
surviving entity under the name "Dynamic Acquisition Corporation"
and the separate corporate existence of Tele-Lawyer will cease.
(Dynamic and Tele-Lawyer are sometimes referred to collectively
herein as the "Constituent Companies").
1.2 Effects of the Merger. At the Effective Time, Tele-
Lawyer will be a wholly owned subsidiary of Dynamic. At the
Effective Time, Dynamic will, without any other action, possess all
the rights, privileges, powers and franchises, of a public as well
as of a private nature, and be subject to all the restrictions,
disabilities and duties of Tele-Lawyer. All property, rights,
privileges, powers and franchises, and all and every other interest
will be thereafter as effectually the property of Dynamic as they
were of Tele-Lawyer, and the
2
title to any real estate vested by deed or otherwise in Tele-Lawyer
will not revert or be in any way impaired by reason of the Merger.
All rights of creditors and all liens upon any property of Tele-Lawyer
will be preserved unimpaired, and all debts, liabilities and duties of
Tele-Lawyer will thenceforth attach to Dynamic.
1.3 Closing; Effective Time and Transaction Effective Date.
The closing of the Merger (the "Closing") will take place on a date
to be specified by the parties, but in no event more than fifteen
(15) business days following approval of the Merger by the
shareholders of Dynamic (the "Closing Date"), subject to
satisfaction or waiver of the conditions set forth in this
Agreement, at 2300 W. Sahara Blvd., Suite 500, Las Vegas, NV 89102.
The Merger will become effective at the time of the filing of the
Certificate of Merger with the offices of the Secretary of State of
the State of Nevada in accordance with the provisions of applicable
law, which Certificates of Merger will be so filed as soon as
practicable after the Closing. The date and time when the Merger
will become effective shall be at such time as the Certificates of
Merger are duly filed with the Nevada Secretary of State or such
later date as mutually agreeable by the parties and specified in
the Certificates of Merger (the "Effective Time").
1.4 Certificate of Incorporation. The Articles of
Organization and Bylaws of Dynamic in effect immediately prior to
the Effective Time will remain the Articles of Organization and
Bylaws of Dynamic until amended in accordance with the provisions
of the applicable corporate law.
1.5 Directors and Officers. The officers and directors of
Dynamic immediately following the Effective Time will be the
officers and directors of Tele-Lawyer, until their successors have
been duly elected and qualified in accordance with the Articles of
Incorporation and Bylaws of Dynamic.
ARTICLE II. STATUS AND CONVERSION OF SECURITIES
2.1 Conversion of Securities. At the Effective Time, each
share of Tele-Lawyer Common Stock issued and outstanding
immediately prior to the Effective Time will, by virtue of the
Merger and without any action on the part of the holders thereof,
automatically be canceled, retired and extinguished, and each
outstanding share of Tele-Lawyer Common Stock will be converted
into a share of Dynamic Common Stock ("Merger Consideration").
In addition, each holder of an option or warrant to purchase Tele-
Lawyer common stock under its incentive stock option plan or
otherwise shall be entitled to receive an option to purchase the
same number of shares of Dynamic stock under the same terms as
provided in their option or warrant agreement.
2.2 Delivery of Merger Consideration. Dynamic shall deliver
the Merger Consideration to each holder of Tele-Lawyer Common Stock
within five (5) business days of Closing or within five (5)
business days after surrender of certificates (the "Certificates")
representing all shares of Tele-Lawyer Common Stock owned by such
individual, whichever is later. By accepting delivery of the
Merger Consideration, each such holder
3
will be deemed to have represented to Dynamic that such stockholder
has no present intention of selling or otherwise disposing of any of
its interest in the Dynamic Common Stock received as part of the
Merger Consideration, except as contemplated under that certain
Registration Rights Agreement referenced in Section 2.8.
(1) Certificates. The Certificates shall forthwith be
canceled upon surrender. Until surrendered as contemplated by this
Section 2.3, each such Certificate shall be deemed at any time
after the Effective Time to represent only the right to receive
upon such surrender that pro rata portion of the Merger
Consideration applicable thereto. No interest will be paid or will
accrue on any portion of the Merger Consideration.
(2) No Further Ownership Rights in Tele-Lawyer Common
Stock. All shares of Dynamic Common Stock issued upon the surrender
for exchange of the Certificates in accordance with the terms of
this Article II shall be deemed to have been issued (and paid) in
full satisfaction of all rights pertaining to Tele-Lawyer Common
Stock theretofore represented by such Certificates, and there shall
be no further registration or transfer of the shares of Tele-Lawyer
Common Stock after the Effective Time.
(3) No Fractional Shares. No certificates or scrip
representing fractional shares of Dynamic Common Stock shall be
issued upon the surrender of certificates of Tele-Lawyer Common
Stock for exchange. Notwithstanding any other provision of this
Agreement, each holder of Tele-Lawyer Common Stock exchanged
pursuant to the Merger who would otherwise have been entitled to
receive a fraction of a share of Dynamic Common Stock (after taking
into account all Certificates delivered by such holder) will
promptly receive, in lieu thereof, cash (without interest) in an
amount equal to such fractional part of a share of Dynamic Common
Stock multiplied by the per share closing price of such Dynamic
Common Stock as reported on the Nasdaq Over-The-Counter Bulletin
Board on the date of the Effective Time.
(4) Lost Certificates. In the event any Certificates
have been lost, stolen or destroyed, upon the making of an
affidavit of that fact, in form and substance reasonably
satisfactory to Dynamic, by the person claiming such certificate to
be lost, stolen or destroyed, Dynamic will issue in exchange for
such lost, stolen or destroyed Certificate the shares of Dynamic
Common Stock and cash in lieu of fractional shares, deliverable in
respect thereof pursuant to this Agreement.
2.3 Cancellation of Treasury Shares. Any authorized but un-
issued shares of Tele-Lawyer Common Stock as of the Effective Time
shall automatically be canceled and retired and shall cease to
exist, and no Dynamic Common Stock, cash or other consideration
will be delivered in exchange therefor.
2.4 Securities Exemptions. Dynamic hereby represents,
warrants and covenants that all the shares of Dynamic Common Stock
comprising the Merger Consideration will be issued pursuant to an
exemption from registration provided by Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act"). Each
share certificate representing the Dynamic Common Stock so issued
will be endorsed with a legend stating that the shares have been
issued pursuant to an exemption from registration provided by
4
the Securities Act and may not be sold without an exemption from
registration or an effective registration statement.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF TELE-LAWYER
As an inducement to Dynamic to enter into this Agreement and to
consummate the Merger, Tele-Lawyer represents and warrants to
Dynamic, which representations will be true and correct at Closing,
as follows:
3.1 Organization, Qualification and Authority. Tele-Lawyer
is a corporation duly organized, validly existing and in good
standing in the State of Nevada, and is not required to be
qualified to do business as a foreign corporation in any other
jurisdiction. Tele-Lawyer does not own stock or equity interests
in and does not control, directly or indirectly, any corporation,
partnership, joint venture, association or business organization.
Since the date of its organization and incorporation, Tele-Lawyer
has consistently observed and operated within the corporate
formalities of the jurisdiction in which it is incorporated and/or
conducts its business, and has consistently observed and complied
with the general corporation law of such jurisdiction. Tele-Lawyer
has the full corporate power and authority to own, lease and
operate its properties and assets as presently owned, leased and
operated and to carry on its business as it is now being conducted.
Subject to obtaining certain third party consents, Tele-Lawyer has
the full right, power and authority to execute, deliver and carry
out the terms of this Agreement and all documents and agreements
necessary to give effect to the provisions of this Agreement.
Subject to obtaining certain third party consents, the execution,
delivery and consummation of this Agreement and all other
agreements and documents executed in connection herewith by Tele-
Lawyer have been duly authorized by all necessary corporate action
on the part of Tele-Lawyer and no other action on the part of Tele-
Lawyer or any other person or entity is necessary to authorize the
execution, delivery or consummation of this Agreement. This
Agreement and all other agreements and documents executed in
connection herewith by Tele-Lawyer, upon due execution and delivery
thereof, will constitute the valid and binding obligations of Tele-
Lawyer, enforceable in accordance with their respective terms,
except as enforcement may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights
generally and by general principles of equity.
3.2 Capitalization and Stock Ownership
(1) Common Stock. The authorized capital stock of Tele-
Lawyer consists of twenty five million (25,000,000) shares, $0.001
par value, of common stock. Tele-Lawyer has issued the number of
shares, options and warrants as provided in Exhibit 3.1 attached
hereto. The Tele-Lawyer Stock is not subject to preemptive or
comparable rights. The Tele-Lawyer Stock has been issued in
accordance with all applicable federal and state securities laws.
(2) Related Agreements. There are no voting trusts,
voting agreements, shareholders' agreements or other comparable
commitments or understandings to which Tele-Lawyer is a party or by
which Tele-Lawyer is bound with respect to the voting of any Tele-
Lawyer Stock.
5
3.3 Absence of Default. The execution, delivery and
consummation of this Agreement, and all other agreements and
documents executed in connection herewith, by Tele-Lawyer will not
constitute a violation of, be in conflict with, or, with or without
the giving of notice or the passage of time, or both, result in a
breach of, constitute a default under, or create (or cause the
acceleration of the maturity of) any debt, indenture, obligation or
liability or result in the creation or imposition of any security
interest, lien, charge or other encumbrance upon any of the assets
of Tele-Lawyer under: (a) any term or provision of the Certificate
of Incorporation or Bylaws of Tele-Lawyer; (b) any material
contract, lease, purchase order, agreement, document or other
commitment, oral or written, to which Tele-Lawyer is a party or by
which Tele-Lawyer is bound.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF DYNAMIC
As an inducement Tele-Lawyer to enter into this Agreement and to
consummate the Merger, and as an inducement to the Original Tele-
Lawyer Stockholders to approve of and consummate the Merger,
Dynamic hereby represents and warrants to each such party, which
representations and warranties will be true and correct at Closing,
as follows. Any representation, warranty or covenant of or
relating to Dynamic is hereby deemed to also be a representation,
warranty or covenant of or relating to any and all of the Dynamic
Subsidiaries (as defined in Section 4.1).
4.1 Organization, Qualification and Authority. Dynamic is a
corporation duly organized, validly existing and in good standing
in the State of Nevada, and is not required to be qualified to do
business as a foreign corporation in any other jurisdiction.
Dynamic does not own stock or equity interest in and does not
control, directly or indirectly, any corporation, partnership,
joint venture, association or business organization other than the
entity set forth on Exhibit 4.1 attached hereto (the "Dynamic
Subsidiary"). Since the date of its organization and incorporation
or formation, Dynamic has consistently observed and operated within
the corporate formalities of the jurisdictions in which it is
organized and/or conducts its business, has consistently observed
and complied with the general corporation law of such jurisdictions
and has been duly qualified to do business as a foreign corporation
in all relevant jurisdictions. All outstanding shares of capital
stock of the Dynamic Subsidiaries consist solely of common stock
and have been validly issued in accordance with all applicable
federal and state securities laws and are owned by Dynamic free and
clear of all liens, charges, encumbrances, claims and options of
any nature. Dynamic has the full right, power and authority to
own, lease and operate its properties and assets as presently
owned, leased and operated and to carry on its business as it is
now being conducted. Subject to obtaining requisite approval of the
shareholders of Dynamic, Dynamic has the full right, power and
authority to execute, deliver and carry out the terms of this
Agreement and all documents and agreements necessary to give effect
to the provisions of this Agreement, to consummate the transactions
contemplated on the part of Dynamic hereby, and to take all actions
necessary to permit or approve the actions Dynamic is to take in
connection with this Agreement. Subject to obtaining requisite
approval of the shareholders of Dynamic, the execution, delivery
and consummation of this Agreement and all other agreements and
documents executed in connection herewith by Dynamic have been duly
authorized by all necessary corporate action on the part of
6
Dynamic. No other action on the part of Dynamic, or any other
person or entity is necessary to authorize the execution, delivery
and consummation of this Agreement and all other agreements and
documents executed in connection herewith, other than such
shareholder approval. This Agreement and all other agreements and
documents executed in connection herewith by Dynamic, upon due
execution and delivery thereof, will constitute the valid and
binding obligations of Dynamic as the case may be, enforceable in
accordance with their respective terms, except as enforcement may
be limited by bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally and by general
principles of equity.
4.2 Capitalization and Stock Ownership.
(1) Common Stock. The authorized capital stock of
Dynamic (the "Dynamic Common Stock") consists of 100,000,000
shares, $0.001 par value, of common stock, of which 18,386,429
shares are currently issued and outstanding as of the date hereof.
The Dynamic Common Stock, along with the securities referenced in
clause (2) below, constitutes all current issued and outstanding
securities of Dynamic, and are duly authorized, validly issued,
fully paid and non-assessable. The convertible notes issued by
Dynamic in July 1999 constitute all past securities of Dynamic not
currently outstanding, were duly authorized and validly issued, and
no party has any rights or claims with respect thereto. The
Dynamic Common Stock is not subject to preemptive or comparable
rights. The Dynamic Common Stock and all other currently or
previously outstanding securities of Dynamic have been issued in
accordance with all applicable federal, state and foreign
securities laws.
(2) Other Securities. As of the date hereof, 8,575,000
shares of Dynamic Common Stock are reserved for issuance upon the
exercise of outstanding warrants (the "Dynamic Warrants"), 117,500
shares of Dynamic Common Stock are reserved for issuance upon
exercise of outstanding options (the "Dynamic Options"), all of
which have been granted under the 1997 Stock Option Plan, 8,325,000
shares of Dynamic Common Stock are reserved for issuance upon
conversion of certain replacement 7.5% convertible subordinated
notes (the "Dynamic Secured Notes"), and no other shares of Dynamic
Common Stock are or need to be reserved for any other purpose other
than as Merger Consideration. Dynamic has issued the Dynamic
Secured Notes in the aggregate principal amount of $8,325,000 which
Notes are convertible into that number of shares of Dynamic Common
Stock equal to the principal amount of such notes divided by $1.00.
The redemption of the original Notes and the issuance of the
Dynamic Secured Notes in replacement thereof was effected in full
compliance with law. True and correct fully executed copies of all
documents regarding the redemption and issuance of the convertible
Notes by Dynamic have been provided to Tele-Lawyer. Except for the
Dynamic Warrants, the Dynamic Options and the Dynamic Secured Notes
referenced in this clause (2) there are not any existing options,
warrants, calls, subscriptions, stock appreciation rights or other
rights or agreements or commitments obligating Dynamic to issue,
transfer or sell any capital stock or other security of it or any
Dynamic Subsidiary, or any other security convertible into or
evidencing the right to subscribe for any such security.
(3) Related Agreements. There are no voting trusts,
voting agreements, shareholders' or other comparable commitments or
understandings, oral or written, to
7
which Dynamic or any holder of Dynamic securities is a party or by
which Dynamic or any such holder is bound with respect to the voting
of any Dynamic Common Stock or the capital stock or securities of any
Dynamic Subsidiary, either before or after Closing of the Merger.
(4) Dynamic Common Stock. On the Closing Date, Dynamic
will have a sufficient number of authorized but un-issued and/or
treasury shares of Dynamic Common Stock available for issuance to
the Original Tele-Lawyer Stockholders in accordance with the
provisions of this Agreement. The Dynamic Common Stock to be
issued as Merger Consideration pursuant to the Agreement will, when
so delivered, be duly and validly issued in accordance with all
applicable federal and state securities laws, will be exempt from
registration requirements of the 1933 Act and state "blue sky"
laws, will be fully paid and non-assessable, and will be free and
clear of preemptive or comparable rights.
4.3 Convertible Unsecured Debt; Refinancing. The Dynamic
Secured Notes and the convertible notes they replaced were offered,
sold and issued in compliance with law, including but not limited
to applicable federal, state and foreign securities laws. The
Trust Indenture Act of 1939, as amended, did not apply to the
offer, sale, issuance or ownership of either the Dynamic Secured
Notes or the convertible notes they replaced.
4.4 Absence of Default. The execution, delivery and
consummation of this Agreement, and all other agreements and
documents executed in connection herewith by Dynamic will not
constitute a violation of, be in conflict with, or, with or without
the giving of notice or the passage of time, or both, result in a
breach of, constitute a default under, or create (or cause the
acceleration of the maturity of) any debt, indenture, obligation or
liability or result in the creation or imposition of any security
interest, lien, charge or other encumbrance upon any of the assets
of Dynamic under: (a) any term or provision of the Charter or
Bylaws of Dynamic; (b) any material contract, lease, purchase
order, agreement, document or other commitment, oral or written, to
which Dynamic is a party or by which Dynamic is bound (collectively
the "Dynamic Contracts"); (c) any judgment, decree, order, writ,
injunction or rule of any court or regulatory authority; or (d), to
the knowledge of Dynamic, any law, statute, rule or regulation to
which Dynamic is subject.
8
ARTICLE V. COVENANTS OF PARTIES
5.1 Preservation of Business and Assets. From the date
hereof until the Closing, each party will use its best efforts and
will do or cause to be done all such acts and things as may be
necessary to preserve, protect and maintain intact the operation of
its respective business and assets as a going concern consistent
with prior practice and not other than in the ordinary course of
business, including preserving, protecting and maintaining the
goodwill of the suppliers, employees, clientele, patients and
others having business relations with such party. Each party will
use its best efforts to retain its employees in their current
positions up to Closing. Through Closing, other than consistent
with the terms of this Agreement, no party will acquire or sell or
agree to acquire or sell by merging or consolidating with, or by
purchasing or selling a substantial equity interest in or a
substantial portion of the assets of, or by any other manner, any
business or any corporation, partnership, association or other
business organization or division thereof. Except as expressly set
forth in this Agreement or any related Agreement, the execution,
delivery and consummation of this Agreement and the transactions
contemplated hereunder will not give rise to any obligation of any
party hereto, or any right of any holder of any security of any
party hereto to require such party, to purchase, offer to purchase,
redeem or otherwise prepay or repay any capital stock or other
security, or deposit any funds to affect the same. All parties
will use their best efforts to facilitate the consummation of the
Merger as contemplated hereunder, including obtaining requisite
approval of stockholders and third parties. Through Closing,
except as expressly set forth in this Agreement and except for the
exercise or termination of any outstanding Dynamic Warrants,
Dynamic Options, the conversion of Dynamic Secured Notes, or the
sale of Tele-Lawyer Common Stock, no party will issue, deliver or
sell, or authorize or propose to issue, deliver or sell, any shares
of its capital stock of any class, any voting securities or any
securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible
securities. Through Closing, except with the exception of a reverse
split of Dynamic Common Stock described herein, no party will
split, combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital
stock, or repurchase, redeem or otherwise acquire any shares of its
capital stock. From the date hereof until the Closing, no party
will pay any dividend or distribution to its stockholders as such,
and no party will sell, discard or dispose of any of its assets,
except for the sale of the assets of the Dynamic Subsidiary.
5.2 Absence of Material Change. From the date hereof until
the Closing, no party will make any change in its business or in
the utilization of its assets and will not enter into any contract
or commitment or any other transaction with respect to its business
or its assets which is contrary to its representations, warranties
and obligations as set forth in this Agreement.
5.3 Material Transactions. Except as contemplated by this
Agreement, prior to the Effective Time, each party hereto,
including its respective subsidiaries, if any, will not, without
first obtaining the written consent of the other parties hereto:
9
(1) dispose of or encumber any asset or enter into any
transaction or make any contract commitment relating to the
properties, assets and business of such entity, other than in the
ordinary course of business or as otherwise disclosed herein;
(2) enter into any employment contract which is not at
will or terminable upon notice of thirty (30) days or less, without
penalty;
(3) enter into any contract or agreement (i) which
cannot be performed within three months or less, or (ii) which
involves the expenditure of over $10,000.00, except in the ordinary
course of business;
(4) except as contemplated herein, issue or sell, or
agree to issue or sell, any shares of capital stock or other
securities of such entity;
(5) make any payment or distribution under any bonus,
pension, profit-sharing or retirement plan or incur any obligation
to make any such payment or contribution which is not in accordance
with such entities usual past practice, or make any payment or
contributions or incur any obligation pursuant to or in respect of
any other plan or contract or arrangement of providing for bonuses,
executive incentive compensation, pensions, deferred compensation,
retirement payments, profit-sharing or the like, establish or enter
into any such plan, contract or arrangement, or terminate any plan;
(6) extend credit to anyone except in the ordinary
course of business consistent with prior practice;
(7) guarantee the obligation of any person, firm or
corporation;
(8) amend its charter or bylaws, or applicable
organizational documents;
(9) set aside or pay any cash dividend or any other
distribution on or in respect of its capital stock or any
redemption, retirement or purchase with respect to its capital
stock or issue any additional shares of its capital stock; or
engage in any stock split, re-capitalization, reorganization or
comparable transaction;
(10) discharge or satisfy any lien, charge, encumbrance
or indebtedness outside the ordinary course of business;
(11) institute, settle or agree to settle any litigation,
action or proceeding before any court or governmental body;
(12) authorize any compensation increase of any kind
whatsoever for any employee, consultant or other representative; or
(13) engage in any extraordinary transaction.
10
5.4 Preparation of the Proxy Statement; Stockholders Meetings.
(1) As soon as practicable, Dynamic shall prepare and
file with the SEC and any appropriate foreign governmental
authorities a proxy statement relating to the meeting of Dynamic's
shareholders to be held in connection with obtaining the approval
of Dynamic's shareholders (as the same may be amended or
supplemented from time to time, the "Proxy Statement"). Dynamic
will cause the Proxy Statement to be mailed to the holders of
Dynamic Common Stock as promptly as practicable thereafter.
Dynamic shall also take any action (other than qualifying to do
business in any jurisdiction in which it is not now so qualified or
to file a general consent to service of process) required to be
taken under any applicable state or foreign securities laws in
connection with the issuance of the Dynamic Common Stock in the
Merger, and Tele-Lawyer shall furnish all information concerning
Tele-Lawyer and the Original Tele-Lawyer Stockholders as may be
reasonably requested in connection with any such action. No filing
of, or amendment or supplement to, the Proxy Statement will be made
by Dynamic without providing Tele-Lawyer and its counsel ample
opportunity to review and comment thereon. Dynamic will advise
Tele-Lawyer of the time when the Proxy Statement is filed, the
Proxy Statement is mailed to shareholders, any supplement or
amendment has been filed or mailed, or comments thereon and
responses thereto or requests by governmental authorities for
additional information. If at any time prior to the Effective Time
any information relating to Dynamic or Tele-Lawyer, or any of their
respective affiliates, officers or directors, should be discovered
by Dynamic or Tele-Lawyer which should be set forth in an amendment
or supplement to the Proxy Statement so that such document would
not include any misstatement of a material fact or omit to state
any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading, the party which discovers such information shall
promptly notify the other parties hereto and an appropriate
amendment or supplement describing such information shall be
promptly filed and, to the extent required by law, disseminated to
the stockholders of Dynamic.
(2) Dynamic shall, as promptly as reasonably practicable
after the date hereof give notice of, convene and hold a meeting of
its shareholders (the "Dynamic Shareholders Meeting") in accordance
with Chapter 78 "Private Corporations" and Chapter 92A "Mergers and
Exchanges of Interest" of the Nevada Revised Statutes
(collectively, the "Nevada Acts") and the requirements of the
Nasdaq Over-The-Counter Bulletin Board and any applicable foreign
authorities for the purpose of obtaining Dynamic's shareholder
approval of the Merger and shall, through its Board of Directors,
recommend to its shareholders that they approve of the Merger in
all respects.
(3) As an integral part of its obligations Dynamic will
comply with the provisions of Rule 144(c) under the Securities Act
in order that affiliates of Tele-Lawyer may resell the Dynamic
Common Stock they receive pursuant to the Merger pursuant to Rule
145(d) under the Securities Act, and agrees that the registration
statements to be filed will include such information as may be
requested by Tele-Lawyer to permit re-sales of such Dynamic Common
Stock by persons who may be deemed to be underwriters of Dynamic
Common Stock pursuant to Rule 145 under the Securities Act.
11
5.5 Certain Tax Matters.
(1) During the period from the date hereof through the
Effective Time, no party will knowingly or negligently take or fail
to take any action that would jeopardize the treatment of the
Merger as a "reorganization" within the meaning of Section
368(a)(1)(A) of the Code (and any comparable provisions of
applicable state law). Each party hereto shall report the Merger,
and the Exchange, as a reorganization under Section 368(a) of the
Code, and shall not take any position inconsistent with this
characterization except in the event of a contrary final
determination of the Internal Revenue Service. If any party
receives notice of any contrary position by the Internal Revenue
Service any party hereto may, at its option and sole expense,
contest such position, in which event the other parties hereto
shall cooperate with such contest as reasonably requested by the
contesting party.
(2) Each party hereto shall provide to the other
parties, at the expense of the requesting party, with such
assistance as may reasonably be requested by any of them in
connection with the preparation of any tax return, any audit or
other examination by any regulatory authority, or any judicial or
administrative proceedings relating to liability for taxes, and
each party will retain and provide the requesting party with any
records or information that may be relevant to any of the
foregoing.
5.6 Legal Conditions to Merger. Each party hereto will take
all reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on it with respect to the Merger
and will promptly cooperate with and furnish information to each
other party in connection with any such requirements imposed upon
either any of them in connection with the Merger.
5.7 Preserve Accuracy of Representations and Warranties.
Each party hereto will refrain from taking any action which would
render any of its representations and warranties contained in this
Agreement untrue, inaccurate or misleading as of Closing and the
Effective Time. Through Closing, each party will promptly notify
the other parties of any lawsuit, claim, audit, investigation,
administrative action or other proceeding asserted or commenced
against such party that may involve or relate in any way to
another party to this Agreement. Each party hereto will promptly
notify the other parties of any facts or circumstances that come to
its attention and that cause, or through the passage of time may
cause, any of a party's representations, warranties or covenants
to be untrue or misleading at any time from the date hereof through
Closing.
5.8 Notice of Subsequent Events. Each party hereto shall
notify the other parties of any changes, additions or events of
which it has knowledge which would cause any material change in or
material addition to this Agreement (including but not limited to
the Exhibits attached hereto and thereto) promptly after occurrence
of the same. If the effect of such change or addition would,
individually or in the aggregate with the effect of changes or
additions previously disclosed pursuant to this Section, constitute
a material adverse effect on the notifying party, any non-notifying
party may, within ten (10) days after receipt of such notice, elect
to terminate this Agreement. If no non-notifying party gives
written notice of such termination with such 10-day period, the
non-notifying parties shall be deemed to have consented to such
change or addition and shall not be entitled to terminate this
Agreement by reason thereof.
12
5.9 Medicare and Medicaid Reporting. Through Closing, the
parties will timely file or cause to be filed all reports and
claims of every kind, nature or description, required by law or by
written or oral contract to be filed with respect to the purchase
of services by third party payors, including, but not limited to,
Medicare, Medicaid and Blue Cross.
5.10 Current Return Filing. Each party will be responsible
for the preparation and filing of all of such party's own tax
returns which were due on or before the Closing, and the payment of
all taxes due.
5.11 Maintain Books and Accounting Practices. From the date
hereof until the Closing, each party will maintain its books of
account in the usual, regular and ordinary manner on a basis
consistent with prior years and will make no change in its
accounting methods or practices.
5.12 Compliance with Laws and Regulatory Consents. From the
date hereof until the Closing, (a) each party will comply with all
applicable statutes, laws, ordinances and regulations, (b) each
party will keep, hold and maintain all Licenses, (c) each party
will use its reasonable efforts and will cooperate fully with the
other parties hereto to obtain all consents, stockholder and other
approvals, exemptions and authorizations of third parties, whether
governmental or private, necessary to consummate the Merger, and
(d) each party will make and cause to be made all filings and give
and cause to be given all notices which may be necessary or
desirable on their part under all applicable laws and under their
respective contracts, agreements and commitments in order to
consummate the Merger.
5.13 Maintain Insurance Coverage. From the date hereof until
the Closing, each party will maintain and cause to be maintained in
full force and effect all its currently existing insurance on such
party's assets and the operations of such party's business.
5.14 Closing Deliveries. At Closing, the parties hereto will
deliver or cause to be delivered the following, fully executed and
in form and substance reasonably satisfactory to the receiving
party:
(1) Tele-Lawyer will deliver to Dynamic stock
certificates of Tele-Lawyer, duly endorsed by the original Tele-
Lawyer Stockholders or with stock powers attached, representing all
of the issued and outstanding shares of Tele-Lawyer Common Stock;
provided, however, that a failure by Tele-Lawyer to deliver the
same will not be deemed a breach of this Agreement.
(2) Dynamic will deliver to the Original Tele-Lawyer
Stockholders' certificates representing the shares of Dynamic
Common Stock comprising the Merger Consideration set forth herein.
(3) Each party will deliver the Certificates of Merger
in form acceptable for filing with the applicable Secretaries of
State.
13
(4) Each party shall deliver such customary certificates
of its officers and such other customary closing documentation as
may be reasonably requested by the other parties, including without
limitation:
(i) Certificates of Existence and/or "Good
Standing" regarding the delivering party
and its subsidiaries, certified by the appropriate
Secretary of State and dated within (10) business
days of Closing;
(ii) Incumbency Certificates certifying the identity
of the officers of the delivering party and its
subsidiaries; and
(iii) Charters, Operating Agreement or Certificates of
Incorporation, as certified by the appropriate
Secretary of State within ten (10) business days of
Closing, and Bylaws, as certified by an appropriate
officer as of Closing, of the delivering party and
its subsidiaries.
ARTICLE IVI.
CONDITIONS TO CLOSING
6.1 Conditions to Each Party's Obligation to Effect the
Merger. The obligation of each party hereto to effect the Merger
shall be subject to the fulfillment at or prior to the Closing of
the following conditions:
(1) Dynamic shall have purchased or caused to be
purchased on or before December 15, 2000, 100,000 shares of Tele-
Lawyer, Inc. stock at a price of $3 per share.
(2) This Agreement and the transactions contemplated
hereunder shall have been approved by shareholders of Dynamic in
the manner required by the applicable laws of the State of Nevada
and the Charter and Bylaws of Dynamic.
(3) The Original Tele-Lawyer Stockholders will have
executed and delivered such documents and performed such acts as
reasonably required to effectuate the Merger.
(4) Each party hereto shall have received from the other
parties copies of all resolutions and/or consent actions adopted by
or on behalf of the boards of directors and shareholders of such
other parties hereto, certified as of the date of Closing and
evidencing approval of this Agreement and the transactions
contemplated hereunder.
(5) No action or proceeding before a court or other
governmental body by any governmental agency or public authority
shall have been instituted or threatened to restrain or prohibit
the transactions contemplated under this Agreement or to obtain an
amount of damages or other material relief in connection with the
execution of this Agreement or any related agreements or the
consummation of the Merger; and no governmental agency shall have
given notice to any party hereto to the effect that consummation of
the transactions contemplated under this Agreement would constitute a
14
violation of any law or that it intends to commence proceedings
to restrain consummation of the Merger.
(6) All consents, authorizations, orders and approvals
of (or filings or registrations with) any governmental commission,
board or other regulatory body or any other third party (including
lenders and lessors) required in connection with the execution,
delivery and performance of this Agreement shall have been obtained
or made.
(7) Dynamic shall have extinguished all of its
outstanding debt, including all existing notes, through a
conversion to common stock or otherwise.
(8) Dynamic shall have settled any outstanding claims,
liabilities, actions or lawsuits to the satisfaction of Tele-
Lawyer.
(9) Dynamic shall have enacted through its board of
directors a reverse split of its shares so as to have after
conversion of its debt to equity at the Effective Time no more than
250,000 shares of Common Stock outstanding.
(10) Dynamic shall have extinguished all of its
outstanding warrants, options and any other rights to acquire any
shares of its Common Stock.
(11) The board of directors of Dynamic shall have created
an incentive stock option plan consistent with the current Tele-
Lawyer plan in which the existing option holders of Tele-Lawyer can
be granted comparable rights to purchase common shares of Dynamic
following consummation of the Merger.
(12) Dynamic shall have voted to amend its articles of
incorporation to change its name to Tele-Lawyer, Inc. or such
other name as approved by Tele-Lawyer, and such name change shall
have become effective.
(13) The parties shall each will have raised at
least $1,500,000 in capital through the sale of Tele-Lawyer common
stock. It is acknowledged that Tele-Lawyer is in the process of
raising a maximum of $9 million through the sale of 3 million
shares of its common stock and that such sale shall not be a
violation of this agreement.
(14) Tele-Lawyer shall have entered into a
management agreement with Dynamic to manage its business operations
at no cost to Dynamic during the period from the execution of this
Agreement to the Effective Time or termination date of this
Agreement as provided herein.
ARTICLE VII.
TERMINATION; AMENDMENT; EXTENSION AND WAIVER
7.1 Termination by Mutual Consent. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the
Effective Time, before or after the approval of this Agreement by
Tele-Lawyer and/or Dynamic, by the mutual consent of the Boards of
Directors of Tele-Lawyer and Dynamic.
15
7.2 Termination by Certain Parties. Any party hereto may
terminate this Agreement at any time pursuant to Section 5.9. This
Agreement may be terminated and the Merger may be abandoned by
action of the Board of Directors of Tele-Lawyer or Dynamic if: (a)
the Merger shall not have been consummated by April 1, 2000; (b)
the approval of the Merger by Dynamic's shareholders shall not have
been obtained by March 15, 2000 at a meeting duly convened therefor
or at any adjournment thereof; or (c) a United States federal or
state court of competent jurisdiction or United States federal or
state governmental, regulatory or administrative agency or
commission shall have issued an order, decree or ruling or taken
any other action permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement and
such order, decree, ruling or other action shall have become final
and non-appealable; provided, that the party seeking to terminate
this Agreement pursuant to this clause (c) shall have used all
reasonable efforts to remove such injunction, order or decree.
7.3 Termination by Dynamic. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective
Time, before or after the adoption and approval by the shareholders
of Dynamic, by action by the Board of Directors of Dynamic, if: (a)
there has been a breach by Tele-Lawyer of any representation or
warranty contained in this Agreement which would have or would be
reasonably likely to have a material adverse effect on the
operations of Tele-Lawyer; or (b) there has been a breach of any of
the covenants or agreements set forth in this Agreement on the part
of Tele-Lawyer, which breach is not curable or, if curable, is not
cured within thirty (30) days after written notice of such breach
is given by Dynamic to Tele-Lawyer.
7.4 Termination by Tele-Lawyer. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the
Effective Time, before or after adoption and approval of the
Original Tele-Lawyer Stockholders, by action of the Board of
Directors of Tele-Lawyer, if: (a) there has been a breach by
Dynamic or the Dynamic Subsidiary of any representation or warranty
contained in this Agreement which would have or would be reasonably
likely to have a material adverse effect on the operations of Tele-
Lawyer, or (b) there has been a breach of any of the covenants or
agreements set forth in this Agreement on the part of Dynamic or
the Dynamic Subsidiary, which breach is not curable or, if curable,
is not cured within thirty (30) days after written notice of such
breach is given by Tele-Lawyer to Dynamic.
7.5 Effect of Termination and Abandonment. Upon termination
of this Agreement pursuant to Section 5.9 or this Article VII, this
Agreement and all agreements and documents (including legal
opinions) related hereto shall be void and of no force or effect,
and there shall be no liability by reason of this Agreement or the
termination thereof on the part of any party hereto, or on the part
of the respective directors, officers, managers, employees, agents,
representatives or shareholders of any of them; provided that this
Section 7.5 will not relieve any party from liability for damages
incurred as a result of any willful breach by such party or by an
affiliate of such party of any of its respective representations,
warranties, covenants or obligations set forth in this Agreement.
7.6 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of all the parties hereto.
16
7.7 Extension; Waiver. At any time prior to the Effective
Time, any party hereto, by action taken by its Board of Directors
evidenced in writing, may, to the extent legally allowed: (a)
extend the time for the performance of any of the obligations or
other acts of the other parties hereto; (b) waive any inaccuracies
in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto; and (c) waive
compliance with any of the agreements or conditions for the benefit
of such party contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such
party.
ARTICLE VIII. SURVIVAL OF PROVISIONS AND INDEMNIFICATION
8.1 Survival. The covenants, obligations, representations
and warranties of each party contained in this Agreement, or in any
certificate or document delivered pursuant to this Agreement, will
be deemed to be material and to have been relied upon by the other
parties notwithstanding any investigation prior to the Closing,
will not be merged into any documents delivered in connection with
the Closing, and will terminate two (2) years after Closing;
provided however, that if a notice claiming indemnity is properly
delivered pursuant to Section 8.5, the indemnification obligations
will not expire with respect to such claim(s) until the same are
resolved as contemplated hereunder.
8.2 Indemnification by Dynamic. Dynamic shall indemnify,
defend and hold Tele-Lawyer its officers, directors, employees,
agents and representatives, and the Original Tele-Lawyer
Stockholders harmless against any and all losses, costs and
expenses (including reasonable cost of investigation, court costs
and legal fees actually incurred) and other damages resulting from:
(a) any breach by Dynamic or any Dynamic Subsidiary of any of their
covenants, obligations, representations or warranties or breach or
untruth of any representation, warranty, fact or conclusion
contained in this Agreement or any certificate or document of
Dynamic or any Dynamic Subsidiary delivered pursuant to this
Agreement, and (b) any claim that is brought or asserted by any
third party(ies) against the Original Tele-Lawyer Stockholders
arising out of the ownership, licensing, operation or conduct of
Dynamic and the Dynamic Subsidiaries through the Closing.
8.3 Indemnification by Tele-Lawyer. Tele-Lawyer shall
indemnify, defend and hold Dynamic and the Dynamic Subsidiaries,
their respective officers, directors, employees and representatives
harmless against any and all losses, costs and expenses (including
reasonable cost of investigation, court costs and legal fees
actually incurred) and other damages resulting from: (a) any breach
by Tele-Lawyer of any of its covenants, obligations,
representations or warranties or breach or untruth of any
representation, warranty, fact or conclusion contained in this
Agreement or any certificate or document of Tele-Lawyer delivered
pursuant to this Agreement, and (b) any claim that is brought or
asserted by any third party(ies) arising out of the ownership,
licensing, operation or conduct of Tele-Lawyer through Closing.
8.4 Exclusive Remedy. The indemnification obligations under
this Article are the sole and exclusive remedies available to Tele-
Lawyer and Dynamic with respect to this
17
Agreement and the transactions contemplated hereunder. The parties
hereto expressly acknowledge and agree that they may make no claim nor
institute any action against any Original Tele-Lawyer Stockholder with
respect to this Agreement, any related agreement or the transactions
contemplated hereunder and thereunder.
ARTICLE IX. MISCELLANEOUS
9.1 Other Expenses. Except as otherwise provided in this
Agreement, each party will pay all of its expenses in connection
with the negotiation, execution, and implementation of the
transactions contemplated under this Agreement.
9.2 Notices. All notices, requests, demands, waivers and
other communications required or permitted to be given under this
Agreement will be in writing and will be deemed to have been duly
given: (a) if delivered personally or sent by facsimile, on the
date received, (b) if delivered by overnight courier, on the day
after mailing, and (c) if mailed, five days after mailing with
postage prepaid. Any such notice will be sent as follows:
To Tele-Lawyer:
- ---------------
Tele-Lawyer, Inc.
2300 W. Sahara Blvd., Suite 500
Las Vegas, NV 89102
Attn: Michael Cane
To Dynamic:
- -----------
Dynamic Associates, Inc.
6617 N. Scottsdale Road, Suite 103
Scottsdale, AZ 85250
Attn: Jan Wallace
9.3 Confidentiality; Prohibition on Trading. All parties
agree to maintain the confidentiality of the existence of this
Agreement and the transactions contemplated hereunder, unless
disclosure is required by law and except for disclosures to be made
in connection with obtaining shareholder approval and third party
consents, and actions required to consummate the contemplated
transactions. Tele-Lawyer agrees not to trade in the securities of
Dynamic based upon any nonpublic information.
9.4 Controlling Law. This Agreement will be construed,
interpreted and enforced in accordance with the substantive laws of
the State of Nevada, without giving effect to its conflicts of laws
provisions.
9.5 Headings. Any table of contents and Section headings in
this Agreement are for convenience of reference only and will not
be considered or referred to in resolving questions of
interpretation.
18
9.6 Benefit. This Agreement will be binding upon and will
inure to the exclusive benefit of the parties hereto and their
respective heirs, legal representatives, successors and assigns.
No party hereto may assign any rights or delegate any duties
hereunder without the prior written consent of the other parties
hereto and any prohibited assignment or delegation will be deemed
null and void.
9.7 Partial Invalidity. The invalidity or unenforceability
of any particular provision of this Agreement will not affect the
other provisions hereof, and this Agreement will be construed in
all respects as if such invalid or unenforceable provisions were
omitted. Further, there will be automatically substituted for such
invalid or unenforceable provision a provision as similar as
possible which is valid and enforceable.
9.8 Counterparts and Facsimiles This Agreement may be
executed simultaneously in two (2) or more counterparts each of
which will be deemed an original and all of which together will
constitute but one and the same instrument. The signature page to
this Agreement and all other documents required to be executed at
Closing may be delivered by facsimile and the signatures thereon
will be deemed effective upon receipt by the intended receiving
party.
9.9 Interpretation. All pronouns and any variation thereof
will be deemed to refer to the masculine, feminine, neuter,
singular or plural as the identity of the person or entity, or the
context, may require. Further, it is acknowledged by the parties
that this Agreement has undergone several drafts with the
negotiated suggestions of both; and, therefore, no presumptions
will arise favoring either party by virtue of the authorship of any
of its provisions or the changes made through revisions.
9.10 Entire Agreement; Waivers. This Agreement, including the
Exhibits and Attachments hereto and those portions incorporated
herein by reference, constitutes the entire agreement between the
parties hereto with regard to the matters contained herein and it
is understood and agreed that all previous undertakings,
negotiations and agreements between the parties are merged herein.
This Agreement may not be modified orally, but only by an agreement
in writing signed by the parties hereto. The failure of any party
to this Agreement to assert any of its rights under this Agreement
or otherwise will not constitute a waiver of such rights. Neither
the failure nor any delay on the part of any party hereto in
exercising any rights, power or remedy hereunder will operate as a
waiver thereof or of any right, power or remedy; nor will any
single or partial exercise of any right, power or remedy preclude
any further or other exercise thereof, or the exercise of any other
right, power or remedy.
9.11 Legal Fees and Costs. In the event any party hereto
incurs legal expenses to enforce or interpret any provision of this
Agreement, the prevailing party will be entitled to recover such
legal expenses, including, without limitation, attorney's fees,
costs and disbursements, in addition to any other relief to which
such party will be entitled.
9.12 Conflict of Interest - Michael Cane. The parties
acknowledge that Michael Cane has acted as legal counsel for
Dynamic and Perspectives in the past and is currently the
President, on the board of directors and a majority shareholder of
Tele-Lawyer, Inc. As a consequence, Mr. Cane has a conflict of
interest in regard to this agreement and has not acted
19
as attorney or counsel for Dynamic or Perspectives with regard to
this agreement in any respect. Further, Dynamic and Perspectives
have been advised and acknowledge that they have sought the advice
and services of independent counsel with regard to this agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement and Plan of Merger as of the date first above written.
Tele-Lawyer, Inc.
/s/ Michael Cane
By: ______________________________
President
Title: ______________________________
Dynamic Associates, Inc.
/s/ Jan Wallace
By: ______________________________
C.E.O.
Title: ______________________________
20
FIRST AMENDMENT TO MERGER AGREEMENT
THIS AMENDMENT TO THE AGREEMENT AND PLAN OF MERGER is entered into
as of the 8th day of March 2001, by and among DYNAMIC ASSOCIATES,
INC., a Nevada corporation ("Dynamic"), and TELE-LAWYER, INC.
("Tele-Lawyer"), a Nevada corporation.
WHEREAS, the parties entered into that certain Agreement and Plan
of Merger as of November 28, 2000 (the "Merger Agreement")
regarding the contemplated merger of Tele-Lawyer with and into
Dynamic (the "Merger"); and
WHEREAS, the parties desire to amend the Merger Agreement as set
forth herein.
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained in the Merger Agreement and herein, and other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties, intending to be
legally bound hereby, agree as follows:
1. Paragraph 1.1 shall be modified to read in its entirety:
"At the Effective Time (as defined in Section 1.3
hereof) and subject to and upon the terms and conditions
of this Agreement, Tele-Lawyer will be merged with and
into Dynamic (the "Merger"). Following the Merger,
Dynamic will continue as the surviving entity under the
corporate name to be determined by the board of
directors and Tele-Lawyer will continue as a subsidiary
of Dynamic (Dynamic and Tele-Lawyer are sometimes
referred to collectively herein as the "Constituent
Companies")."
2. The first paragraph of paragraph 2.1 shall be modified
to read: "At the Effective Time, each share of Tele-
Lawyer Common Stock issued and outstanding immediately
prior to the Effective Time will be traded for one share
of Dynamic Common Stock ("Merger Consideration").
3. The phrase at the end of the first paragraph of
paragraph 2.2 reading "except as contemplated under that
certain Registration Rights Agreement referenced in
Section 2.8" shall be deleted."
4. Paragraph 2.2(2) shall be modified to read in its
entirety: "All shares of Dynamic Common Stock issued
upon the surrender for exchange of the Certificates in
accordance with the terms of this Article II shall be
deemed to have been issued (and paid) in full
satisfaction of all rights pertaining to Tele-Lawyer
Common Stock theretofore represented by such
Certificates."
5. Paragraph 2.3 shall be deleted.
6. Paragraph 7.2 shall be modified to read in its entirety:
"This Agreement may be terminated and the Merger may be
abandoned by action of the Board of Directors of Tele-
Lawyer or Dynamic if: (a) the Merger shall not have been
consummated by June 1, 2000; (b) the approval of the
Merger by Dynamic's shareholders shall not
have been obtained by May 15, 2000 at a meeting duly convened
therefor or at any adjournment thereof; or (c) a United
States federal or state court of competent jurisdiction
or United States federal or state governmental,
regulatory or administrative agency or commission shall
have issued an order, decree or ruling or taken any
other action permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by
this Agreement and such order, decree, ruling or other
action shall have become final and non-appealable;
provided, that the party seeking to terminate this
Agreement pursuant to this clause (c) shall have used
all reasonable efforts to remove such injunction, order
or decree."
7. The paragraph in paragraph 6.1 dealing with the
extinction of the outstanding Dynamic warrants and
options shall be renumbered (10), and the paragraph in
paragraph 6.1 dealing with the creation of the Dynamic
stock option plan shall be renumbered (11).
8. Paragraph 6.1(13) shall be modified to read in its
entirety: "The parties shall each use their best efforts
to raise capital through the sale of Tele-Lawyer common
stock. It is acknowledged that Tele-Lawyer is in the
process of raising capital through the sale of its
common stock and that such sale shall not be a violation
of this agreement."
Other than as set forth in this First Amendment to Merger
Agreement, the Merger Agreement remains in full force and effect.
IN WITNESS WHEREOF, the parties have executed this First Amendment
to Merger Agreement as of the date set forth above.
Tele-Lawyer, Inc.
By: /s/ Michael Cane
Title: President
Dynamic Associates, Inc.
By: /s/ Jan Wallace
Title: Chairman and CEO
APPENDIX B
RIGHTS OF DISSENTING OWNERS
NRS 92A.300 Definitions. As used in NRS 92A.300 to 92A.500,
inclusive, unless the context otherwise requires, the words and terms
defined in NRS 92A.305 to 92A.335, inclusive, have the meanings
ascribed to them in those sections.
(Added to NRS by 1995, 2086)
NRS 92A.305 "Beneficial stockholder" defined. "Beneficial
stockholder" means a person who is a beneficial owner of shares held in
a voting trust or by a nominee as the stockholder of record.
(Added to NRS by 1995, 2087)
NRS 92A.310 "Corporate action" defined. "Corporate action" means
the action of a domestic corporation.
(Added to NRS by 1995, 2087)
NRS 92A.315 "Dissenter" defined. "Dissenter" means a stockholder
who is entitled to dissent from a domestic corporation's action under
NRS 92A.380 and who exercises that right when and in the manner
required by NRS 92A.400 to 92A.480, inclusive.
(Added to NRS by 1995, 2087; A 1999, 1631)
NRS 92A.320 "Fair value" defined. "Fair value," with respect to
a dissenter's shares, means the value of the shares immediately before
the effectuation of the corporate action to which he objects, excluding
any appreciation or depreciation in anticipation of the corporate
action unless exclusion would be inequitable.
(Added to NRS by 1995, 2087)
NRS 92A.325 "Stockholder" defined. "Stockholder" means a
stockholder of record or a beneficial stockholder of a domestic
corporation.
(Added to NRS by 1995, 2087)
NRS 92A.330 "Stockholder of record" defined. "Stockholder of
record" means the person in whose name shares are registered in the
records of a domestic corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee's certificate on file
with the domestic corporation.
(Added to NRS by 1995, 2087)
NRS 92A.335 "Subject corporation" defined. "Subject corporation"
means the domestic corporation which is the issuer of the shares held
by a dissenter before the corporate action creating the dissenter's
rights becomes effective or the surviving or acquiring entity of that
issuer after the corporate action becomes effective.
(Added to NRS by 1995, 2087)
NRS 92A.340 Computation of interest. Interest payable pursuant
to NRS 92A.300 to 92A.500, inclusive, must be computed from the
effective date of the action until the date of payment, at the average
rate currently paid by the entity on its principal bank
loans or, if it has no bank loans, at a rate that is fair and equitable
under all of the circumstances.
(Added to NRS by 1995, 2087)
NRS 92A.350 Rights of dissenting partner of domestic limited
partnership. A partnership agreement of a domestic limited partnership
or, unless otherwise provided in the partnership agreement, an
agreement of merger or exchange, may provide that contractual rights
with respect to the partnership interest of a dissenting general or
limited partner of a domestic limited partnership are available for any
class or group of partnership interests in connection with any merger
or exchange in which the domestic limited partnership is a constituent
entity.
(Added to NRS by 1995, 2088)
NRS 92A.360 Rights of dissenting member of domestic limited-
liability company. The articles of organization or operating agreement
of a domestic limited-liability company or, unless otherwise provided
in the articles of organization or operating agreement, an agreement of
merger or exchange, may provide that contractual rights with respect to
the interest of a dissenting member are available in connection with
any merger or exchange in which the domestic limited-liability company
is a constituent entity.
(Added to NRS by 1995, 2088)
NRS 92A.370 Rights of dissenting member of domestic nonprofit
corporation.
1. Except as otherwise provided in subsection 2, and unless
otherwise provided in the articles or bylaws, any member of any
constituent domestic nonprofit corporation who voted against the merger
may, without prior notice, but within 30 days after the effective
date of the merger, resign from membership and is thereby excused from
all contractual obligations to the constituent or surviving
corporations which did not occur before his resignation and is thereby
entitled to those rights, if any, which would have existed if there had
been no merger and the membership had been terminated or the member had
been expelled.
2. Unless otherwise provided in its articles of incorporation or
bylaws, no member of a domestic nonprofit corporation, including, but
not limited to, a cooperative corporation, which supplies services
described in chapter 704 of NRS to its members only, and no person who
is a member of a domestic nonprofit corporation as a condition of or by
reason of the ownership of an interest in real property, may resign and
dissent pursuant to subsection 1.
(Added to NRS by 1995, 2088)
NRS 92A.380 Right of stockholder to dissent from certain
corporate actions and to obtain payment for shares.
1. Except as otherwise provided in NRS 92A.370 and 92A.390, a
stockholder is entitled to dissent from, and obtain payment of the fair
value of his shares in the event of any of the following corporate
actions:
(a) Consummation of a plan of merger to which the domestic
corporation is a party:
(1) If approval by the stockholders is required for the
merger by NRS 92A.120 to 92A.160, inclusive, or the articles of
incorporation and he is entitled to vote on the merger; or
(2) If the domestic corporation is a subsidiary and is
merged with its parent under NRS 92A.180.
(b) Consummation of a plan of exchange to which the domestic
corporation is a party as the corporation whose subject owner's
interests will be acquired, if he is entitled to
vote on the plan.
(c) Any corporate action taken pursuant to a vote of the
stockholders to the event that the articles of incorporation, bylaws or
a resolution of the board of directors provides that voting or
nonvoting stockholders are entitled to dissent and obtain payment for
their shares.
2. A stockholder who is entitled to dissent and obtain payment
under NRS 92A.300 to 92A.500, inclusive, may not challenge the
corporate action creating his entitlement unless the action is unlawful
or fraudulent with respect to him or the domestic corporation.
(Added to NRS by 1995, 2087)
NRS 92A.390 Limitations on right of dissent: Stockholders of
certain classes or series; action of stockholders not required for plan
of merger.
1. There is no right of dissent with respect to a plan of merger
or exchange in favor of stockholders of any class or series which, at
the record date fixed to determine the stockholders entitled to receive
notice of and to vote at the meeting at which the plan of merger or
exchange is to be acted on, were either listed on a national securities
exchange, included in the national market system by the National
Association of Securities Dealers, Inc., or held by at least 2,000
stockholders of record, unless:
(a) The articles of incorporation of the corporation issuing the
shares provide otherwise; or
(b) The holders of the class or series are required under the
plan of merger or exchange to accept for the shares anything except:
(1) Cash, owner's interests or owner's interests and cash
in lieu of fractional owner's interests of:
(I) The surviving or acquiring entity; or
(II) Any other entity which, at the effective date
of the plan of merger or exchange, were either listed on a national
securities exchange, included in the national market system by the
National Association of Securities Dealers, Inc., or held of record
by a least 2,000 holders of owner's interests of record; or
(2) A combination of cash and owner's interests of the
kind described in sub-subparagraphs (I) and (II) of subparagraph (1) of
paragraph (b).
2. There is no right of dissent for any holders of stock of the
surviving domestic corporation if the plan of merger does not require
action of the stockholders of the surviving domestic corporation under
NRS 92A.130.
(Added to NRS by 1995, 2088)
NRS 92A.400 Limitations on right of dissent: Assertion as to
portions only to shares registered to stockholder; assertion by
beneficial stockholder.
1. A stockholder of record may assert dissenter's rights as to
fewer than all of the shares registered in his name only if he dissents
with respect to all shares beneficially owned by any one person and
notifies the subject corporation in writing of the name and address of
each person on whose behalf he asserts dissenter's rights. The rights
of a
partial dissenter under this subsection are determined as if the shares
as to which he dissents and his other shares were registered in the
names of different stockholders.
2. A beneficial stockholder may assert dissenter's rights as to
shares held on his behalf only if:
(a) He submits to the subject corporation the written consent of
the stockholder of record to the dissent not later than the time the
beneficial stockholder asserts dissenter's rights; and
(b) He does so with respect to all shares of which he is the
beneficial stockholder or over which he has power to direct the vote.
(Added to NRS by 1995, 2089)
NRS 92A.410 Notification of stockholders regarding right of
dissent.
1. If a proposed corporate action creating dissenters' rights is
submitted to a vote at a stockholders' meeting, the notice of the
meeting must state that stockholders are or may be entitled to assert
dissenters' rights under NRS 92A.300 to 92A.500, inclusive, and be
accompanied by a copy of those sections.
2. If the corporate action creating dissenters' rights is taken
by written consent of the stockholders or without a vote of the
stockholders, the domestic corporation shall notify in writing all
stockholders entitled to assert dissenters' rights that the action was
taken and send them the dissenter's notice described in NRS 92A.430.
(Added to NRS by 1995, 2089; A 1997, 730)
NRS 92A.420 Prerequisites to demand for payment for shares.
1. If a proposed corporate action creating dissenters' rights is
submitted to a vote at a stockholders' meeting, a stockholder who
wishes to assert dissenter's rights:
(a) Must deliver to the subject corporation, before the vote is
taken, written notice of his intent to demand payment for his shares if
the proposed action is effectuated; and
(b) Must not vote his shares in favor of the proposed action.
2. A stockholder who does not satisfy the requirements of
subsection 1 and NRS 92A.400 is not entitled to payment for his shares
under this chapter.
(Added to NRS by 1995, 2089; 1999, 1631)
NRS 92A.430 Dissenter's notice: Delivery to stockholders
entitled to assert rights; contents.
1. If a proposed corporate action creating dissenters' rights is
authorized at a stockholders' meeting, the subject corporation shall
deliver a written dissenter's notice to all stockholders who satisfied
the requirements to assert those rights.
2. The dissenter's notice must be sent no later than 10 days
after the effectuation of the corporate action, and must:
(a) State where the demand for payment must be sent and where and
when certificates, if any, for shares must be deposited;
(b) Inform the holders of shares not represented by certificates
to what extent the transfer of the shares will be restricted after the
demand for payment is received;
(c) Supply a form for demanding payment that includes the date of
the first announcement to the news media or to the stockholders of the
terms of the proposed action and requires that the person asserting
dissenter's rights certify whether or not he acquired beneficial
ownership of the shares before that date;
(d) Set a date by which the subject corporation must receive the
demand for payment, which may not be less than 30 nor more than 60 days
after the date the notice is delivered; and
(e) Be accompanied by a copy of NRS 92A.300 to 92A.500,
inclusive.
(Added to NRS by 1995, 2089)
NRS 92A.440 Demand for payment and deposit of certificates;
retention of rights of stockholder.
1. A stockholder to whom a dissenter's notice is sent must:
(a) Demand payment;
(b) Certify whether he acquired beneficial ownership of the
shares before the date required to be set forth in the dissenter's
notice for this certification; and
(c) Deposit his certificates, if any, in accordance with the
terms of the notice.
2. The stockholder who demands payment and deposits his
certificates, if any, before the proposed corporate action is taken
retains all other rights of a stockholder until those rights are
canceled or modified by the taking of the proposed corporate action.
3. The stockholder who does not demand payment or deposit his
certificates where required, each by the date set forth in the
dissenter's notice, is not entitled to payment for his shares under
this chapter.
(Added to NRS by 1995, 2090; A 1997, 730)
NRS 92A.450 Uncertificated shares: Authority to restrict
transfer after demand for payment; retention of rights of stockholder.
1. The subject corporation may restrict the transfer of shares
not represented by a certificate from the date the demand for their
payment is received.
2. The person for whom dissenter's rights are asserted as to
shares not represented by a certificate retains all other rights of a
stockholder until those rights are canceled or modified by the taking
of the proposed corporate action.
(Added to NRS by 1995, 2090)
NRS 92A.460 Payment for shares: General requirements.
1. Except as otherwise provided in NRS 92A.470, within 30 days
after receipt of a demand for payment, the subject corporation shall
pay each dissenter who complied with NRS 92A.440 the amount the subject
corporation estimates to be the fair value of his shares, plus accrued
interest. The obligation of the subject corporation under this
subsection may be enforced by the district court:
(a) Of the county where the corporation's registered office is
located; or
(b) At the election of any dissenter residing or having its
registered office in this state, of the county where the dissenter
resides or has its registered office. The court shall
dispose of the complaint promptly.
2. The payment must be accompanied by:
(a) The subject corporation's balance sheet as of the end of a
fiscal year ending not more than 16 months before the date of payment,
a statement of income for that year, a statement of changes in the
stockholders' equity for that year and the latest available
interim financial statements, if any;
(b) A statement of the subject corporation's estimate of the fair
value of the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's rights to demand payment under
NRS 92A.480; and
(e) A copy of NRS 92A.300 to 92A.500, inclusive.
(Added to NRS by 1995, 2090)
NRS 92A.470 Payment for shares: Shares acquired on or after date
of dissenter's notice.
1. A subject corporation may elect to withhold payment from a
dissenter unless he was the beneficial owner of the shares before the
date set forth in the dissenter's notice as the date of the first
announcement to the news media or to the stockholders of the terms
of the proposed action.
2. To the extent the subject corporation elects to withhold
payment, after taking the proposed action, it shall estimate the fair
value of the shares, plus accrued interest, and shall offer to pay this
amount to each dissenter who agrees to accept it in full satisfaction
of his demand. The subject corporation shall send with its offer a
statement of its estimate of the fair value of the shares, an
explanation of how the interest was calculated, and a statement of the
dissenters' right to demand payment pursuant to NRS 92A.480.
(Added to NRS by 1995, 2091)
NRS 92A.480 Dissenter's estimate of fair value: Notification of
subject corporation; demand for payment of estimate.
1. A dissenter may notify the subject corporation in writing of
his own estimate of the fair value of his shares and the amount of
interest due, and demand payment of his estimate, less any payment
pursuant to NRS 92A.460, or reject the offer pursuant to NRS
92A.470 and demand payment of the fair value of his shares and interest
due, if he believes that the amount paid pursuant to NRS 92A.460 or
offered pursuant to NRS 92A.470 is less than the fair value of his
shares or that the interest due is incorrectly calculated.
2. A dissenter waives his right to demand payment pursuant to
this section unless he notifies the subject corporation of his demand
in writing within 30 days after the subject corporation made or offered
payment for his shares.
(Added to NRS by 1995, 2091)
NRS 92A.490 Legal proceeding to determine fair value: Duties of
subject corporation; powers of court; rights of dissenter.
1. If a demand for payment remains unsettled, the subject
corporation shall commence a proceeding within 60 days after receiving
the demand and petition the court to determine the fair value of the
shares and accrued interest. If the subject corporation does not
commence the proceeding within the 60-day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
2. A subject corporation shall commence the proceeding in the
district court of the county where its registered office is located. If
the subject corporation is a foreign entity without a resident agent in
the state, it shall commence the proceeding in the county where the
registered office of the domestic corporation merged with or whose
shares were acquired by the foreign entity was located.
3. The subject corporation shall make all dissenters, whether or
not residents of Nevada, whose demands remain unsettled, parties to the
proceeding as in an action
against their shares. All parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or
by publication as provided by law.
4. The jurisdiction of the court in which the proceeding is
commenced under subsection 2 is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and
recommend a decision on the question of fair value. The appraisers have
the powers described in the order appointing them, or any amendment
thereto. The dissenters are entitled to the same discovery rights as
parties in other civil proceedings.
5. Each dissenter who is made a party to the proceeding is
entitled to a judgment:
(a) For the amount, if any, by which the court finds the fair
value of his shares, plus interest, exceeds the amount paid by the
subject corporation; or
(b) For the fair value, plus accrued interest, of his after-
acquired shares for which the subject corporation elected to withhold
payment pursuant to NRS 92A.470.
(Added to NRS by 1995, 2091)
NRS 92A.500 Legal proceeding to determine fair value: Assessment
of costs and fees.
1. The court in a proceeding to determine fair value shall
determine all of the costs of the proceeding, including the reasonable
compensation and expenses of any appraisers appointed by the court. The
court shall assess the costs against the subject corporation, except
that the court may assess costs against all or some of the dissenters,
in amounts the court finds equitable, to the extent the court finds the
dissenters acted arbitrarily, vexatiously or not in good faith in
demanding payment.
2. The court may also assess the fees and expenses of the
counsel and experts for the respective parties, in amounts the court
finds equitable:
(a) Against the subject corporation and in favor of all
dissenters if the court finds the subject corporation did not
substantially comply with the requirements of NRS 92A.300
to 92A.500, inclusive; or
(b) Against either the subject corporation or a dissenter in
favor of any other party, if the court finds that the party against
whom the fees and expenses are assessed acted arbitrarily, vexatiously
or not in good faith with respect to the rights provided by NRS
92A.300 to 92A.500, inclusive.
3. If the court finds that the services of counsel for any
dissenter were of substantial benefit to other dissenters similarly
situated, and that the fees for those services should not be assessed
against the subject corporation, the court may award to those counsel
reasonable fees to be paid out of the amounts awarded to the dissenters
who were benefited.
4. In a proceeding commenced pursuant to NRS 92A.460, the court
may assess the costs against the subject corporation, except that the
court may assess costs against all or some of the dissenters who are
parties to the proceeding, in amounts the court finds equitable, to the
extent the court finds that such parties did not act in good faith in
instituting the proceeding.
5. This section does not preclude any party in a proceeding
commenced pursuant to NRS 92A.460 or 92A.490 from applying the
provisions of N.R.C.P. 68 or NRS 17.115.
(Added to NRS by 1995, 2092)
Appendix c
Smith
&
Company
A Professional Corporation of Certified Public Accountants
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Dynamic Associates, Inc.
We have audited the accompanying consolidated balance sheets of Dynamic
Associates, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, changes in stockholders' equity
(deficit), and cash flows for the years ended December 31, 1999, 1998, and 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Dynamic Associates,
Inc. and Subsidiaries as of December 31, 1999 and 1998, and the results of their
operations, changes in stockholders' equity (deficit), and their cash flows for
the years ended December 31, 1999, 1998, and 1997, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the consolidated
financial statements, the Company has an accumulated deficit of $24,358,589 at
December 31, 1999. As discussed in Note 4, the Company is in the process of
selling its subsidiaries which will leave it with no operations or revenue. The
Company has suffered losses from operations and has a substantial need for
working capital. This raises substantial doubt about its ability to continue as
a going concern. The accompanying consolidated financial statements do not
include any adjustments that may result from the outcome of this uncertainty.
Smith & Company
CERTIFIED PUBLIC ACCOUNTANTS
Salt Lake City, Utah
March 30, 2000
10 West 100 South, Suite 700o Salt Lake City, Utah 84101-1554
Telephone: (801) 575-8297o Facsimile: (801) 575-8306
E-mail: smith&co@smithandcocpa.com
Members: American Institute of Certified Public Accountants
o Utah Association of Certified Public Accountants
F - 1
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1999 1998
------------------ ------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 181,826 $ 478,418
Accounts receivable (less allowance for doubtful accounts of
$933,909 in 1999 and $2,552,100 in 1998) 2,065,028 3,741,260
Loans receivable - related parties (Note 6) 0 52,500
Other receivables 70,589 86,662
Prepaid expense and other current assets 1,600 109,950
Deferred tax benefit (Note 10) 0 300,000
------------------ ------------------
TOTAL CURRENT ASSETS 2,319,043 4,768,790
PROPERTY, PLANT & EQUIPMENT (Note 5) 89,016 228,733
OTHER ASSETS
Deferred debt issue costs (less amortization of $316,432) (Note 2) 560,765 1,331,307
Investment - restricted stock 0 17,000
Goodwill (less amortization of $24,857,775) (Note 2) 1,590,000 19,594,775
Deposits 0 410
------------------ ------------------
2,150,765 20,943,492
------------------ ------------------
$ 4,558,824 $ 25,941,015
================== ==================
LIABILITIES & EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 63,363 $ 596,812
Accrued expenses 636,179 275,101
Current portion of long-term debt (Note 8) 4,349 3,978
Accrued interest payable 366,305 791,851
------------------ ------------------
TOTAL CURRENT LIABILITIES 1,070,196 1,667,742
Long-term debt (Note 8) 5,857 10,206
Convertible notes (Note 9) 8,676,500 17,001,500
------------------ ------------------
8,682,357 17,011,706
------------------ ------------------
TOTAL LIABILITIES 9,752,553 18,679,448
Commitments and contingencies (Note 12) 0 0
STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock $.001 par value:
Authorized - 25,000,000 shares
Issued and outstanding 18,386,429 shares (14,223,929 in 1998) 18,386 14,224
Additional paid-in capital 19,146,474 18,512,330
Retained deficit (24,358,589) (11,264,987)
------------------ ------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (5,193,729) 7,261,567
------------------ ------------------
$ 4,558,824 $ 25,941,015
================== ==================
See Notes to Consolidated Financial Statements.
F - 2
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
1999 1998 1997
----------------- ------------------ ------------------
Management fees $ 7,982,208 $ 12,498,922 $ 14,619,951
----------------- ------------------ ------------------
7,982,208 12,498,922 14,619,951
General & administrative expenses 6,683,691 9,845,647 10,609,090
Depreciation and amortization 2,572,207 2,603,039 2,594,651
Goodwill impairment (Notes 2 and 4) 15,459,495 0 0
Bad debts 3,124,796 2,193,300 590,125
----------------- ------------------ ------------------
27,840,189 14,641,986 13,793,866
----------------- ------------------ ------------------
NET OPERATING INCOME (LOSS) (19,857,981) (2,143,064) 826,085
OTHER INCOME (EXPENSE)
Interest income 3,825 18,006 60,957
Interest expense (872,255) (1,946,558) (1,983,591)
Miscellaneous income 0 0 1,328
Bad debts - former subsidiaries (Note 16) 0 (2,169,806) 0
Disposition of subsidiaries 0 256,493 0
Loss on disposal of equipment (109,022) (16,996) (23,986)
Unrealized decline in investment (17,000) (12,800) (383,247)
----------------- ------------------ ------------------
(994,452) (3,871,661) (2,328,539)
----------------- ------------------ ------------------
NET (LOSS) BEFORE INCOME TAXES (20,852,433) (6,014,725) (1,502,454)
INCOME TAX EXPENSE (Note 10) 197,000 127,128 790,913
----------------- ------------------ ------------------
(LOSS) FROM
CONTINUING OPERATIONS (21,049,433) (6,141,853) (2,293,367)
EXTRAORDINARY ITEM
Gain on restructuring of debt (no applicable income tax)(Note 17) 7,955,831 0 0
----------------- ------------------ ------------------
(LOSS) BEFORE DISCONTINUED OPERATIONS (13,093,602) (6,141,853) (2,293,367)
DISCONTINUED OPERATIONS, NET OF INCOME TAXES
P&H operations 0 0 (124,804)
MMC operations 0 0 (1,127,675)
----------------- ------------------ ------------------
0 0 (1,252,479)
----------------- ------------------ ------------------
NET (LOSS) $ (13,093,602) $ (6,141,853) $ (3,545,846)
================= ================== ==================
Net (loss) per weighted average share - continuing operations $ (1.19) $ (.43) $ (.18)
Net income per weighted average share - extraordinary item .45 .00 .00
Net (loss) per weighted average share - discontinued operations .00 .00 (.09)
----------------- ------------------ ------------------
$ (.74) $ (.43)$ (.27)
================= ================== ===================
Weighted average number of common shares used to compute
net income (loss) per weighted average share 17,747,799 14,185,573 13,057,008
================= ================== ===================
See Notes to Consolidated Financial Statements.
F - 3
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock Additional
Par Value $.001 Paid-in Retained
Shares Amount Capital Deficit
------------- --------------- --------------- ---------------
Balances at 12/31/96 12,158,900 $ 12,159 $ 14,765,238 $ (1,577,288)
Sale of common stock (S-8) at $1.00
per share 1,022,600 1,023 1,021,577
Issuance of common stock (restricted)
at $2.00
per share for subsidiary (Geriatric) 150,000 150 299,850
Issuance of common stock (Reg S) to
retire debt 428,142 428 1,352,861
Issuance of common stock (restricted)
at $3.50 per share for remaining 50% of
subsidiary (P & H) 214,287 214 749,786
Capital raising and subsidiary costs (16,327)
Minority interest adjustment 89,595
Net loss for year (3,545,846)
------------- --------------- --------------- ---------------
Balances at 12/31/97 13,973,929 13,974 18,262,580 (5,123,134)
Sale of common stock (S-8) at $1.00
per share 250,000 250 249,750
Net loss for year (6,141,853)
------------- --------------- --------------- ---------------
Balances at 12/31/98 14,223,929 14,224 18,512,330 (11,264,987)
Issuance of common stock to
restructure debt 4,162,500 4,162 634,144
Net loss for year (13,093,602)
------------- --------------- --------------- ---------------
Balances at 12/31/99 18,386,429 $ 18,386 $ 19,146,474 $ (24,358,589)
============= =============== =============== ===============
See Notes to Consolidated Financial Statements.
F - 4
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
1999 1998 1997
-------------- ------------ ------------
OPERATING ACTIVITIES
Net (loss) $ (13,093,602) $ (6,141,853) $ (3,545,846)
Adjustments to reconcile net (loss) to cash used by
perating activities:
Depreciation and amortization 18,158,501 2,802,731 2,921,571
Book value of assets sold/disposed 112,790 53,017 120,346
Book value of spun-off subsidiaries 0 1,743,312 0
Bad debts 3,124,796 2,193,300 590,125
Non-cash debt restructuring (7,955,831) 0 0
Investment received as interest income 0 0 (15,000)
Unrealized decline in investment 17,000 12,800 383,247
Deferred taxes 300,000 0 500,500
Changes in assets and liabilities:
Accounts receivable (1,396,064) (2,302,493) (2,519,886)
Inventories 0 0 (92,150)
Prepaid expenses and other 124,423 (70,522) 67,853
Accounts payable and accrued expenses (172,372) 62,253 (549,923)
Income taxes payable 0 (253,328) 163,468
Accrued interest payable 487,335 0 604,355
-------------- ------------ ------------
NET CASH USED BY OPERATING ACTIVITIES (293,024) (1,900,783) (1,371,340)
INVESTING ACTIVITIES
Loans to related party and accrued interest 0 0 90,246
Loan - other 0 (34,861) 91,953
Purchase of equipment 0 (14,951) (892,674)
Deposits 410 (11,496) 12,418
Goodwill 0 0 (500,000)
Organization costs 0 0 (27,800)
-------------- ------------ ------------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES 410 (61,308) (1,225,857)
FINANCING ACTIVITIES
Deferred debt issue costs 0 0 (340,356)
Cash from (to) subsidiaries 0 (387,982) 41,518
Principal payments on debt (3,978) (37,683) (3,297,713)
Proceeds from sale of common stock 0 250,000 1,022,600
Loan proceeds 0 0 347,303
Loans - related parties 0 150,000 0
Repayments - related parties 0 (150,000) 0
Capital raising costs 0 0 (3,000)
Convertible note proceeds 0 0 3,996,000
-------------- ------------ ------------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES (3,978) (175,665) 1,766,352
-------------- ------------ ------------
(DECREASE) IN
CASH AND CASH EQUIVALENTS (296,592) (2,137,756) (830,845)
Cash and cash equivalents at beginning of year 478,418 2,616,174 3,447,019
-------------- ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 181,826 $ 478,418 $ 2,616,174
============== ============ ============
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 257,939 $ 1,747,044 $ 1,204,709
Cash paid for income taxes 0 271,595 157,753
During 1999, the Company issued 4,162,500 shares of its restricted common stock
and 8,325,000 warrants to purchase stock at $1.50 per share until December 31,
2000 to retire debt of $8,325,000 and accrued interest of $912,881.
During 1998, the Company purchased a vehicle in the amount of $16,943 by
incurring a loan in the same amount.
See Notes to Consolidated Financial Statements.
F - 5
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
December 31, 1999, 1998, and 1997
NOTE 1: BUSINESS ACTIVITY
The Company was incorporated under the laws of the state of Nevada on
July 20, 1989 and had been in the development stage through 1995. The
Company is now engaged in the business of managing the operation of
geriatric/psychiatric units for various hospitals through Genesis
Health Management Corporation ("Genesis") and Geriatric Care Centers
of America, Inc. ("GCCA").
Genesis has contracts with hospitals in the states of Louisiana,
Arkansas, Mississippi, and Tennessee. The contracts range from one to
five years. At December 31, 1999, Genesis had seventeen active
contracts with monthly billings of $517,026. GCCA has contracts with
hospitals in Tennessee. At December 31, 1999, GCCA had three active
contracts with average monthly billings of $69,000. The contracts
range from three to five years.
In November, 1999, Genesis and GCCA merged and are now operating as
Perspectives Health Management Corp. ("Perspectives"). For
consistency with prior years, the words Genesis and GCCA may continue
to be used in the footnotes.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Principals of Consolidation
The consolidated financial statements for 1999 and 1998 include the
accounts of the Company; and its wholly owned subsidiaries Genesis
and GCCA.
The consolidated financial statements for 1997 include the accounts
of the Company; its wholly owned subsidiaries, MMC and MMC's Germany
based subsidiary Microwave Medical GmBH ("GmBH"), which was formed in
late 1997, Genesis, GCCA, which was acquired in March of 1997, and P
& H. The Statement of Operations for 1997 includes the operations of
GCCA for the last three quarters of 1997. MMC and P&H were spun-off
in early 1998.
All significant intercompany balances and transactions have been
eliminated in consolidation.
Accounting Methods
The Company recognizes income and expenses based on the accrual
method of accounting.
Dividend Policy
The Company has not yet adopted any policy regarding payment of
dividends.
Stock Options
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and
related interpretations in accounting for its employee stock options
rather than adopting the alternative fair value accounting provided
for under Financial Accounting Standards Board ("FASB") FASB
Statement No. 123, Accounting for Stock Based Compensation (SFAS
123).
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 amount of
revenue and expenses during the reporting period. Actual results
could differ from those estimates.
Allowance for Uncollectible Accounts
The Company provides an allowance for uncollectible accounts based
upon prior experience and management's assessment of the
collectability of existing specific accounts.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to
concentration of risk, consist of cash and investments. The Company
places its investments in highly rated commercial paper obligations
which limits the amount of credit exposure. Historically, the Company
has not experienced any losses related to investments.
F - 6
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998, and 1997
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
Property, Plant and Equipment
Property, plant and equipment is recorded at cost and is being
depreciated over a useful life of seventeen months to eight years
using the straight-line and accelerated methods.
Cash and Cash Equivalents
For financial statement purposes, the Company considers all highly
liquid investments with an original maturity of three months or less
when purchased to be cash equivalents.
Goodwill
Goodwill relating to the acquisition of Genesis is being amortized
over ten years. Goodwill relating to the acquisition of GCCA is being
amortized over five years. The carrying value of goodwill is reviewed
periodically based on the un-discounted cash flows of the entities
acquired over the remaining amortization period. Should this review
indicate that goodwill is impaired, the Company's carrying value of
the goodwill is reduced by the estimated shortfall of un-discounted
cash flows.
In late 1999, the Company made the decision to reduce goodwill to
$1,590,000 which is the approximate amount it expects to realize from
the sale of Perspectives in 2000. See Note 4 for more details.
Deferred Debt Issue Costs
These costs are associated with raising money by issuing convertible
notes. The costs are being amortized over the life of the notes (ten
years). In the event the notes are converted to common stock, the
remaining unamortized costs will be charged to additional paid-in
capital.
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 or all of the deferred tax assets
will not be realized. The valuation allowance at December 31, 1999
and 1998 was zero. 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, 1999, 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 allowance, and various accrued operating
expenses.
Loss per Share
Loss per common share is computed by dividing net loss by the
weighted average shares outstanding during each period. The
convertible notes which are convertible to common stock have not been
considered in the calculation as their inclusion would be
antidilutive.
NOTE 3: CAPITALIZATION
The Company's authorized stock includes 25,000,000 shares of Class
"A" common stock at $.001 par value. Shareholders approved
100,000,000 authorized shares but the appropriate document has yet to
be filed with the State of Nevada.
During 1999, the Company issued 4,162,500 shares of its restricted
common stock and 8,325,000 warrants to purchase stock at $1.50 per
share until December 31, 2000 to retire debt of $8,325,000 and
accrued interest of $912,881.
During 1998, the Company sold 250,000 shares of S-8 stock for
$250,000 cash.
During 1997, the Company sold 1,022,600 shares of S-8 stock at $1.00
per share, issued 150,000 shares of restricted stock at $2.00 per
share in connection with the GCCA acquisition, issued 428,142 shares
of Regulation S stock to retire debt of $1,498,500 and issued 214,287
shares of restricted stock at $3.50 per share for the remaining 50%
of P & H. At the time of the GCCA transaction, the free- trading
price of the Company's stock was $3.875 per share. However, due to
the fact the stock given
F - 7
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998, and 1997
NOTE 3: CAPITALIZATION (continued)
was restricted, and given the value of the business being acquired,
the Company believes $2.00 per share is a reasonable value. At the
time of the P&H transaction, the free-trading price of the Company's
stock was $3.50 per share.
During 1996, the Company issued 40,000 shares of its common stock for
interest expense, at $1.00 per share, sold 12,500 shares of
Regulation S stock at $2.00 per share, sold 1,822,400 of Regulation S
stock at $1.75 per share, sold 184,000 shares of S-8 stock at $1.00
per share, and issued 3,100,000 shares of restricted stock at $3.33
per share in connection with the Genesis acquisition. At the time of
the Genesis transaction, the free-trading price of the Company's
stock was $3.6875 per share. The Company feels the $3.33 per share
value assigned is reasonable based on the stock being restricted and
based on the overall value of the business being acquired.
NOTE 4: EXPECTED SALE OF SUBSIDIARIES
In late 1999, the Company began negotiations to sell Perspectives.
The Company merged Perspectives with Genesis and GCCA with
Perspectives being the surviving entity. The Company is finalizing
negotiations whereby it will sell Perspectives under a contract
bearing interest at 8% per year. The contract calls for sixty monthly
payments of $20,000 and then a balloon payment of $900,000. The
contract has a present value of about $1,590,000. The Company is also
finalizing an agreement with shareholders who are owed $8,325,000 in
convertible notes. The shareholders have tentatively agreed to accept
the assignment of the above contract to reduce the $8,325,000 owed to
them and then to convert the remaining debt of $6,225,000 into the
Company's common stock at the rate of $.15 per share. This would
result in 41,500,000 new shares of the Company's common stock being
issued, and the shareholders as a group would have voting control of
the Company.
NOTE 5: PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment as of December 31, 1999 and 1998 are
summarized as follows:
Accumulated Net Book Value
Cost Depreciation 1999 1998
---------- ------------- --------- ---------
Transportation Equipment $ 164,536 $ 79,708 $ 84,828 $ 147,638
Machinery & Equipment 0 0 0 70,963
Furniture & Fixtures 19,654 15,466 4,188 0
Leasehold Improvements 0 0 0 10,132
---------- ------------- --------- ---------
$ 184,190 $ 95,174 $ 89,016 $ 228,733
========== ============= ========= =========
Depreciation expense is calculated under straight-line and
accelerated methods based on the estimated service lives of
depreciable assets. Depreciation expense for the year ended December
31, 1999 amounted to $26,927, ($57,759 in 1998).
NOTE 6: LOANS RECEIVABLE - RELATED PARTIES
1999 1998
Due From Amount Amount Interest Rate Due Date
----------------- --------- -------- ------------- -----------------
Officer of MMC(1) $ 0 $ 52,500 0% December 31, 1997
(1) The $52,500 is due from a former officer/employee of MMC.
The Company charged the amount to bad debts in 1999.
NOTE 7: RELATED PARTY TRANSACTIONS
During 1999, $108,958 was paid or accrued to the Company's Chief
Operating Officer and $64,000 was paid or accrued to the Company's
Secretary/Treasurer for services rendered to the Company. Accrued
amounts to the two individuals are $78,958 and $40,000 respectively.
During 1998, $180,000 was paid or accrued to the Company's President
and $105,067 was paid or accrued to the Company's Secretary/Treasurer
for services rendered to the Company.
During 1997 $145,000 was paid to the Company's President, $140,000
was paid or accrued to the Company's former Secretary/Treasurer, and
$87,733 was paid or accrued to the current Secretary/Treasurer for
services rendered to the Company.
F - 8
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998, and 1997
NOTE 8: LONG-TERM DEBT
1999 1998
----------------- -----------------
Genesis finances certain equipment for various items:
8.95% Note payable to bank in monthly installments of
$424, including interest through February 12, 2002. $ 10,206 $ 14,184
----------------- -----------------
10,206 14,184
Less current portion 4,349 3,978
----------------- -----------------
$ 5,857 $ 10,206
================= =================
Scheduled maturities of these obligations are as follows:
Year ending December 31,
2000 $ 4,349
2001 4,754
2002 1,103
---------
$ 10,206
=========
NOTE 9: CONVERTIBLE NOTES
At December 31, 1998, the Company owed $17,001,500 to various
entities in the form of convertible notes ($14,504,000 at December
31, 1996). The notes bear interest at 10% per annum and the interest
is payable on January 16 and July 16 of each year, beginning January
16, 1997. The notes are part of an overall maximum $18,500,000
indenture.
Conversion
The holder of any Note will have the right anytime prior to maturity,
to convert the principal thereof (or any portion thereof that is an
integral multiple of $1,000) into shares of Common Stock at the
conversion price of US $2.75 (the "Conversion Price"), except that if
a Note is called for redemption, the conversion right will terminate
at the close of business on the business day immediately preceding
the date fixed for redemption. Upon conversion, no adjustment will be
made for interest or dividends, but if any holder surrenders a Note
for conversion between the record date for the payment of an
installment of interest and the next interest payment date, then,
notwithstanding such conversion, the interest payment on such
interest payment date will be paid to the registered holder of such
Note on such record date. In such event, such Note which surrendered
for conversion, must be accompanied by payment of an amount equal to
the interest payable on such interest payment date on the portion so
converted. No fractional shares will be issued upon conversion but a
cash adjustment will be made for any fractional interest.
At December 31, 1998 the notes could have been converted into
6,182,364 shares of the Company's common stock.
At December 31, 1999, the $351,500 remaining of the original
$17,001,500 of notes could have been converted into 127,818 shares of
the Company's common stock.
Optional Redemption
The Notes will be redeemable at the option of the Company, in whole
or in part, at any time and from time to time, on and after September
15, 1997, on not less than 15 nor more than 60 days' notice by first
class mail, at the following redemption prices (expressed as
percentages of the principal amount) if redeemed during the
twelve-month period beginning September 15 of the year indicated
below, in each case, together with accrued interest thereon to the
redemption date:
F - 9
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998, and 1997
NOTE 9: CONVERTIBLE NOTES (continued)
Year Percentage
---------------- ----------
1997 110.00%
1998 108.75%
1999 107.50%
2000 106.25%
2001 105.00%
2002 103.75%
2003 102.50%
2004 101.25%
2005 100.00%
If less than all the Notes are to be redeemed, the Trustee will
select Notes for redemption in any manner the Trustee deems fair and
appropriate. If any Note is to be redeemed in part only, a new Note
or Notes in principal amount equal to the unredeemed principal
portion thereof will be issued.
Subordination of Notes
The Notes will be subordinate in right of payment to the extent set
forth in the Indenture to all existing and future Senior Indebtedness
(as defined in the Indenture) of the Company, whether outstanding on
the date of the Indenture or thereafter created, incurred, assumed,
or guaranteed. Upon any distribution of assets of the Company in any
dissolution, winding up, liquidation, or reorganization of the
Company (whether in an insolvency or bankruptcy proceeding or
otherwise), payment in full must be made on such Senior Indebtedness
before any payment is made on or in respect of the Notes. Upon the
happening and during the continuance of a default in payment of
interest on or principal of Senior Indebtedness, or any other default
with respect to such Senior Indebtedness permitting the holder
thereof to accelerate the maturity thereof, no payment may be made by
the Company on or in respect of the Notes. No such subordination will
prevent the occurrence of any Event of Default (as defined in the
Indenture).
"Senior Indebtedness" includes (i) all indebtedness of the Company
(a) for borrowed money, (b) which is evidenced by a note, debenture
or similar instrument (including a purchase money mortgage) given in
connection with the acquisition of any property or assets (other than
inventory or similar property acquired in the ordinary course of
business), including securities, or (c) for the payment of money
relating to a Capitalized Lease Obligation (as defined in the
Indenture); (ii) any liability of others described in the preceding
clause which the Company has guaranteed or which is otherwise its
legal liability; and (iii) any amendment, renewal, extension, or
refunding of any such liability; provided, however, that Senior
Indebtedness will not include any indebtedness of the Company to a
subsidiary or any indebtedness or guarantee of the Company which, by
its terms or the terms of the instrument creating or evidencing it,
is not superior in right of payment to the Notes.
The Indenture will not limit the amount of additional indebtedness,
including Senior Indebtedness, which the Company can create, incur,
assume, or guarantee, nor will the Indenture limit the amount of
indebtedness which any subsidiary can incur. As a result of these
subordination provisions, in the event of insolvency, holders of the
Notes may recover less ratably than general creditors of the Company.
On March 17, 1999, the Company announced the restructuring of its
convertible notes. $351,500 of the original $17,001,500 debt remains
unchanged in its terms. Holders of $16,650,000 of original debt
accepted the Company's offer to convert to $8,325,000 of 7.5% secured
convertible notes due December 31, 2006. The holders also received
one share of Dynamic's common stock for each $2 of original debt and
one warrant to purchase Dynamic's common stock at $1.50 per share
until December 31, 2000. 4,162,500 shares of Dynamic's common stock
and 8,325,000 warrants were issued to complete the transaction.
F - 10
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998, and 1997
NOTE 9: CONVERTIBLE NOTES (continued)
Summary:
Before the transaction:
Principal Amount Interest Rate
---------------------- ----------------
$ 17,001,500 10.0%
After the transaction:
Principal Amount Interest Rate
---------------------- ----------------
$ 8,325,000 7.5%
351,500 10.0%
----------------------
$ 8,676,500
======================
The new convertible notes of $8,325,000 are secured by the accounts
receivable of Genesis and GCCA. The security interest is subordinated
to banks, financial institutions or any lender or creditors as the
Board of Directors may deem appropriate.
The holders of the new notes also waived the January, 1999 interest
payment due under the terms of the old notes.
NOTE 10: INCOME TAXES
Components of income tax (benefit) are as follows:
1999 1998
------------- ------------
Current
Federal $ 0 $ 0
State (103,000) 127,128
------------- ------------
(103,000) 127,128
------------- ------------
Deferred
Federal 300,000 0
State 0 0
------------- ------------
300,000 0
------------- ------------
Income tax $ 197,000 $ 127,128
============= ============
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:
1999 1998
---------------- -----------
Income tax computed at federal
statutory tax rate $ (4,384,800) $ 2,045,007)
Change in valuation allowance for
deferred federal, state, & local
income tax assets 4,684,800 2,054,208
State taxes (net of federal benefit) (103,000) 117,927
-------------- -----------
$ 197,000 $ 127,128
============== ===========
Significant components of the Company's deferred tax liabilities and
assets for income taxes consist of the following:
1999 1998
------------ -----------
Current deferred tax assets
Net operating loss $ 0 $ 300,000
------------ -----------
Net deferred current tax assets $ 0 $ 300,000
============ ===========
The 1998 deferred tax asset related to Genesis. The Company expected
Genesis to realize a tax benefit in future years when Genesis again
becomes profitable. The Company itself has no operations to offset
its own losses and no deferred tax asset has been recorded for the
Company itself.
The net change in the valuation allowance for the year ended December
31, 1999 was $300,000 ($1,028,374 in 1998).
F - 11
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998, and 1997
NOTE 10: INCOME TAXES (continued)
The Company most likely will have no net operating loss carryover as
a result of having debt cancellation income while insolvent that will
eliminate prior loss carryfowards.
NOTE 11: INCENTIVE STOCK OPTION PLAN / WARRANTS
During 1995, the Company established an incentive stock option plan
for employees and directors of the Company. The maximum number of
shares to be issued under the plan is 2,000,000. At December 31,
1997, all 2,000,000 options have been granted. The Company also can
grant non- qualified stock options. The aggregate fair market value
(determined at the grant date) of the shares to which options become
exercisable for the first time by an optionee during any calendar
year shall not exceed $100,000 for qualified options and $1,000,000
for non-qualified options. For 10% shareholders, the option price
shall not be less than 100% of the fair market value of the shares on
the grant date and the exercise period shall not exceed 5 years from
the grant date. In the case of non- qualified stock options, the
option price shall not be less than $1.00 per share, or at a price
exceeding $1.00 per share at the discretion of the Committee. During
1996 the following options were granted:
150,000 shares to the President
405,000 shares to the Secretary
200,000 shares to a Director
100,000 shares to a Director
200,000 shares to the Vice President of Corporate Communications
945,000 shares to others
The exercise price is $1.00 per share. During 1998, 250,000 shares
were sold and during 1997, 1,022,600 shares were sold pursuant to the
plan.
During 1996, 184,000 shares were sold pursuant to the plan.
543,400 options were cancelled and 0 options remain unexercised at
December 31, 1998.
All 2,000,000 options discussed above were granted at $1.00 per share
which was above market price.
The Company has adopted only the disclosure provisions of FASB No.
123, "Accounting for Stock- Based Compensation"(FAS123). It applies
APB Opinion No. 25 "Accounting for Stock Issued to Employees," and
related Interpretation in accounting for its plans and does not
recognize compensation expense for its stock-based compensation plans
other than for restricted stock. If the Company had elected to
recognize compensation expense based upon the fair value at the grant
date for awards under these plans consistent with the methodology
prescribed by FAS 123, the Company's net income and earnings per
share would be reduced to the pro forma amounts indicated below:
Year Ended December 31,
1999 1998
-------------- -------------
Net loss
As reported $ (13,093,602) $ (6,141,853)
Pro forma (13,093,602) (6,141,853)
Loss per common share
As reported $ (.74) $ (.43)
Pro forma (.74) (.43)
There are 117,500 options at an exercise price of $2.25 per share
which expire September 30, 2002.
An entity has 250,000 warrants to purchase the Company's common stock
at $.70 per share, prior to May 19, 2003. The warrants were given for
services performed by the entity.
F - 12
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998, and 1997
NOTE 12: COMMITMENTS AND CONTINGENCIES
During 1999, the Company paid no rent. In 1998, the Company was
provided with office space and other management services on a
month-to-month basis by Amteck Management, Inc., an entity controlled
by the Company's former Secretary. $69,700 was paid to Amteck in
1998. Officers currently are receiving no salary but are being paid
management fees when services are provided. Various other individuals
are paid as services are performed.
For 2000, it is projected that the Company's President will receive
$15,000 monthly and the Secretary will receive $8,000 monthly. The
Company feels this is reasonable compensation.
The President of Perspectives is expected to receive $120,000 in
2000.
Future scheduled payments under these employment related commitments
are as follows:
Year Ending
December 31, 1999 $ 396,000
=================
Perspectives leases equipment under operating leases expiring through
2000.
Future minimum lease payments are as follows:
Year Ending
--------------------
December 31, 2000 $ 4,859
December 31, 2001 4,859
December 31, 2002 3,645
-------------------
$ 13,363
===================
Perspectives leases its facility at $1,600 per month through
September, 2000. Perspectives also pays part of the operating
expenses.
Future minimum lease payments are as follows:
Year Ending
December 31, 2000 $ 14,400
=====================
Perspectives expects to pay about $1.8 million in consulting fees in
2000.
Through November, 1998, Genesis leased an aircraft from a related
party on a monthly basis, but the payment was not determined until
the end of each month. During 1998, payments to the entity were about
$274,000. During 1997, payments to the entity were about $323,000.
The lease was with Blue Angel Aviation, an entity controlled by
William H. Means, Jr., one of the Company's directors. For 1998,
terms of the lease were a monthly fee of approximately $25,000 per
month. The Company terminated the lease effective December 1, 1998
and found alternative methods to travel to distant client locations.
Rental expense for the year ended December 31, 1999 was $37,600 (
$69,395 in 1998 and $253,868 in 1997) which includes $7,298 paid by
MMC to P & H in 1997.
NOTE 13: FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, loans, and interest
receivable, accounts payable, accrued expenses and interest payable
approximate fair value due to the short maturity periods of these
instruments. The fair value of the Company's long-term debt, based on
the present value of the debt, assuming interest rates as follows at
December 31, 1999 was:
Note at 8.95% $ 8,411
Convertible notes at 10.0% 199,848
Convertible notes at 7.5% 4,932,751
-----------------
$ 5,141,010
=================
F - 13
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998, and 1997
NOTE 14: INDUSTRY SEGMENTS
In 1999, the Company received its revenue from one source: management
fees earned by Genesis and GCCA. Information about that segment for
the year ended December 31, 1999 is as follows:
1999 Management
Fees Other(1) Consolidated
Management fees $ 7,982,208 $ 0 $ 7,982,208
Operating profit (loss) $ (1,348,929) $ (18,509,052) (19,857,981)
================== =============== =============
Identifiable assets at
December 31, 1999 $ 2,226,503 $ 0 $ 2,226,503
Corporate assets 149,646 2,182,675 2,332,321
------------------ --------------- --------------
Total assets at
December 31, 1999 $ 2,376,149 $ 2,182,675 $ 4,558,824
================== =============== ==============
1998 Management
Fees Other (2) Consolidated
Management fees $ 12,498,922 $ 0 $ 12,498,922
Operating profit (loss) $ 1,472,195 $ (3,615,259) $ (2,143,064)
================== =============== ==============
Identifiable assets at
December 31, 1998 $ 3,969,993 $ 0 $ 3,969,993
Corporate assets 969,343 21,001,679 21,971,022
------------------ --------------- --------------
Total assets at
December 31, 1998 $ 4,939,336 $ 21,001,679 $ 25,941,015
================== =============== ==============
Prior to 1998, the Company received its revenue from two sources:
management fees earned by Genesis and GCCA and sales of components
and subsystems made by P & H. Information about those segments for
the year ended December 31, 1997 is as follows:
1997 Management
Fees Sales Other (3) Consolidated
-------------- ------------ ----------- -----------------
Sales and
Management fees $ 14,619,951 $ 3,382,388 $ 0 $ 18,002,339
Operating profit (loss) $ 4,978,571 $ (102,777) (5,303,797) $ (428,003)
============== ============ =========== =================
Identifiable assets at
December 31, 1997 $ 3,979,050 $ 1,911,239 $ 164,237 $ 6,054,526
Corporate assets 1,939,625 461,552 24,384,491 26,785,668
-------------- ------------ ----------- -----------------
Total assets at
December 31, 1997 $ 5,918,675 $ 2,372,791 $24,548,728 $ 32,840,194
=============== ============ =========== =================
Operating profit is total revenue less cost of goods sold, selling,
general and administrative expenses, research and development, and
bad debts.
Identifiable assets are those used by each segment of the Company's
operations. Corporate assets are primarily cash, commercial paper,
deferred costs and intangibles.
(1)Reflects general and administrative expenses of the Company
which reduce operating profit of the segment to an operating loss
on a consolidated basis. Amortization of goodwill in the amount of
$18,004,775 is also included.
(2)Reflects general and administrative expenses of the Company
which reduce operating profit of the segments to an operating loss
on a consolidated basis. Amortization of goodwill in the amount of
$2,545,280 is also included.
(3)Reflects general and administrative expenses, research and
development and bad debts of the Company and MMC which reduce
operating profit of the segments to an operating loss on a
consolidated basis. Amortization of goodwill in the amount of
$2,515,530 is also included.
F - 14
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998, and 1997
NOTE 14: INDUSTRY SEGMENTS (continued)
Pre-consolidation net income (loss) is as follows:
1999 1998 1997
----------------- ----------------- ------------------
Dynamic $ (10,980,650) $ (5,320,553) $ (5,531,798)
MMC/GmBH 0 0 (1,127,675)
P & H 0 0 (51,804)
Genesis (2,093,190) (981,840) 2,845,514
GCCA (19,762) 160,540 542,452
----------------- ----------------- ------------------
(13,093,602) (6,141,853) (3,323,311)
(Tax) benefit adjustment 0 0 (222,535)
----------------- ----------------- ------------------
Adjusted Net Loss $ (13,093,602) $ (6,141,853) $ (3,545,846)
================= ================= ==================
For 1999, revenue from the following clients exceeded 5% of total
management fees: Aberdeen 5.81%, Franklin 6.34%, Bradley 5.75%,
Franklin County 6.69%, Tyler Holmes 7.18%, Montfort Jones 6.31%,
Sharkey 6.01%, Simpson 7.44%, Lackey 5.26%, and Perry 6.77%.
For 1998, revenue from the following clients exceeded 5% of total
management fees: Bradley 6.2%, Franklin County 7.2%, Holly Springs
5.7%, Lackey 5.7%, Morehouse 6.2%, Richardson 5.9%, Tyler Holmes
6.1%, Senatobia 6.2%, North Sunflower 5.5%, Sharkey 5.9% , Aberdeen
5.9%, Montfort Jones 6.0%, Cumberland 6.2%, and Dardanelle 6.0%.
For 1997, revenue from the following clients exceeded 5% of total
management fees: Bradley 5.3%, Franklin County 6.2%, Morehouse 5.3%,
Richardson 5.0%, Tyler Holmes 5.2%, Senatobia 5.3%, Sharkey 5.0%,
Aberdeen 5.0%, Montfort Jones 5.1%, Cumberland 5.3%, and Dardanelle
5.1%.
NOTE 15: ACQUISITION OF SUBSIDIARIES
During 1996, $1,000,000 cash was paid to acquire 50% of the
outstanding common stock of P & H in a purchase transaction. The
results of operations of P & H for all of 1996 are included in the
consolidated statements of operations.
During 1997, the remaining 50% of P&H was acquired in exchange for
214,287 shares of stock with an agreed value of $750,000.
In December 1996, the Company purchased 100% of the outstanding stock
of Genesis for $25,373,000. $15,050,000 was paid in cash or notes and
accounts payable. $10,323,000 was paid by issuing 3,100,000 shares of
restricted common stock at a value of $3.33 per share. $24,262,775 of
the purchase price has been allocated to goodwill which is being
amortized over ten years.
In March of 1997, the Company acquired GCCA as a wholly owned
subsidiary. Cash of $500,000 and 150,000 shares of restricted stock
valued at $2.00 per share were given for 100% of the outstanding
stock of GCCA. $595,000 of the purchase price has been allocated to
goodwill which is being amortized over five years. The results of
operations for GCCA for April thru December 31, 1997 are included in
the consolidated statements of operations.
NOTE 16: 1998 EVENTS
On February 25, 1998, the Company announced that it would spin-off
two of its subsidiaries, MMC (which includes GmBH) and P&H, into a
new public entity to be called MW Medical, Inc. If the spin-off had
occurred on December 31, 1997, the consolidated total assets would
have been reduced by about $2.5 million and consolidated total
liabilities would have been reduced by about $.8 million.
The loss associated with MMC and P&H for the year ended December 31,
1997 was about $1.18 million.
In 1998, Dynamic recorded a $2.17 million charge to bad debts to
reflect money due to it from MMC/GmBH which was not repaid. The
spin-off was accounted for as a gain on disposition of subsidiaries
in the amount of $256,493 which was a result of recapture of negative
basis of the investment in subsidiaries. Each subsidiary maintained
its own accounting records. There was no allocation of assets or
liabilities when the entities were spun-off.
F - 15
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998, and 1997
NOTE 17: EXTRAORDINARY ITEM
As discussed in Note 9, the Company in early 1999 was able to reduce
its long-term convertible debt by almost half.
The Company recorded extraordinary item income of $7,955,831. The
gain was determined based on the amount of debt forgiven less the
value of the common stock given to effect the transaction.
The discharge of indebtedness income will be non-taxable as the
Company is insolvent for tax purposes under Code Section 108 of
the Internal Revenue Code.
F - 16
EXHIBIT 11
DYNAMIC ASSOCIATES, INC.
CALCULATION OF EARNINGS PER SHARE
Weighted
Common Months Average
Shares Outstanding Shares
----------------- ---------------- ------------------
Year Ended December 31, 1999
Balance at December 1998 14,223,929 12 14,223,929
Issuance to retire debt 4,162,500 10.16 3,523,870
----------------- ------------------
Balance at December 31, 1999 18,386,429 17,747,799
Loss for year ended December 31, 1999 $ (13,093,602)
Loss per share $ (.74)
Year Ended December 31, 1998
Balance at December 31, 1997 13,973,929 12 13,973,929
Sale of stock 250,000 10.16 211,644
----------------- ------------------
Balance at December 31, 1998 14,223,929 14,185,573
Loss for year ended December 31, 1998 $ (6,141,853)
Loss per share $ (.43)
Year Ended December 31, 1997
Balance at December 31, 1996 12,158,900 12 12,158,900
Sale of stock 1,022,600 6.6 564,304
Issuance to acquire Geriatric 150,000 11.0 137,500
Issuance to retire debt 428,142 3.5 124,875
Issuance to acquire 50% of P&H 214,287 4.0 71,429
----------------- ------------------
Balance at December 31, 1997 13,973,929 13,057,008
Loss for year ended December 31, 1997 $ (3,545,846)
Loss per share $ (.27)
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2000 1999
(Unaudited) (Audited)
----------------- --------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 579,775 $ 181,826
Accounts receivable (less allowance for doubtful accounts of
$1,157,472 in 2000 and $933,909 in 1999) 2,242,949 2,065,028
Other receivables 0 70,589
Prepaid expense and other current assets 18,755 1,600
----------------- ------------------
TOTAL CURRENT ASSETS 2,841,479 2,319,043
PROPERTY, PLANT & EQUIPMENT 83,408 89,016
OTHER ASSETS
Deferred debt issue costs (less amortization of $399,388 in 2000
and $316,432 in 1999) 477,809 560,765
Goodwill 1,590,000 1,590,000
----------------- ------------------
2,067,809 2,150,765
------------------ ------------------
$ 4,992,696 $ 4,558,824
================== ==================
LIABILITIES & (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 14,482 $ 63,363
Accrued expenses 725,241 636,179
Current portion of long-term debt 13,098 4,349
Accrued interest payable 846,449 366,305
----------------- ------------------
TOTAL CURRENT LIABILITIES 1,599,270 1,070,196
Long-term debt 9,095 5,857
Convertible notes 8,676,500 8,676,500
----------------- ------------------
8,685,595 8,682,357
----------------- ------------------
TOTAL LIABILITIES 10,284,865 9,752,553
STOCKHOLDERS' (DEFICIT)
Common Stock $.001 par value:
Authorized - 25,000,000 shares
Issued and outstanding 18,386,429 shares 18,386 18,386
Additional paid-in capital 19,146,474 19,146,474
Retained deficit (24,457,029) (24,358,589)
----------------- ------------------
TOTAL STOCKHOLDERS' (DEFICIT) (5,292,169) (5,193,729)
----------------- ------------------
$ 4,992,696 $ 4,558,824
================= ==================
See Notes to Financial Statements.
3
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
2000 1999 2000 1999
------------------ ----------------- ----------------- ------------------
Management fees $ 1,472,353 $ 2,055,890 $ 4,834,805 $ 6,569,302
------------------ ----------------- ----------------- ------------------
1,472,353 2,055,890 4,834,805 6,569,302
General & administrative expenses 1,443,565 1,682,322 4,368,662 5,104,844
Depreciation 9,768 9,347 19,233 39,401
Amortization of goodwill 0 636,320 0 1,908,960
Bad debts (101,435) 844,103 46,565 2,018,180
------------------ ----------------- ----------------- ------------------
1,351,898 3,172,092 4,434,460 9,071,385
------------------ ----------------- ----------------- ------------------
NET OPERATING INCOME (LOSS) 120,455 (1,116,202) 400,345 (2,502,083)
OTHER INCOME (EXPENSE)
Interest income 59 2,242 59 2,893
Interest expense (166,128) (193,837) (498,844) (677,661)
Unrealized (decrease) in investment 0 0 0 (13,000)
------------------ ----------------- ----------------- ------------------
(166,069) (191,595) (498,785) (687,768)
------------------ ----------------- ----------------- ------------------
NET (LOSS) BEFORE INCOME TAXES (45,614) (1,307,797) (98,440) (3,189,851)
INCOME TAX EXPENSE (BENEFIT) 0 (1,800) 0 300,000
------------------ ----------------- ----------------- ------------------
NET (LOSS) BEFORE
EXTRAORDINARY ITEM (45,614) (1,305,997) (98,440) (3,489,851)
Extraordinary item - Gain on restructuring of debt
(no applicable income taxes) 0 0 0 7,955,831
------------------ ----------------- ----------------- ------------------
NET INCOME (LOSS) $ (45,614) $ (1,305,997) $ (98,440) $ 4,465,980
================== ================= ================= ==================
BASIC AND DILUTED (LOSS) PER SHARE
Net income (loss) per weighted average share:
Operations $ (.00) $ (.07) $ (.01) $ (.20)
Extraordinary item .00 .00 .00 .46
------------------ ----------------- ----------------- ------------------
NET INCOME (LOSS) $ (.00) $ (.07) $ (.01) $ .26
================== ================= ================= ==================
Weighted average number of common shares
used to compute net income (loss) per weighted
average share 18,386,429 18,386,429 18,386,429 17,461,429
================== ================= ================= ==================
See Notes to Financial Statements.
4
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended September 30,
2000 1999
------------------ -----------------
OPERATING ACTIVITIES
Net income (loss) $ (98,440) $ 4,465,980
Adjustments to reconcile net income (loss) to cash used by
operating activities:
Depreciation and amortization 102,189 2,047,508
Non-cash debt restructuring 0 (7,955,831)
Book value of disposed assets 0 72,041
Bad debts 46,565 2,018,180
Unrealized change in investment 0 13,000
Deferred taxes 0 300,000
Changes in assets and liabilities:
Accounts receivable (153,897) (1,523,549)
Prepaid expenses and other (17,155) 87,721
Accounts payable and accrued expenses 520,325 111,333
------------------ -----------------
NET CASH USED BY OPERATING ACTIVITIES 399,587 (363,617)
INVESTING ACTIVITIES
Loan - other 4,067 0
Deposits 0 410
------------------ -----------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 4,067 410
FINANCING ACTIVITIES
Cash from (to) subsidiaries (5,705) 0
Principal payments on debt 0 (3,290)
------------------ -----------------
NET CASH (USED) BY
FINANCING ACTIVITIES (5,705) (3,290)
------------------ -----------------
DECREASE IN CASH AND CASH EQUIVALENTS 397,949 (366,497)
Cash and cash equivalents at beginning of period 181,826 478,418
------------------ -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 579,775 $ 111,921
================== =================
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 18,700 $ 292,976
Cash paid for income taxes 0 23,931
During 2000, the Company purchased equipment in the amount of $13,625 on a
contract. During 1999, the Company issued 4,162,500 shares of its restricted
common stock and 8,325,000 warrants to purchase stock at $1.50 per share until
December 31, 2000 to retire debt of $8,325,000 and accrued interest of $912,881.
See Notes to Financial Statements.
5
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Basis of Presentation
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles ("GAAP") for interim
financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted auditing
principles for complete financial statements. The unaudited financial
statements should, therefore, be read in conjunction with the financial
statements and notes thereto in the Report on Form 10KSB for the year
ended December 31, 1999. In the opinion of management, all adjustments
(consisting of normal and recurring adjustments) considered necessary
for a fair presentation, have been included. The results of operations
for the three and nine-month periods ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the
entire fiscal year.
6
Appendix D
TELE-LAWYER, INC.
FINANCIAL
STATEMENTS
YEARS ENDED
APRIL 30, 2000
AND 1999
Piercy, Bowler,
Taylor & Kern
Certified Public Accountants
& Business Advisors
A Professional Corporation
Tele-Lawyer, Inc.
April 30, 2000 & 1999
CONTENTS
Page
Independent auditors' report 1
Financial statements:
Balance sheets 2
Statements of operations 3
Statements of stockholders' equity 4
Statements of cash flows 5
Notes to the financial statements 6 - 7
Piercy, Bowler,
Taylor & Kern
Certified Public Accountants & Business Advisors
Telephone: (702) 384-1120
Fax: (702) 870-2424
INDEPENDENT AUDITOR'S REPORT
Shareholders and Board of Directors
Tele-Lawyer, Inc.
Las Vegas, Nevada
We have audited the accompanying balance sheets of Tele-Lawyer, Inc. as
of April 30, 2000 and 1999 and the related statements of operations,
stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the consolidated 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 opinions.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
Tele-Lawyer, Inc. as of April 30, 2000 and 1999 and the results of its
operations and cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/S/ Piercy, Bowler, Taylor & Kern
September 11, 2000
6100 Elton Avenue Suite 1000 Las Vegas, Nevada 89107
TELE-LAWYER, INC.
BALANCE SHEETS
APRIL 30, 2000 AND 1999
- -----------------------------------------------------------------------
2000 1999
-------- -------
ASSETS
Current Assets
Cash and cash equivalents $1,041,138 $8,213
Accounts receivable 4,371
---------- ------
1,045,509 8,213
Property and equipment, net of
accumulated depreciation of $38,704
in 2000 and 1999 3,394
---------- ------
$1,048,903 $8,213
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $54,585
----------
Stockholders' equity
Common stock,$0.001 par and no par,
25,000,000 and 100,000 shares authorized,
5,341,666 and 1,000 shares issued and
outstanding 5,342 $400,000
Additional paid-in capital 1,419,657
Accumulated deficit (430,681) (391,787)
---------- ------
994,318 8,213
---------- ------
$1,048,903 $8,213
See Notes to Financial Statements 2
TELE-LAWYER, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED APRIL 30, 2000 AND 1999
- -----------------------------------------------------------------------
2000 1999
-------- -------
Revenues
Legal support services $204,720 $128,684
---------- ------
Operating costs and expenses
Legal support services 63,796 50,598
Software research and development costs 51,696 355
Selling, general, and administrative 137,983 113,945
---------- ------
253,475 164,898
---------- ------
Loss from operations (48,755) (36,214)
Other income
Interest 8,462 644
Rentals 1,400
---------- ------
Net loss $ (38,893) $ (35,570)
---------- ------
See notes to financial statements 3
TELE-LAWYER, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED APRIL 30, 2000 AND 1999
Change in
number of
shares issued Common Additional
and out- Stock Par Paid-in Retained
standing Value Capital Earnings
---------- --------- ---------- --------
Balance,
Saturday,
May 01, 1999 1,000 $ $400,000 $391,788
Stock split of
5,000 to 1 4,999,000 5,000 (5,000)
Net loss (38,894)
Sale of common
Shares 341,666 342 1,024,657
---------- --------- ---------- --------
Balance, Sunday,
April 30, 2000 5,341,666 $5,342 $1,419,657 $352,894
---------- --------- ---------- --------
Balance, Friday,
May 01, 1998 1,000 $ $400,000 $(356,218)
Net income (loss) (35,570)
Balance, Saturday,
May 01, 1999 1,000 $ $400,000 $(391,788)
See notes to financial statements 4
TELE-LAWYER, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 2000 AND 1999
- -----------------------------------------------------------------------
2000 1999
-------- -------
Operating activities
Net cash provided by (used in)
operating activities $ 11,321 $(38,879)
---------- ---------
Investing activities
Purchase of property and equipment (3,395)
---------- ---------
Financing activities
Sale of common stock 1,024,999
---------- ---------
Net increase (decrease) in cash and
cash equivalents 1,032,925 (38,879)
Cash and cash equivalents,
beginning of year 8,213 47,092
---------- ---------
Cash and cash equivalents,
end of year $1,041,138 $ 8,213
---------- ---------
Reconciliation of net loss to net
cash provided by (used in)
operating activities
Net income (loss) $ (38,893) $(35,570)
Increase in operating (assets)
liabilities
Accounts receivable (4,371)
Accounts payable 54,585
Other operating liabilities (3,309)
---------- ---------
Net cash provided by (used in)
operating activities $ 11,321 $(38,879)
See notes to financial statements 5
TELE-LAWYER, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2000 AND 1999
- -----------------------------------------------------------------------
1. Nature of operations and background information:
Business activities. Tele-Lawyer, Inc., a Nevada corporation, (the
Company) is in the business of arranging for the provision of legal
advice and information to consumers of legal services through licensed
attorneys. Other legal support services that the Company offers include
continuing professional education for attorneys and specialized
telephone conferencing services for professionals, associations and the
general public. The Company is in the process of further expanding its
legal support services and geographic coverage to create a more
comprehensive nationwide hub for access to these services.
Concentrations. Because the Company generates substantial revenue
from relatively few contracts with certain associations, a decline in
the size or number of these arrangements could adversely affect future
operations. For the most recent operating period presented, one
association accounted for approximately 74% of the Company's revenues.
This contract expires in December 2000. The renewal of the contract
and certain other terms are currently being negotiated. For the prior
operating period, four other customers accounted for approximately the
same percentage of the Company's revenues.
2. Summary of significant accounting policies:
Use of estimates. Timely preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect
reported amounts, some of which may require revision
in future periods.
Cash equivalents. Cash equivalents consist of federally insured
money market instruments with initial maturities of three
months or less.
Property and equipment. Property and equipment are stated at cost.
Depreciation is computed using the straight-line and declining balance
methods over the estimated useful lives of the assets (generally two to
ten years).
Revenue recognition. Legal support services revenue is recognized as
the services are provided. Revenue from service contracts is
recognized ratably over the contract term. Customer charges for
service customization are generally recognized when the services are
completed.
Advertising expenses. Advertising (totaling $5,100 and $9,290 for the
most recent and prior year) is expensed as incurred and is also
included in selling, general and administrative expenses.
Software research and development costs. Costs incurred in creating
computer software are expensed when incurred until technological
feasibility has been established for the product. Thereafter, costs
are capitalized and amortized over the remaining expected economic life
of the product.
Stock compensation. The Company accounts for stock- based employee
compensation using the intrinsic value method described in Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees.
3. Equity:
Common stock. In March 2000, pursuant to Rule 506 of Regulation D of
the Securities Act of 1933, the Company sold a total of 341,666 shares
of its common stock at $3 per share to two investors. The Company is
considering additional private placements to fund expansion plans,
however, there is no assurance that such funding or the expansion of
services will occur.
Negotiations with a partnering company. The Company is in the process
of reacquiring the rights to offer its legal support services in
certain midwestern states from a partnering company. Negotiations are
ongoing, and management believes that they will result in the issuance
of 100,000 shares or more, and / or warrants to purchase such shares,
of the Company's common stock.
Stock options, employment and consultancy agreements. In December
1999, the Company adopted an incentive stock option plan. The plan
authorizes the Company to issue options totaling up to 15% of the
outstanding shares of the Company, not to exceed 2,500,000. As of
the most recent balance sheet date presented, options to purchase
325,000 common shares at $1 per share have been issued and 91,666 have
vested with an additional 116,667 vesting on both June 15, 2000 and
December 15, 2000. The options expire on the earlier of three years
from the date of issuance or three months following termination of
employment or the business relationship. The estimated fair value of
the Company's common stock on the grant dates approximated the exercise
price. Accordingly, no compensation is recorded for these grants under
the intrinsic or fair value method, and no proforma information is
required for employee compensation under the alternative fair value
method.
Subsequent to the most recent balance sheet date, the Company entered
into employment or consultancy agreements with certain individuals for
unspecified periods. The agreements may be terminated by the Company
at any time without cause. Some require a nominal severance payment.
The agreements, among other things, provide for
6
TELE-LAWYER, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2000 AND 1999
- -----------------------------------------------------------------------
base and incentive cash compensation and for the issuance of additional
options to purchase 448,748 common shares at exercise prices equal to
the most recent sales price of the Company's stock at or from the date
of the grant. 46,917 of the options are exercisable beginning June
2000, and additional options are exercisable beginning in December 2000
(146,750), June 2001 (146,750), and June 2002 (108,333). Under these
agreements, the base annual cash compensation for these individuals
total $649,000 plus approximately $150,000 payable in common stock of
the Company for the year ending April 30, 2001. Incentive cash
compensation for 2001 is generally limited to 5% of earnings before
interest, depreciation and taxes (EBITDA), provided that EBITDA is at
least $2,400,000.
4. Income taxes:
The Company's effective tax rate differs from the federal statutory
rate due to a 100% valuation allowance provided for any tax benefits
that may result from net operating losses incurred, because of
uncertainty regarding realizability.
As of the most recent balance sheet date presented, the Company has
available unused operating loss carryforwards expiring as follows:
Expiring in
2004 $291,370
2017 41,878
2019 37,624
2020 38,893
--------
$409,765
--------
5. Lease commitment:
The Company has an operating lease commitment for office facilities
expiring in May 2001. Rent expense for the most recent and prior
operating periods presented was approximately $21,000 and $3,000.
Future minimum lease payments total $154,000 ($138,000 for the year
ending April 30, 2001).
7
TELE-LAWYER, INC.
UNAUDITED
INTERIM
FINANCIAL
STATEMENTS
NINE MONTHS ENDED
JANUARY 31, 2001
Tele-Lawyer, Inc.
Balance Sheets
January 31, 2001 and April 30, 2000
-----------------------------------------------------------------
(unaudited) (unaudited)
31-Jan-01 30-Apr-00
----------- ----------
ASSETS
Current Assets
Cash and cash equivalents 169,652 1,041,138
Accounts receivable 10,000 4,371
----------- ----------
179,652 1,045,509
Property and equipment,
net of accumulated depreciation 87,033 3,394
----------- ----------
266,685 1,048,903
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable 50,044 54,585
Stockholders' equity
Common stock, $0.001 par and no par,
25,000,000 shares authorized,
5,341,666 shares issued and
outstanding 5,342 5,342
Additional paid-in capital 1,494,657 1,419,657
Accumulated deficit (1,283,358) (430,681)
----------- ----------
216,641 994,318
----------- ----------
266,685 1,048,903
----------- ----------
1
Tele-Lawyer, Inc.
Statements of Operations
Three Months Ended January 31,2001, October 31, 2000
And Nine Months Ended January 31, 2001
-------------------------------------------------------------------
(unaudited) (unaudited) (unaudited)(unaudited)
Three Three Three Nine
Months Months Months Months
Ended Ended Ended Ended
31-Jul-00 31-Oct-00 31-Jan-01 31-Jan-01
---------- ---------- ----------- ---------
Revenues
Legal support
Services 57,686 125,420 206,785 389,892
---------- ---------- ----------- ---------
Operating costs and
expenses
Legal support services 30,487 49,061 43,273 122,820
Software research and
development costs 156,363 216,984 185,704 559,052
Selling, general, and
Administrative 174,630 212,992 196,372 583,994
---------- ---------- ----------- ---------
361,480 479,037 425,349 1,265,866
---------- ---------- ----------- ---------
Loss from operations (303,793) (353,617) (218,564) (875,974)
---------- ---------- ----------- ---------
Other income
Interest 12,655 7,492 1,549 21,697
Rentals 400 800 400 1,600
---------- ---------- ----------- ---------
Net loss (290,738) (345,325) (216,614) (852,677)
---------- ---------- ----------- ---------
2
TELE-LAWYER, INC.
NOTES TO FINANCIAL STATEMENTS
THREE QUARTERS ENDED JANUARY 31, 2001
- -----------------------------------------------------------------------
1. Nature of operations and background information:
Business activities. Tele-Lawyer, Inc., a Nevada corporation, (the
Company) is in the business of arranging for the provision of legal
advice and information to consumers of legal services through licensed
attorneys. Other legal support services that the Company offers
include continuing professional education for attorneys and specialized
telephone conferencing services for professionals, associations and the
general public. The Company is in the process of further expanding its
legal support services and geographic coverage to create a more
comprehensive nationwide hub for access to these services.
Concentrations. Because the Company generates substantial revenue from
relatively few contracts with certain associations, a decline in the
size or number of these arrangements could adversely affect future
operations.
2. Summary of significant accounting policies:
Use of estimates. Timely preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect reported
amounts, some of which may require revision in future periods.
Cash equivalents. Cash equivalents consist of federally insured money
market instruments with initial maturities of three months or less.
Property and equipment. Property and equipment are stated at cost.
Depreciation is computed using the straight-line and declining balance
methods over the estimated useful lives of the assets (generally two to
ten years).
Revenue recognition. Legal support services revenue is recognized as
the services are provided. Revenue from service contracts is
recognized ratably over the contract term. Customer charges for
service customization are generally recognized when the services are
completed.
Advertising expenses. Advertising is expensed as incurred and is
included in selling, general and administrative expenses.
Software research and development costs. Costs incurred in creating
computer software are expensed when incurred until technological
feasibility has been established for the product. Thereafter, costs
are capitalized and amortized over the remaining expected economic life
of the product.
Stock compensation. The Company accounts for stock-based employee
compensation using the intrinsic value method described in Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees.
3. Equity:
Common stock. In March 2000 and January 2001, pursuant to Rule 506 of
Regulation D of the Securities Act of 1933, the Company sold a total of
341,666 and 25,000 shares, respectively of its common stock at $3 per
share. The Company is considering additional private placements to
fund expansion plans, however, there is no assurance that such funding
or the expansion of services will occur.
Stock options, employment and consultancy agreements. In December
1999, the Company adopted an incentive stock option plan. The plan
authorizes the Company to issue options totaling up to 15% of the
outstanding shares of the Company, not to exceed 2,500,000. As of the
most recent balance sheet date presented, options to purchase 325,000
common shares at $1 per share have been issued and have fully vested.
The options expire on the earlier of three years from the date of
issuance or three months following termination of employment or the
business relationship. The estimated fair value of the Company's
common stock on the grant dates approximated the exercise price.
Accordingly, no compensation is recorded for these grants under the
intrinsic or fair value method, and no proforma information is required
for employee compensation under the alternative fair value method.
The Company has entered into employment or consultancy agreements with
certain individuals for unspecified periods.
2
TELE-LAWYER, INC.
NOTES TO FINANCIAL STATEMENTS
THREE QUARTERS ENDED JANUARY 31, 2001
- -----------------------------------------------------------------------
The agreements may be terminated by the Company at any time without
cause. Some require a nominal severance payment. As of the most
recent balance sheet date presented, the agreements, among other
things, provide for base and incentive cash compensation and for the
issuance of options to purchase 386,000 common shares at exercise
prices equal to the most recent sales price of the Company's stock at
or from the date of the grant. 118,666 of the options are exercisable.
Under these agreements, the base annual cash compensation for these
individuals totals $568,000. Incentive cash compensation for 2001 is
generally limited to 5% of earnings before interest, depreciation and
taxes (EBITDA), provided that EBITDA is at least $2,400,000.
As of the most recent balance sheet date presented, warrants to
purchase 450,000 common shares at $3 per share have been
issued and have fully vested.
4. Income taxes:
The Company's effective tax rate differs from the federal statutory
rate due to a 100% valuation allowance provided for any tax benefits
that may result from net operating losses incurred, because of
uncertainty regarding realizability.
As of the most recent balance sheet date presented, the Company has
available unused operating loss carryforwards expiring as follows:
Expiring in
2004 $ 291,370
2017 41,878
2019 37,624
2020 38,893
---------
$409,765
---------
5. Lease commitment:
The Company has an operating lease commitment for office facilities
expiring in May 2001. Future minimum lease payments total $154,000
($138,000 for the year ending April 30, 2001).
4