EXHIBIT 99.1
Island Resort Tours, Inc., and International Travel and Resorts, Inc.
COMBINED FINANCIAL STATEMENTS
Years Ended December 31, 2005 and 2004
INDEX
Page(s)
-------
Report of Independent Registered Public Accounting Firm ................. 1
Combined Balance Sheets ................................................. 2
Combined Statements of Operations ....................................... 3
Combined Statement of Changes in Stockholder's (Deficit) Equity ......... 4
Combined Statements of Cash Flows ....................................... 5
Notes to Combined Financial Statements .................................. 6 - 13
Report of Independent Registered Public Accounting Firm
________________________________________________________________________________
Board of Directors
Island Resort Tours, Inc. and International Travel and Resorts, Inc.
New York, New York
We have audited the accompanying combined balance sheets of Island Resort Tours,
Inc. and International Travel and Resorts, Inc. (the "Companies") as of December
31, 2005 and 2004 and the related combined statements of operations, changes in
stockholder's (deficit) equity, and cash flows for the years then ended. These
combined financial statements are the responsibility of the management of the
Companies. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the combined
financial statements are free of material misstatement. The Companies are not
required at this time to have, nor were we engaged to perform, an audit of their
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Companies' internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the combined financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall combined financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Companies as of
December 31, 2005 and 2004 and the results of their operations and cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States of America.
The accompanying combined financial statements have been prepared assuming that
the Companies will continue as going concerns. As discussed in Note 2, the
Companies incurred net losses of $510,961 and $91,061 during the years ended
December 31, 2005 and 2004, respectively, have used cash in operations of
$252,422 and $504,911 for the years ended December 31, 2005 and 2004,
respectively, and has a working capital deficiency of $384,384 and an
accumulated deficit of $451,402 at December 31, 2005. These factors, among
others, raise substantial doubt about the Companies' ability to continue as
going concerns. Management's plans in regard to these matters are also described
in Note 2. The combined financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Pender Newkirk & Company LLP
Certified Public Accountants
Tampa, Florida
May 1, 2006
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Island Resort Tours, Inc. and International Travel and Resorts, Inc.
Combined Balance Sheets
As of December 31, 2005 and 2004
ASSETS
2005 2004
---- ----
Current Assets
Cash .................................................. $ 201,174 $ 221,879
Short term investments, restricted .................... 83,133 86,495
Accounts Receivable, net of allowance for
doubtful accounts of $14,515 at 2005 and 2004 ....... 247,271 250,311
Other current assets .................................. 75,356 119,533
Taxes Receivable ...................................... - 55,000
--------- ---------
Total Current Assets ................................ 606,934 733,218
Property and equipment, net ............................. 32,558 35,835
--------- ---------
Deposits ................................................ 51,135 51,135
--------- ---------
Total Assets ........................................ $ 690,627 $ 820,188
========= =========
LIABILITIES AND STOCKHOLDER'S (DEFICIT) EQUITY
Current Liabilities
Accounts payable ...................................... $ 346,212 $ 213,231
Other accrued liabilities ............................. 77,907 66,562
Deferred revenue ...................................... 78,290 82,635
Customer deposits ..................................... 238,454 247,490
Line of credit ........................................ 200,000 -
Due to stockholder .................................... 50,000 -
Taxes payable ......................................... 455 -
--------- ---------
Total Current Liabilities ........................... 991,318 609,918
--------- ---------
Total Liabilities ................................... $ 991,318 $ 609,918
--------- ---------
Commitments and contingencies (see note 6)
Stockholder's (Deficit) Equity
Common stock .......................................... $ 11,000 $ 11,000
Contributed Capital ................................... 139,711 139,711
Accumulated (Deficit) Retained Earnings ............... (451,402) 59,559
--------- ---------
Total Stockholder's (Deficit) Equity ............... (300,691) 210,270
--------- ---------
Total Liabilities and Stockholder's (Deficit) Equity $ 690,627 $ 820,188
========= =========
See accompanying notes to the combined financial statements
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Island Resort Tours, Inc. and International Travel and Resorts, Inc.
Combined Statements of Operations
For the Years Ended December 31, 2005 and 2004
Years Ended December 31,
-----------------------------
2005 2004
---- ----
Total Revenues ............................. $ 2,579,641 $ 3,115,163
Cost of Revenues ........................... 1,518,548 1,370,386
----------- -----------
Gross Profit ............................... 1,061,093 1,744,777
Operating Expenses
General and administrative ............... 1,543,094 1,866,894
Depreciation ............................. 24,922 25,766
----------- -----------
Total Operating Expenses ............... 1,568,016 1,892,660
----------- -----------
Loss from Operations ................... (506,923) (147,883)
Other (income) expense
Interest income .......................... (2,235) (1,296)
Interest expense ......................... 7,658 -
----------- -----------
Total Other(Income) Expense ........... 5,423 (1,296)
----------- -----------
Net loss before income taxes ........... (512,346) (146,587)
Income tax benefit ..................... (1,385) (55,526)
Net Loss ............................... $ (510,961) $ (91,061)
=========== ===========
See accompanying notes to the combined financial statements
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Island Resort Tours, Inc. and International Travel and Resorts, Inc.
Combined Statement of Changes in Stockholder's (Deficit) Equity
For the Years Ended December 31, 2005 and 2004
Retained
Earnings Total
Common Stock ------------ Stockholders'
------------------- Contributed (Accumulated Equity
Shares Amount Capital Deficit) (Deficit)
------ -------- ----------- ------------ -------------
Balance at December 31, 2003 300 $ 11,000 $ 139,711 $ 150,620 $ 301,331
Net loss ................... - - - (91,061) (91,061)
------ -------- --------- --------- ---------
Balance at December 31, 2004 300 11,000 139,711 59,559 210,270
Net loss ................... - - - (510,961) (510,961)
------ -------- --------- --------- ---------
Balance at December 31, 2005 300 $ 11,000 $ 139,711 $(451,402) $(300,691)
====== ======== ========= ========= =========
See accompanying notes to the combined financial statements
-4-
Island Resort Tours, Inc. and International Travel and Resorts, Inc.
Combined Statements of Cash Flows
For the Years Ended December 31, 2005 and 2004
Year Ended December 31,
-----------------------
2005 2004
---- ----
Cash Flows from Operating Activities:
Net loss ........................................... $(510,961) $ (91,061)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation ................................... 24,922 25,766
Changes in operating assets and liabilities
Accounts receivable ............................ 3,040 220,742
Other current assets ........................... 44,177 (45,455)
Other assets ................................... - (22,500)
Taxes receivable ............................... 55,000 (55,000)
Taxes payable .................................. 455 (106,986)
Accounts payable ............................... 132,981 (298,654)
Other accrued liabilities ...................... 11,345 (64,491)
Deferred revenue ............................... (4,345) 46,770
Customer deposits .............................. (9,036) (114,042)
--------- ---------
Net Cash Used By Operating Activities .......... (252,422) (504,911)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment .............. (21,645) (16,064)
Proceeds from short term instrument ................ 3,362 -
Investment in short term instrument ................ - (6,415)
--------- ---------
Net Cash Used In Investing Activities .......... (18,283) (22,479)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit ....................... 200,000 -
Stockholder advances ............................... 50,000 -
--------- ---------
Net Cash Provided by Financing Activities ...... 250,000 -
--------- ---------
Net Decrease in Cash ................................. (20,705) (527,390)
Cash at Beginning of Year ............................ 221,879 749,269
--------- ---------
Cash at End of Year .................................. $ 201,174 $ 221,879
========= =========
SUPPLEMENTAL DISCLOSURESE OF CASH FLOW INFORMATION
- --------------------------------------------------
Cash paid during the year for:
Interest ....................................... 7,658 -
Income taxes ................................... - 136,847
See accompanying notes to the combined financial statements
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Island Resort Tours, Inc and International Travel and Resorts, Inc
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 2005 and 2004
NOTE 1 NATURE OF BUSINESS
Island Resort Tours, Inc.("IRT") and International Travel and Resorts,
Inc. ("ITR") (combined to be known as the "Companies") are wholesalers
of Caribbean travel primarily through established networks of travel
agencies, and a provider of telephone and marketing support to a
variety of Caribbean locations. International Travel and Resorts, Inc.
was founded in 1975, and is incorporated in the state of New York.
Island Resort Tours, Inc. was founded in 1989 and is also incorporated
in the state of New York. Both companies are located at 300 East 40th
Street, New York, New York.
NOTE 2 GOING CONCERN
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplates
continuation of the Companies as a going concern.
However, the Companies have a net loss of $510,961 and $91,061 and net
cash used in operations of $252,422 and $504,911 for the years ended
December 31,2005 and December 31,2004, respectively. There is a working
capital deficiency of $384,384, accumulated deficit of $451,402, and a
stockholders' deficiency of $300,691 at December 31, 2005. These
factors raise substantial doubt about the Companies' ability to
continue as a going concern.
Management believes that its profitability was unusually hindered in
2005 due to severe weather conditions in the Caribbean and Southeast
region of the United States, and that with current plans to provide
additional product content and expand its customer base that it will be
able to provide more profitable operating results. However, because the
Companies has had net loss from operations for the last two years, used
most of their available credit line and given these financial results
along with the Companies' expected cash requirements in 2006, unless
the Companies quickly return to profitability, additional capital
investment may be necessary to sustain the Company's operations.
The financial statements do not contain any adjustments, which might be
necessary if the Companies are unable to continue as a going concern.
Subsequent to December 31, 2005, on March 6, 2006, the Companies were
acquired by Dynamic Leisure Corporation (See Note 13)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These combined statements as of December 31, 2005 and 2004 and for the
years then ended, present the combined results of Island Resort Tours,
Inc. and International Travel and Resorts, Inc. Accounting principles
generally accepted in the United States of America require that
combined financial statements of commonly owned companies within
similar industries be combined when such presentation is more
meaningful to the users. All significant intercompany accounts and
transactions have been eliminated.
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Island Resort Tours, Inc and International Travel and Resorts, Inc
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 2005 and 2004
Use of Estimates:
The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management to make
certain estimates and assumptions about the future outcome of
current transactions which may affect the reporting and disclosure
of these transactions. Accordingly, actual results could differ from
those estimates used in the preparation of these combined financial
statements.
Cash and Cash Equivalents:
For the purpose of the cash flow statement, the Companies consider
all highly liquid investments with original maturities of three
months or less at the time of purchase to be cash equivalents.
Cash is maintained with a single financial institution in the United
States. Deposits with this bank may exceed the amounts of insurance
provided on such deposits. Generally, the deposits may be redeemed
on demand and, therefore, bear minimal risk.
Short-term Investments, Restricted:
The Companies have investments in certificates of deposit as part of
an agreement to have a letter of credit issued from the bank. These
certificates of deposit are classified as a short-term investment
since their six month terms are greater than the three month term
used for consideration as a cash equivalent.
Accounts Receivable
Accounts Receivable result from amounts for either the sale of
travel products or agreements with various hotels, for amounts such
as co-op advertising support. The Companies regularly evaluate the
collectibility of accounts receivable on an individual customer or
supplier level, based on factors such as recent payment history and
create an allowance as considered necessary. At December 31, 2005
and December 31, 2004 the allowance for doubtful accounts was
$14,515.
Accounts receivable for co-op advertising is generally also recorded
as deferred revenue at its full value until used. Therefore, there
is typically no allowance recorded.
Property and Equipment:
Property and equipment is stated at cost.
Depreciation is computed using the straight-line method and is
expensed based upon the estimated useful lives of the assets,
ranging from three to five years.
Expenditures for additions and improvements greater than $1,000 are
capitalized, while repairs and maintenance are expensed as incurred.
When property and equipment are sold or otherwise disposed of, the
asset account and related accumulated deprecation account are
relieved, and any gain or loss is included in operations.
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Island Resort Tours, Inc and International Travel and Resorts, Inc
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 2005 and 2004
Revenue Recognition:
The Companies follow the guidance of the Securities and Exchange
Commission's Staff Accounting Bulletin No. 104 "Revenue Recognition
in Financial Statements" in which we recognize revenue when it is
earned and realizable based on the following criteria: persuasive
evidence of an arrangement exists, services have been rendered, the
price is fixed or determinable and collectibility is reasonably
assured. The Company also follows EITF 99-19 "Reporting Revenue
Gross as a Principal versus Net as an Agent".
Merchant sales transactions are recorded at the gross selling price
of travel products such as lodging on the date of customer travel.
In a merchant sales transaction, the Companies provide travel
products or services to consumers or travel agencies through a
network of contractual arrangements with airlines, hotels, and other
travel providers. Monies received by customers in advance of travel
dates are recorded as a liability (Customer Deposits), until
reported as revenue on the actual travel date.
The Companies reported all other transactions at net, or the sales
price of the product less the Companies' cost.
Revenue from airline tickets is recognized when the tickets are
issued. Revenue for other services paid as a retainer, fixed dollar,
or fixed percentage amount are recognized when the service is
provided.
Income Taxes:
The Companies account for income taxes under the Financial
Accounting Standards No. 109 "Accounting for Income Taxes"
("Statement 109"). Under Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or
settled. Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period, which includes the enactment date.
Concentration of Credit Risk and Other Concentrations:
The Companies' ability to provide airline service availability to it
customers at favorable prices is a key component of its ability to
provide customers with travel packages and products. Gross bookings
from three Airlines, American Airlines, Continental and Delta
airline tickets accounted for approximately 54%, 18%, and 13%
respectively of all tickets sold in 2005 and 51% 20% and 10%
respectively in 2004. The Companies have negotiated rates and
products with the airlines, that allow it to price certain products
more favorably than some of its competitors. The loss of such
contracts could have a negative affect on the Companies' business.
-8-
Island Resort Tours, Inc and International Travel and Resorts, Inc
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 2005 and 2004
The Companies sell their travel products to travel agencies and also
directly to the end user. In 2005, two agencies accounted for more
than ten percent of total bookings. Magical Holidays accounted for
24.0% of bookings, while MCM Tour accounted for 17.0% of bookings.
In 2004, Magical Holidays and MCM Tour were each responsible for
15.5% of total bookings.
The Companies do have geographical risk with destinations since
essentially all of its business is travel to the Caribbean region.
This concentration potentially exposes the Companies to both
political and weather risks of this region.
Fair Value of Financial Instruments:
Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments," requires disclosures of
information about the fair value of certain financial instruments
for which it is practicable to estimate the value. For purpose of
this disclosure, the fair value of a financial instrument is the
amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced sale or
liquidation.
The Companies' financial instruments include cash, accounts
receivable, accounts payable, and accrued liabilities. The fair
values of cash, accounts receivable, accounts payable and accrued
liabilities approximated carrying values due to the short-term
nature of these instruments.
Advertising
The primary vehicle for advertising the Companies' products has been
printed materials such as informational or promotional brochures.
Advertising costs are expensed when incurred and amounted to
approximately $127,138 and $94,259 for the years ended December 31,
2005 and December 31, 2004, respectively.
New Accounting Pronouncements:
The Financial Accounting Standards Board has recently issued several
new accounting pronouncements, which may apply to the Companies.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and
Error Corrections" ("SFAS 154"). This statement replaces APB Opinion
No. 20 "Accounting Changes" and FASB Statement No. 3 "Reporting
Accounting Changes in Interim Financial Statements". SFAS 154
applies to all voluntary changes in accounting principle and to
changes required by an accounting pronouncement in the unusual
instance that the pronouncement does not include specific transition
provisions. SFAS 154 requires retrospective application to prior
periods' financial statements of changes in accounting principle,
unless it is impracticable to determine either the period-specific
effects or the cumulative effect of the change. When it is
impracticable to determine the period-specific effects of an
accounting change on one or more individual prior periods presented,
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Island Resort Tours, Inc and International Travel and Resorts, Inc
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 2005 and 2004
this SFAS requires that the new accounting principle be applied to
the balances of assets and liabilities as of the beginning of the
earliest period for which retrospective application is practicable
and that a corresponding adjustment be made to the opening balance
of equity or net assets for that period rather than being reported
in an income statement. When it is impracticable to determine the
cumulative effect of applying a change in accounting principle to
all prior periods, this SFAS requires that the new accounting
principle be applied as if it were adopted prospectively from the
earliest date practicable. The Companies adopted this SFAS as of
January 1, 2006. There is no current impact on the Companies'
financial statements with the adoption of this FASB.
NOTE 4 PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
Estimated
Useful Life
2005 2004 in Years
--------- --------- -----------
Office furniture and equipment $ 99,086 $ 89,108 3-5
Software ..................... 30,366 18,700 3-5
--------- ---------
Total property and equipment . 129,452 107,808
Less accumulated depreciation (96,894) (71,973)
--------- ---------
Property and equipment, net .. $ 32,558 $ 35,835
========= =========
Depreciation expense was $24,922 in 2005 and $25,766 in 2004.
NOTE 5 LINE OF CREDIT
IRT entered into a line of credit agreement with the Bank of New York
("the Bank") on December 5, 2001 for $200,000, which was later
increased to $210,000. The agreement was for one year with extensions
for a period of one year on the anniversary date unless the Bank elects
not to extend the line of credit. The line of credit is collateralized
by substantially all of the assets of IRT and a guarantee by the
stockholder. As of December 31, 2005 and 2004, the loan balance was
$200,000 and zero, respectively. The availability of the credit line
was $10,000 and $210,000 for December 31, 2005 and 2004, respectively.
The interest rate is variable and at December 31, 2005 was 8.25%.
NOTE 6 COMMITMENTS AND CONTINGENCIES
Surety Bond
IRT had outstanding at December 31, 2004 and 2005, a surety bond for
$70,000 related to the Airlines Reporting Corporation to allow the
purchase of airline tickets through a computerized ticket system. As
part of the letter of credit agreement IRT is required to keep a
collateral deposit in the amount of $22,500. The deposit is included in
Other Assets - Deposits on the accompanying balance sheets.
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Island Resort Tours, Inc and International Travel and Resorts, Inc
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 2005 and 2004
Letters of Credit
There are two letters of credit outstanding at December 31, 2005 and
2004 totaling $80,000 each year and payable to the Airlines
Reporting Corporation to allow the purchase of airline tickets
through a computerized ticket system. As part of the letter of
credit agreement, certificates of deposit are required with the
issuer of the letter of credit for approximately the amount of the
letters of credit and are reflected as short-term investments,
restricted, on the accompanying balance sheets.
Operating Lease:
The Companies currently lease office space under a five year
extension agreement effective April 2003. The Companies currently
pay $11,167 per month. Rent expense for the years ending December
31, 2005 and 2004 were $139,166 and $138,821, respectively. Future
lease obligations for 2006, 2007 and 2008 are $135,790 and $138,506
and $46,472, respectively.
The Companies currently leases two vehicles, both on which terms
will end in 2007. Lease expense related to these vehicles was
$19,436 and $22,393 in 2005 and 2004, respectively. Future lease
obligations for 2006 and 2007 are $19,345 and $11,044, respectively.
NOTE 7 RELATED PARTY TRANSACTIONS
As of the end of the year, IRT had outstanding a $50,000 payable to the
stockholder of the Companies, classified as a short term liability.
There are no contractual terms of a repayment date, and no interest is
being accrued or expected to be paid related to the balance.
The above related party transaction is not necessarily indicative of
the amounts that would have been incurred had comparable transactions
been entered into with independent parties.
NOTE 8 DEFERRED REVENUE
The Companies work close with suppliers that agree contractually to
provide advertising or promotional support. The amount of the supplier
commitment is recorded in Accounts Receivable and Deferred Revenue and
amounted to $78,290 and $82,635 at December 31, 2005 and 2004
respectively.
NOTE 9 CUSTOMER DEPOSITS
Customer deposits represent money received for hotel bookings, future
dates of travel. The Companies recognize the revenue and the related
costs of product when the travel occurs. The balances at December 31,
2005 and 2004 were $238,454 and $247,490 respectively.
-11-
Island Resort Tours, Inc and International Travel and Resorts, Inc
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 2005 and 2004
NOTE 10 COMMON STOCK
As of December 31, 2005 and 2004, IRT had 100 shares of no par common
stock issued and outstanding. As of December 31, 2005 and 2004, ITR had
200 shares of no par common stock issued and outstanding.
NOTE 11 RETIREMENT PLAN
During 2005 and 2004, the Companies had a 401K retirement savings plan
available to employees. The Companies provided a uniform percentage of
the amount of saving by the employee up to three percent of gross
salary. The expense related to this match for 2005 and 2004 was $5,253
and $6,073, respectively.
NOTE 12 INCOME TAXES
The effective tax rate varies from the federal statutory rate as a
result of the following items:
2005 2004
---- ----
Tax benefit computed at the federal statutory
rate ...................................... $(174,198) $(49,840)
State and local taxes, net of federal benefit (57,485) (16,447)
Other ....................................... 14,598 (13,439)
Change in valuation allowance ............... 215,700 24,200
--------- --------
Income tax provision/(benefit) .............. $ (1,385) $(55,526)
The tax effect of temporary differences at December 31 were as follows:
2005 2004
---- ----
Asset:
Net operating loss carryforward $ 239,900 $ 24,200
Less: Valuation allowance ................... (239,900) (24,200)
--------- --------
Deferred tax asset .......................... $ 0.0 $ 0.0
Management has determined it is more likely than not that the above
carrryforwards will not be realized, and accordingly a valuation
allowance has been established for the full amount of the deferred tax
asset. The change in the valuation allowance was an increase of
approximately $215,700 in 2005. At December 31, 2005 the Companies had
a net operating loss of approximately $534,389 available to offset
future taxable income through the year 2025.
The utilization of the carryforward is dependent upon the ability to
generate sufficient taxable income during the carryforward period. In
addition, utilization of the carryforward may be limited due to
ownership changes as defined in the Internal Revenue Code.
-12-
Island Resort Tours, Inc and International Travel and Resorts, Inc
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 2005 and 2004
NOTE 13 SUBSEQUENT EVENTS
On March 6, 2006, the Dynamic Leisure Corporation ("Dynamic") purchased
all of the issued and outstanding capital stock of Island Resort Tours,
Inc. and International Travel and Resorts, Inc., for a purchase price
of $4,783,300.
The purchase price consists of a combination of cash ($1,500,000),
700,000 shares of Dynamic's common stock ($1,833,300 valued at the
average closing price of the Dynamic's common stock for the five days
before and five days after the acquisition dates), and a one-year
secured Convertible Promissory Note in the principal amount of
$1,450,000. The cash portion consists of $500,000 delivered at closing,
with the balance to be delivered on or before May 5, 2006, following
completion of audits of the financial statements of the Companies for
the years ended December 31, 2004 and December 31, 2005. The balance of
the cash payment will be reduced by any trade payables in excess of
short-term liquid assets.
Additional shares of common stock may be issued to the shareholder of
the Companies, if as part of any subsequent business acquisitions on or
before December 31, 2006, Dynamic issues its common stock to an
acquiree/seller at a rate less than $1.50 per share. In such event,
additional shares may be issued equivalent to the most favorable rate,
but in no event at a rate less than $1.00 per share. Up to an
additional 350,000 shares of common stock could be issued as a result
of this adjustment provision.
The Promissory Note is payable with interest at the rate of 9% per
annum and matures on March 6, 2007 (the "Maturity Date"). The Note is
convertible into Dynamic's common stock on or before the Maturity Date
at a rate of $1.50 per share, and is secured by a lien on the assets of
the Companies. The conversion rate may be adjusted downward if Dynamic,
in subsequent acquisitions on or before December 31, 2006, provides
consideration that includes convertible securities with a conversion
rate of less than $1.50 per share. In the event of any such adjustment,
the conversion rate will be adjusted to the most favorable rate
offered, but no lower than $1.00 per share.
Subsequent to the Closing Date, if Dynamic obtains cumulative net
external financing of $3,500,000 or more prior to the maturity date,
early repayment of 50% of the outstanding balance on the Note may be
required by the stockholder. If Dynamic receives in excess of
$7,000,000 in cumulative net external financing prior to the maturity
date, an early repayment of the full outstanding balance on the Note
may be required by the stockholder. Dynamic has agreed to include
resale of the shares issued and those issuable upon conversion of the
Note in the next registration statement.
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