UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2006
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO _______
COMMISSION FILE NUMBER 333-07953
DYNAMIC LEISURE CORPORATION
---------------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-1508703
--------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5680A West Cypress Street
Tampa, FL 33607
-------------------------
(Address of principal executive offices)
(813) 877-6300
--------------
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [_]
As of August 21, 2006, the registrant had 10,507,621 shares of its $.01 par
value common stock outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
DYNAMIC LEISURE CORPORATION AND SUBSIDIARIES
INDEX TO
QUARTERLY REPORT ON FORM 10-QSB
FOR THE FISCAL QUARTER ENDED JUNE 30, 2006
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited):
Consolidated Balance Sheet as of June 30, 2006 (Unaudited) ...... 1
Consolidated Statements of Operations
for the three and six months ended June 30, 2006
and the period from May 16,2005 (Inception)
to June 30,2005 (Unaudited) ...................................... 2
Consolidated Statements of Cash Flows
for the six months ended June 30, 2006 and from May 16,2005
(Inception) to June 30,2005 (Unaudited) .......................... 3
Notes to Consolidated Financial Statements (Unaudited) ........... 4
Item 2. Management's Discussion and Analysis or Plan of Operation ........ 24
Item 3. Controls and Procedures .......................................... 31
PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds ...... 32
Item 6. Exhibits ......................................................... 36
Signatures ................................................................ 36
Exhibit Index ............................................................. 36
i
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DYNAMIC LEISURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
As of June 30, 2006
(Unaudited)
ASSETS
Current Assets
Cash ........................................................... $ 139,776
Investments, restricted ........................................ 155,133
Accounts receivable ............................................ 266,275
Prepaid travel ................................................. 236,550
Other current assets ........................................... 112,891
-----------
Total Current Assets ......................................... 910,625
Property and equipment, net ...................................... 851,455
Other Assets
Goodwill ....................................................... 5,115,696
Intangible ..................................................... 2,472,446
Deposits ....................................................... 96,651
Debt issue costs ............................................... 95,082
-----------
Total Other Assets ........................................... 7,779,875
Total Assets ................................................. $ 9,541,955
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Convertible notes payable, net of discount( see note 6) ........ $ 2,087,008
Convertible notes payable related parties ...................... 750,000
Notes payable .................................................. 39,063
Accounts payable ............................................... 648,795
Accrued compensation ........................................... 54,115
Accrued interest ............................................... 204,026
Overdraft liabiltity ........................................... 63,337
Other accrued liabilities ...................................... 132,419
Short term capital lease ....................................... 36,052
Deferred revenue ............................................... 609,663
Customer deposit ............................................... 261,854
Loan payable ................................................... 226,325
Loan payable - Bank ............................................ 214,653
Acqusition payable ............................................. 1,440,000
Taxes payable .................................................. 232
Due to employee ................................................ 50,000
Warrant liability .............................................. 2,804,877
-----------
Total Current Liabilities .................................... 9,622,419
Long Term Liabilities
Loans payable - Bank, net of current portion ................... 15,501
Non convertible notes payable, net of current portion .......... 117,370
Capital lease .................................................. 77,888
-----------
Total Long Term Liabilities .................................. 210,759
Total Liabilities ............................................ $ 9,833,178
-----------
Commitments and contingencies(Note 7)
Stockholders' Deficit
Preferred stock, $0.01 par value, 20,000,000 shares authorized,
none issued and outstanding .................................. $ -
Common stock, $0.01 par value, 300,000,000 shares authorized,
9,403,133 issued and outstanding ............................. 94,031
Common stock issuable, at par value (322,267 shares) ............ 3,226
Additional paid-in capital ..................................... 4,805,138
Stock subscription receivable .................................. (15,000)
Accumulated deficit ............................................ (5,178,618)
Total Stockholders' Deficit .................................. (291,223)
-----------
Total Liabilities and Stockholders' Deficit .................. $ 9,541,955
===========
See accompanying notes to the unaudited consolidated financial statements
1
DYNAMIC LEISURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three From Inception For the Six From Inception
Months Ended (May 16, 2005) Months Ended (May 16, 2005)
June 30, 2006 To June 30, 2005 June 30, 2006 To June 30, 2005
------------- ---------------- ------------- ----------------
Total Revenues .............................. $ 1,904,547 $ - $ 2,997,045 $ -
Cost of revenues ............................ 1,340,248 - 2,157,572 -
Gross Profit .............................. 564,299 - 839,473 -
Operating Expenses
General and administrative ................ 1,454,825 49,825 2,281,340 49,825
Depreciation and amortization Expense ..... 80,048 - 84,561 -
Total Operating Expenses ................ 1,534,873 49,825 2,365,901 49,825
----------- ----------- ----------- -----------
Loss from Operations .................... (970,574) (49,825) (1,526,428) (49,825)
Other (Income) Expense
Interest income ........................... (6,557) - (13,042) -
Interest expense .......................... 1,002,449 115 2,184,895 115
Loss on extingishment of debt ............. - - 208,452 -
Other Expense ............................. 8,020 - 8,020 -
Warrant valuation (income) expense ........ (1,441,491) - 778,551 -
Total Other Expense, (income) net ....... (437,579) 115 3,166,876 115
----------- ----------- ----------- -----------
Net Loss ................................ $ (532,995) $ (49,940) $(4,693,304) $ (49,940)
=========== =========== =========== ===========
Net Loss Per Share - Basic and Diluted ...... $ (0.06) $ (0.05) $ (0.53) $ (0.05)
=========== =========== =========== ===========
Weighted average number of shares outstanding
during the period - basic and diluted ..... 9,601,630 1,100,000 8,841,327 1,100,000
=========== =========== =========== ===========
See accompanying notes to the unaudited consolidated financial statements
2
DYNAMIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six From May 16,
Months Ended 2005 (inception)
June 30,2006 to June 30,2005
------------ ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................. $(4,693,304) (49,825)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization .................... 84,562 -
Amortization of debt issue costs ................. 81,141 -
Interest accretion and debt discount amortization
on loan payable ................................. 2,019,746 -
Loss on extinguishment of debt ................... 208,452 -
Amortization of consultant warrants .............. 42,035 -
Warrant valuation expense ........................ 778,551 -
(Increase) decrease in assets:
Accounts receivable .............................. 196,703 -
Prepaid travel ................................... (16,558) -
Other current assets ............................. (61,890) -
Other assets .................................... (43,235) -
Increase (decrease) in liabilities:
Accounts payable ................................. 80,700 -
Accrued salaries ................................. 17,211 -
Accrued interest payable ......................... 58,639 -
Deferred revenue ................................. (77,476) -
Customer deposit ................................. (384,088) -
Taxes payable .................................... (223) -
Other accrued liabilities ........................ (19,814) -
Net Cash Used In Operating Activities ............ (1,728,848) (49,825)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment ................ (24,685) (100,000)
Acqusition of business ............................... (41,077) -
Net Cash Used In Investing Activities ............ (65,762) (100,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible promissory notes ........... 2,060,000 160,000
Repayment of convertible promissory notes ............ (344,632) -
Proceeds from overdraft .............................. 63,337 -
Proceeds from line of credit ......................... 10,000 -
Debt issue costs ..................................... (176,223) -
Repayment of capital leases .......................... (2,600) -
Proceeds from common stock issuance .................. 285,805 -
Net Cash Provided By Financing Activities ........ 1,895,687 160,000
----------- -----------
Net Increase in Cash ................................... 101,077 10,175
Cash at Beginning of Period ............................ 38,699 -
----------- -----------
Cash at End of Period .................................. $ 139,776 10,175
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes ......... $ - -
=========== ===========
Cash paid during the period for interest ............. $ 91,943 -
=========== ===========
Supplemental Disclosure of non-cash investing and
financing activities:
Debt and stock issue in acqusitions .................. $ 6,173,980 -
=========== ===========
Assets received on Capital Lease ..................... $ 116,540 -
=========== ===========
Discount on promissory notes ......................... $ 2,000,000 -
=========== ===========
Conversion liability related to prommissory note ..... $ 1,793,382 -
=========== ===========
See accompanying notes to the unaudited consolidated financial statements
3
DYNAMIC LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America and the rules and regulations of the United States
Securities and Exchange Commission for interim consolidated financial
information. Accordingly, they do not include all the information and footnotes
necessary for a comprehensive presentation of consolidated financial position
and results of operations.
It is management's opinion, however, that all material adjustments
(consisting of normal recurring adjustments) have been made which are necessary
for a fair consolidated financial statement presentation. The results for the
interim period are not necessarily indicative of the results to be expected for
the year.
All share and per share data in the accompanying consolidated financial
statements for the period ended June 30, 2006 have been adjusted retroactively
for the effect of a recapitalization transaction between DynEco Corporation
(DynEco), n/k/a Dynamic Leisure Corporation ("Dynamic"), and Dynamic Leisure
Group, Inc. ("DLG") in January 2006 and the subsequent one-for-thirty reverse
stock split. (See Note 12)
For further information, refer to the audited financial statements and
footnotes of DLG, Changes in L'Attitudes, Inc., and Island Resort Tours, Inc.
and International Travel and Resorts, Inc. included in the Company's 8-KA
filings in 2006 and the Form 10-KSB for DynEco Corporation for the year ended
December 31, 2005.
In 2005, DLG had been presented as a development stage company. As
such, the focus was on acquiring financing, setting up a corporate structure and
researching acquisitions. During the six months ended June 30, 2006, the Company
acquired operating companies with revenue and is not in the development stage.
NOTE 2 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
The Company is focusing on entering the wholesale travel business,
specializing in leisure travelers to popular destinations in the US, Caribbean,
Mexico, the UK, and Europe. A growth strategy was developed to grow revenue by
establishing a scalable, single operating system platform to assimilate and
leverage a combination of strategic acquisitions and internal growth, the first
of which occurred in the first quarter, 2006. On February 8, 2006 Changes in
L'Attitudes, Inc. ("CLA") was purchased, and on March 6, 2006, Island Resort
Tours, Inc. and International Travel and Resorts, Inc. ("IRT/ITR") were
purchased. (See Note 13)
Use of Estimates
Our condensed consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the United States
("GAAP"). These accounting principles require us to make certain estimates,
4
DYNAMIC LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
judgments and assumptions. We believe that the estimates, judgments and
assumptions upon which we rely are reasonable based upon information available
to us at the time that these estimates, judgments and assumptions are made.
These estimates, judgments and assumptions can affect the reported amounts of
assets and liabilities as of the date of our condensed financial statements as
well as the reported amounts of revenues and expenses during the periods
presented. Our condensed consolidated financial statements would be affected to
the extent there are material differences between these estimates and actual
results. In many cases, the accounting treatment of a particular transaction is
specifically dictated by GAAP and does not require management's judgment in its
application. There are also areas in which management's judgment in selecting
any available alternative would not produce a materially different result.
Significant estimates in 2006 include the valuation of accounts receivable,
valuation of goodwill, valuation of stock based transactions, valuation of
derivatives, estimates of allowances for customer refunds and the estimate of
the valuation allowance on deferred tax assets.
Fair Value of Financial Instruments
The fair value of cash and cash equivalents, trade receivables, trade
payables and debt approximates carrying value due to the short maturity of such
instruments.
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 Company evaluates the collectibility of accounts
receivable while working with its individual customer and vendors. A majority of
the Accounts receivable for travel products are collected prior to travel
departure.
Goodwill and Other Intangibles
The Company accounts for goodwill in a purchase business combination as
the excess of the cost over the fair value of net assets acquired. Business
combinations can also result in other intangible assets being recognized.
Amortization of intangible assets, if applicable, occurs over their estimated
useful lives. Statement of Financial Accounting Standard No. 142, "Goodwill and
Other Intangible Assets" ("SFAS 142") requires testing goodwill for impairment
on an annual basis (or interim basis if an event occurs that might reduce the
fair value of a reporting unit below its carrying value). The Company conducts
the annual review for all of its reporting units during the fourth quarter of
the calendar year.
Revenue Recognition
The Company follows the criteria for the United States Securities and
Exchange Commission Staff Accounting Bulletin 104 and EITF 99-19 "Reporting
Revenue Gross as a Principal versus Net as an Agent" for revenue recognition.
The Company recognizes revenue when persuasive evidence of an arrangement
exists, delivery of product has occurred, the sales price is fixed or
determinable, and collectibility is reasonably assured.
5
DYNAMIC LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
The Company records merchant sales transactions at the gross purchase
price generally at the date of travel. For transactions recorded at gross, the
Company acts as the merchant of record in the package transaction consisting of
several products from different vendors causing the Company to be the primary
obligor to the customer. In these transactions the Company also controls selling
prices, and is solely responsible for making payments to vendors. The Company
records transactions at net were the Company is not the merchant of record or
the product is not sold as a package. The Company records revenue and related
costs of products when travel occurs or for certain products, when the service
is completed. Travel insurance revenue is always shown net since the Company
currently acts as an agent for the insurance company. It is the Company's policy
to be paid by the customer in advance, with monies received in advance of travel
recorded as a deferred revenue liability. The Company may receive cash or hotel
room credits in exchange for providing cooperative advertising for its vendors.
The Company records accounts receivable for these amounts and offsets the
applicable advertising expense. Once the advertising expense is reduced to zero,
any excess cooperative advertising fees are recorded as revenue.
Principles of Consolidation
The consolidated financial statements include the accounts of Dynamic
and its subsidiaries. All significant intercompany balances and transactions
have been eliminated in consolidation.
Accounting for Derivatives
The Company evaluates its convertible debt, options, warrants or other
contracts to determine if those contracts or embedded components of those
contracts qualify as derivatives to be separately accounted for under Statement
of Financial Accounting Standards 133 "Accounting for Derivative Instruments and
Hedging Activities" and related interpretations including EITF 00-19 "Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock".
The result of this accounting treatment is that the fair value of the
embedded derivative is marked-to-market each balance sheet date and recorded as
a liability. In the event that the fair value is recorded as a liability, the
change in fair value is recorded in the consolidated statement of operations as
an other income or expense. Upon conversion or exercise of a derivative
instrument, the instrument is marked to fair value at the conversion date and
then that fair value is reclassified to equity. Equity instruments that are
initially classified as equity that become subject to reclassification under
SFAS 133 are reclassified to liability at the fair value of the instrument on
the reclassification date.
Concentration of Credit Risk and Other Concentrations
Nearly all of the Company's current travel products are for
destinations in the Caribbean and Mexico. This concentration potentially exposes
us to both political and weather risks of this region.
The Company has a diverse US customer base, including consumers
purchasing products through travel agencies and purchasing directly via the
Internet.
The Company has very little credit risk since the vast majority of its
travel products are paid for in advance.
6
DYNAMIC LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
The Company has negotiated contracts with airlines that provide the
Company with wholesale structure that allows the Company to price certain
products more favorably than its competitors. The loss of such contracts could
have a negative effect on the Company.
Surety Bond
The Company has outstanding at June 30, 2006 a surety bond for $70,000
related to the Airlines Reporting Corporation to allow the purchase of airline
tickets through its computerized ticket system. As part of the letter of credit
agreement the Company is required to keep a collateral deposit of $22,500. The
deposit is included in Other Assets Deposits on the accompanying balance sheet.
Letter of Credit
As of June 30, 2006, the Company had three letters of credit totaling
$150,000 payable to the Airline Reporting Corporation to allow the purchase of
airline tickets through it computerized ticket system. As part of the letter of
credit agreement, certificates of deposit are required with the issuer for
approximately the amount of the letter of credit and are reflected as short-term
investments, restricted, on the accompanying balance sheet.
Stock-Based Compensation
The Company has one active stock-based compensation plan and two
inactive stock-based compensation plans. On January 1,2006, Dynamic implemented
Statement of Financial Accounting Standard 123 (revised 2004) ("SFAS 123(R)"),
"Share-Based Payment" which replaced SFAS 123 "Accounting for Stock-Based
Compensation" and superseded APB Opinion No. 25, "Accounting for Stock Issued to
Employees." SFAS 123(R) requires the fair value of all stock-based employee
compensation awarded to employees to be recorded as an expense over the related
vesting period. The statement also requires the recognition of compensation
expense for the fair value of any unvested stock option awards outstanding at
the date of adoption. Effective January 1, 2006, all employee stock compensation
is recorded at fair value using the Black Scholes Pricing Model. In adopting
SFAS 123(R), the Company used the modified prospective application ("MPA"). MPA
requires us to account for all new stock compensation to employees using fair
value. For any portion of awards prior to January 1, 2006 for which the
requisite service has not been rendered and the options remain outstanding as of
January 1, 2006, the Company shall recognize the compensation cost for that
portion of the award for which the requisite service was rendered on or after
January 1, 2006. The fair value for these awards is determined based on the
grant-date. There was no cumulative effect of applying SFAS 123R at January 1,
2006.
NOTE 3 GOING CONCERN
The Company has a net loss of $4,693,304 for the six months ended June
30, 2006 and net cash used in operations of $1,728,848 for the six months ended
June 30, 2006, and a working capital deficiency of $8,711,794 accumulated
deficit of $5,178,618, and a stockholders' deficiency of $291,223 at June 30,
2006. Because the Company has not yet achieved or acquired sufficient operating
capital and given these financial results along with the Company's expected cash
requirements in 2006, additional capital investment will be necessary to develop
and sustain the Company's operations.
7
DYNAMIC LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
As of June 30, 2006, the Company has outstanding $4,337,658 in
convertible Notes Payable to third parties. While the Company expects
substantially all of the note holders to convert the receipt of cash to a
receipt of common stock, there is no guarantee that this will occur. As of June
30, 2006 the Company did not have adequate working capital to meet these
obligations with cash payments.
Management believes that its plans will allow for adequate funding of
the Company's cash requirements through December 31, 2006, although there is no
assurance regarding this belief nor the success of these efforts.
The Company is working on trying to secure additional capital. The
financial statements do not contain any adjustments, which might be necessary if
the Company is unable to continue as a going concern.
NOTE 4 PREPAID TRAVEL
The Company is required to pay for certain travel (mainly hotels) in
advance. Payments made to these vendors in advance are recorded to the prepaid
travel. The Company recognizes the expense when the associated revenue is
recognized. As of June 30, 2006, the Company had $236,550 in prepaid travel.
NOTE 5 PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at June 30, 2006:
Estimated
June 30, Useful Life
2006 in Years
--------- -----------
Office furniture and equipment .... $ 172,980 3-5
Software .......................... 15,075 5
Leasehold Improvements ............ 41,422 10
Software in Development ........... 641,347
---------
Total property and equipment ...... $ 870,824
Less accumulated depreciation ..... (19,369)
---------
Property and equipment, net ....... $ 851,455
=========
During the quarter, the Company entered into $116,540 of capital lease
commitments for computer and telephone equipment. Depreciation expense was
$14,081 for the second quarter of 2006 and $18,594 for the first six months of
2006.
Software in Development consists of the purchase of worldwide rights
and source code to proprietary software for use in the wholesale travel
industry. The Company intends to configure and deploy the software in the second
half of 2006 and use it as the basis for an integrated operating system
platform. Per the terms of the purchase agreement for the Software, the Company
agreed not to sell or license the Software to any unaffiliated third party until
approximately June 30, 2006 without the prior written consent of the seller.
8
DYNAMIC LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
NOTE 6 CONVERTIBLE NOTES PAYABLE WITH WARRANTS, NOTES PAYABLE, and LOANS
PAYABLE
In addition to the MMA financing discussed below, two convertible
promissory notes totaling $60,000 were issued to two individual investors during
the six months ended June 30, 2006. The Company recorded a debt discount of
$60,000 ($50,000 and $10,000) for a beneficial conversion value, which will be
amortized over the life of the notes.
Notes payable consisted of the following at June 30, 2006:
Convertible Promissory Notes
Convertible Promissory notes, interest rate 9%, secured ........ $ 1,450,000
Convertible Promissory note, interest rate 9%, secured ......... 600,000
Convertible Promissory notes, interest rate 10%, unsecured ..... 155,158
Convertible Promissory note, interest rate 10%, secured ........ 2,000,000
Convertible Promissory note, interest rate 10%, unsecured ...... 75,000
Convertible Promissory note, interest rate 10%, unsecured ...... 50,000
Convertible Promissory note, interest rate 10%, unsecured ...... 25,000
Convertible Promissory notes, interest rate 10%, unsecured ..... 12,500
Convertible Promissory notes, interest rate 10%, unsecured ..... 10,000
Convertible Promissory notes, interest rate 10%, unsecured ..... 10,000
-----------
Total Convertible notes payable ................................ 4,337,658
Debt Discounts ................................................. (2,250,650)
-----------
Total convertible notes payable, net ........................... $ 2,087,008
===========
Related Party Convertible Promissory Notes
Convertible Promissory note, interest rate 10%, unsecured ...... $ 400,000
Convertible Promissory note, interest rate 10%, unsecured ...... 350,000
-----------
Total Convertible notes payable related parties ................ $ 750,000
===========
All convertible notes payable were current as of June 30, 2006. The
amortization of the debt discount was $1,694,036 for the six months ended June
30,2006
Convertible notes due to Street Venture Partners, LLC and to a related
party principal stockholder due on January 3, 2007 and September 8, 2006,
respectively were $350,000 and $400,000, respectively. (See Note 11)
The Maturity dates of the Convertible notes payable and notes payable
range from June 30, 2006 to March 6, 2007. The weighted average interest rate of
all current interest bearing notes was 9.6 % at June 30, 2006.
Four convertible note totaling $140,000 were due on June 30, 2006 and
were not paid on that date. Subsequent to June 30, 2006 one holder has converted
and the other three are in discussion to convert to stock. There were repayments
during the first quarter of $204,632 of convertible promissory notes and
$140,000 of non-convertible promissory notes. In addition, there were
conversions to common stock of promissory notes of $325,000 during the first six
months of 2006.(See note 8)
The convertible note holders have the right to convert the debt to
common stock at a fixed conversion rate ranging from $0.75 to $1.50.
9
DYNAMIC LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
Additionally, the convertible note holders and note holders who have
been repaid hold detachable warrants to purchase up to 3,370,554 shares of the
Company's stock at prices ranging from $0.68 to $1.00.
Notes Payable
Notes payable consist of the following:
Interest bearing at rates ranging from
5% to 15% unsecured and due at various
dates through August 2007 ..................................... $ 156,433
Less Current maturities ........................................ (39,063)
-----------
Long-term portion of notes payable ......................... $ 117,370
===========
At June 30, 2006, the Company was in default of the repayment terms on
notes aggregating $35,000. This amount is included in the current maturities of
notes payable on the accompanying consolidated balance sheet at June 30, 2006.
Capital Leases
During the six months period ending June 30, 2006 the Company entered
into capital equipment leases with a gross value of $116,540. The term of the
leases range from 3 years to five year, with the interest rates ranging from
4.99% to 11.44%.
As of June 30, 2006 the capital lease consist of the following:
Total Capital Leases ............................ $ 113,940
Less Current capital leases ..................... (36,052)
---------
Long-term portion of capital leases .......... $ 77,888
=========
Loan payable Bank
As of June 30, 2006 the loan payable bank consist of the following:
Total loan payable bank ......................... $ 230,154
Less Current portion ............................ 214,653
---------
Long-term portion of loan payable, bank ...... $ 15,501
=========
The loan payable bank consists of a line of credit that IRT - IRT has
with a balance of $210,000 and a bank loan assumed from DynEco of $20,154 in the
recapitalization.
Loan Payable
Technological Research and Development Authority Funding Agreement:
In November 2002, the Company entered into an agreement with the
Florida Technological Research and Development Authority (TRDA), which provides
for up to $150,000 in funding for the development and commercialization of
DynEco's UniVane(R) compressors and hydrogen circulators for fuel cell
applications. In consideration of the funding, the Company is obligated to make
royalty payments to TRDA equal to five percent of future UniVane(R)-related
sales up to an amount equal to three times the amount DynEco receives from TRDA.
10
DYNAMIC LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
During 2003, the entire $150,000 funding commitment was received. The agreement
expires in November 2012. Pursuant to EITF No. 88-18 "Sale of Future Revenues",
the Company recorded the funding as a current liability and in connection with
APB No. 21 "Interest on Receivables and Payables," accretes interest to the
maximum value of $450,000 through the November 2012 expiration date. The
accreted balance due as of June 30, 2006 was $226,325 and is included in loans
payable in the accompanying balance sheet.
MMA Capital, LLC
On January 13, 2006, DynEco executed a series of documents with MMA
Capital, LLC ("MMA"), under which the Company borrowed $2,000,000 and issued to
MMA a Secured Convertible Promissory Note in the principal amount of $2,000,000.
We defaulted on the MMA note as of June 30, 2006.
On August 8, 2006 the Company entered into an agreement with MMA to
defer interest payments due each quarter until the end of the term of the loan
on January 11, 2007. In exchange for this deferral the Company agreed to
increase the interest rate retroactively from 8% to 10% and to issue MMA 100,000
shares of the Company's common stock. In accordance with EITF 96-19, this
transaction was treated a modification of debt since the extra consideration
given in the agreement did not amount to more than a ten percent change in the
present value of the amount due to MMA over the life of the promissory note.
This means that the increase in interest rate and the additional consideration
will be accounted for prospectively from the date of the modification.
At the option of the holder, the outstanding principal amount of the
promissory note and accrued but unpaid interest may be converted into shares of
common stock of Dynamic at the rate of $1.00 per share, subject to adjustment in
the event Dynamic issues shares for a consideration of less than $1.00 per share
and to reflect the occurrence of forward or reverse stock splits, corporate
reorganization or certain other corporate events. The Company agreed to file a
registration statement under the Securities Act of 1933, as amended, to register
the shares issuable upon conversion of the promissory note. It constitutes an
event of default under the note, and subjects the Company to the payment of
liquidated damages, if the registration statement does not become effective on
or before July 12, 2006, and does not remain effective for a period of at least
90 days. For each week of non-compliance, liquidated damages will be 2% of the
product of (a) the sum of the holder's shares of stock not registered on a
timely basis and (b) the weekly average closing price of the shares of Dynamic's
common stock. The Company's obligations under the promissory note are
collateralized by a security interest in substantially all of the Company's
assets.
In connection with the transaction, a common stock purchase warrant in
favor of MMA Capital was issued to purchase up to 2,000,000 shares of common
stock, exercisable for a period of three years, at an exercise price of $1.00
per share, subject to adjustment in the event shares are issued for a
consideration of less than $1.00 per share and to reflect the occurrence of
forward or reverse stock splits, corporate reorganization or certain other
corporate events. If, at the time of exercise, there is not an effective
registration statement covering resale of the shares issuable upon exercise of
the warrant, the warrant holder may exercise the warrant on a cashless basis,
whereby the holder surrenders a portion of the warrants in lieu of paying the
exercise price in cash.
11
DYNAMIC LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
A fee equal to 8% of the proceeds ($160,000) was paid to Forte Capital
Partners LLC, an unaffiliated third party, who assisted MMA Capital in
connection with the transaction. The transaction was exempt from the
registration requirements of the Securities Act by reason of Section 4(2)
thereunder as a transaction by an issuer not involving any public offering. The
$160,000 was recorded as a deferred debt issuance cost asset and is being
amortized over the debt term.
Per SFAS 133 and EITF 00-19, the convertible note will be classified as
one financial instrument as it is considered conventional convertible debt. In
addition, the warrants are classified as a liability due to the liquidated
damages provision in the registration rights agreement at their initial fair
value of approximately $1,793,382 with a corresponding charge to debt discount.
The beneficial conversion value of $206,618 associated with the convertible debt
is recorded as a debt discount and additional paid in capital. The debt discount
will be amortized over the term of the debt, and amortization was $920,548 for
the six months ended June 30, 2006.
The warrant liability revaluation at June 30, 2006 indicated an
increase from the initial recording on January 13, 2006. The estimated fair
value of the warrant liability was $2,432,126,using the Black-Scholes model with
the following assumptions: common stock price of $1.25, 2.5 years expected term,
zero expected dividends, volatility of 271% (based on historical volatility) and
a discount rate of 5.07%. Accordingly, the net change in the fair value of the
warrant liability during the six months ended June 30, 2006 resulted in warrant
valuation expense of $638,744. For the three months ended the net change in the
fair values resulted in income of $1,243,447.
March 2, 2005 Convertible Notes and Modification and Waiver Agreement
On January 13, 2006, DynEco entered into a Modification and Waiver
Agreement with Alpha Capital Aktiengesellschaft, JM Investors, LLC, Libra
Finance, S.A. and RG Prager Corporation. The parties to the Modification and
Waiver Agreement are also parties to a series of agreements dated March 2, 2005,
as amended, under which DynEco issued convertible promissory notes aggregating
of $327,000. At the time of execution of the Modification and Waiver Agreement,
DynEco was in default of its obligations under the March 2, 2005 agreements.
Under the Modification and Waiver Agreement, interest on the
convertible promissory notes at the rate of 5% per annum will be paid quarterly,
commencing March 31, 2006. Monthly principal amortization payments of
approximately $29,700 were to commence on June 1, 2006. As of June 30, 2006 the
Company is in default with the terms of the Modification and Waiver agreement
because the June 1, 2006 payment has not been made. According, the Company has
accrued the default interest rate of 10% from the date of default of June 1,
2006.
In accordance with the terms of the Modification and Waiver Agreement,
upon receipt of the funding of $2 million in a January 13, 2006 Financing
Transaction, the note holders opted to receive payment, and were paid a total of
$232,210, consisting of $154,632 in principal amount of promissory notes and a
premium in the amount of $77,578. The premium was recorded as additional expense
in the fourth quarter of 2005 by DynEco. The notes are convertible at $0.75 per
share, subject to certain adjustments under control of the Company. These
include anti-dilution adjustments and an adjustment if the Company issues common
stock or the rights to purchase common stock at a price below $0.75 per share.
As part of the terms of the Financing Transaction, the note holders released
their security interest in the Company's assets.
12
DYNAMIC LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
As additional consideration to induce the note holders to enter into
the Modification and Waiver Agreement, DynEco issued an aggregate of 200,000
shares of common stock to the two investors under the March 2, 2005 transaction
documents. Pursuant to the terms of the Modification and Waiver Agreement (a)
those provisions of the transaction documents dated March 2, 2005 providing
exceptions to the adjustment provisions of the notes and warrants have been
eliminated, (b) the exercise price of the warrants to purchase up to 259,000
shares of common stock issued under the March 2, 2005 transaction documents was
changed to $1.00 per share and the warrants are exercisable until 3 years from
the filing of the Form 8-K announcing the recapitalization of DynEco and DLG,
(c) the number of shares issuable upon exercise of those warrants to the
investors cannot be reduced to less than 300,000 shares, resulting in an
issuance of 45,000 additional warrants. Under the Modification and Waiver
Agreement, under certain circumstances, the Company may require the investors to
exercise the 300,000 warrants. The Company may prepay the note at 150% of the
principle due, plus interests and other amounts due, through the redemption date
but only if an effective registration statement exists.
The Company agreed to file an amendment to the existing registration
statement covering resale of the shares issuable under the transaction documents
dated March 2, 2005. Such registration statement was required to be filed on or
before April 13, 2006 and become effective not later than 60 days after the date
of filing, or the Company will be subject to the payment of liquidated damages
to the note holders. This document was filed on April 12, 2006. In addition, the
Company agreed to file a new registration statement covering the resale of those
shares issuable under the Modification and Waiver Agreement the resale of which
are not covered by the existing registration statement. Such additional
registration statement was required to be filed by May 13, 2006 and become
effective not later than 60 days after the date of filing, or will be subject to
the payment of liquidated damages to the note holders. This document was filed
on May 12, 2006. A Form 8-K/A, including the audited financial statements of the
Company was filed on March 29, 2006, prior to April 5, 2006 as required. The
document did not become effective in the required 60 days due to an SEC letter
comment process. As of this filing the debt holders have not taken any action on
this deficiency
During the first quarter, the Company recorded a non-cash loss of
extinguishment of debt for $208,442 for the value of the 200,000 shares of
common stock issued (valued at $.90 per share on the date of the Modification
and Waiver Agreement, based on the closing price of common stock), additional
warrants issued, and to write off deferred debt issue costs. The Company treated
the modification as a cancellation of warrants (which resulted in a
reclassification of $240,592 of warrant liability to equity) and issuance of new
warrants. The new warrants were valued at $232,944 at the modification date.
At June 30, 2006 in accordance with SFAS 133, the Company revalued the
total 304,000 warrants underlying the warrant liability which total value was
$372,751 using the following Black-Scholes assumptions: common stock price of
$1.25, 2.75 years expected term, zero expected dividends, volatility of
271% (based on historical volatily) and a discount rate of 5.07%. The Company
recorded income of $198,044 and an expense of $139,807 for the three and six
months ended June 30,2006, respectively.In accordance with SFAS 133, the Company
intends to continue to evaluate the nature of the Convertible Notes and Warrants
in the future, and record any changes as appropriate.
13
DYNAMIC LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
NOTE 7 COMMITMENTS AND CONTINGENCIES
There are no material commitments or contingencies by the Company or
its subsidiaries, for purchasing goods or services that are not reported in the
consolidated financial statements, notes, or other disclosures at June 30, 2006.
NOTE 8 STOCKHOLDERS' DEFICIT
Modification and Waiver Agreement
On January 13, 2006 DynEco issued 200,000 shares to convertible note
holders as part of the Modification and Waiver Agreement (See Note 6).
Common Stock Issued Pursuant to Recapitalization
The Company is deemed to have issued 1,157,951 shares of common stock
to the shareholders of DynEco common stock, as part of the Stock Exchange
Agreement. Liabilities of $855,704 were also assumed (See Note 12).
Common Stock Issued in Acquisitions
On March 6, 2006, the Company issued 340,000 shares of common stock to
Raymon Valdes, as part of the acquisition price of Changes in L'Attitudes, Inc.
The shares were valued at a total of $850,680, $2.50 per share, the average
closing price of the Company's stock on the 5 days before and 5 days after the
acquisition period.
On March 6, 2006 the Company issued 700,000 shares of Dynamic's common
stock to Stephen A. Hicks, as part of the acquisition price of IRT-ITR. The
shares were valued at a total of $1,833,300, $2.62 per share, the average
closing price of the Company's stock on the 5 days before and 5 days after the
acquisition period.
Common Stock Issued in Warrant Exercise
On March 15, 2006, the Company issued 133,332 shares of common stock
for $90,000, on a conversion of common stock warrants at $0.675 per share.
On April 14, 2006, the Company received $45,000 for 66,600 shares of
common stock in a Warrant exercise at $0.675 per share. As June 30, 2006 these
shares were in common stock issuable.
Common Stock Issued for Cash
On April 25, 2006, the Company received $50,000 for 50,000 shares of
common stock. In addition the security holder received warrants to purchase an
addition 50,000 shares for $1.00 per share. The 50,000 shares are reflected as
issuable at June 30, 2006.
On May 31, 2006, the Company issued 10,000 shares of common stock for
$10,000. In addition the security holder received warrants to purchase an
addition 10,000 shares for $1.00 per share.
On June 29, 2006, the Company received $100,000 for 100,000 shares
common . As part of the transaction the Company paid a finder fee of $9,800 to a
third party, which was charged to additional paid in capital. As of June 30,
2006 the shares were in common stock issuable.
14
DYNAMIC LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
Common Stock Issued in Conversion of Convertible Notes Payable
For the six months ended June 30, 2006 the Company issued a total of
386,210 shares of common stock on the conversion of six convertible notes
payable, totaling $325,000 plus accrued interest, at $.90 per share. Of this
amount 91,027 shares were reflected as common stock issuable at June 30,2006.
Common Stock Warrants:
During the six months ended June 30, 2006, the Company issued 200,000
warrants with a strike price of $1.25 to a financial consultant. The warrants
were valued at $185,976 using a Black-Scholes valuation model with the following
assumptions: $0.93 stock price, 5 year term, 343% volatility rate, and 4.27%
discount rate. The options are being amortized over the life of the agreement.
The amortization for the first six months of the year was $42,035.
In additional a total of 110,000 warrants were issued in common stock
for cash transactions listed above.
At June 30, 2006, the Company had immediately exercisable warrants outstanding
as follows:
Common Shares Exercise Price Expiration
Under Warrant Per Share Date
------------- -------------- --------------
133,333 $ 5.40 November 2006
3,333 $ 5.40 September 2006
7,500 $ 4.50 December 2006
406,171 $ 5.40 June 2007
40,000 $ 3.00 September 2008
2,000,000 $ 1.00 January 2009
109,000 $ 4.31 March 2010
50,000 $ 5.40 March 2010
100,000 $ 3.00 March 2010
133,333 $ 0.90 June 2010
3,333 $ 3.75 June 2010
3,333 $ 7.50 June 2010
3,334 $ 11.25 June 2010
100,000 $ 0.675 July 2010
444,444 $ 0.675 September 2010
200,000 $ 0.675 October 2010
13,333 $ 0.675 November 2010
13,889 $ 0.675 December 2010
10,000 $ 0.75 January 2011
388,889 $ 0.90 January 2011
50,000 $ 1.00 January 2011
200,000 $ 1.25 January 2011
60,000 $ 1.00 May 2011
---------
4,473,225
=========
15
DYNAMIC LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
A summary of changes in stock warrants during 2006:
2006
----
Outstanding at beginning of year ........ 1,104,989
Stock Exchange Agreement ................ 859,337
Granted ................................. 2,708,897
Exercised ............................... (199,998)
Expired or Cancelled .................... -
----------
Balance at June 30, 2006 ............... 4,473,225
==========
NOTE 9 WARRANT LIABILITY
The Company recorded a warrant liability related to Convertible Notes
Payable in the Modification and Waiver Agreement and the financing with MMA
Capital LLC due to the liquidated damages provision in the registration rights
agreement (See Note 6).
The remaining warrant liability will continue to be valued up until
expiration date with ranges from March 2009 to January 2011, with any changes in
valuation recorded as warrant valuation income or expense.
NOTE 10 DEFERRED REVENUE
Deferred revenue represents primarily money received from customers as
either a deposit or full payment for trips not yet traveled or services earned.
The balance at June 30, 2006 was $609,663.
NOTE 11 RELATED PARTIES AND SIGNIFICANT SHAREHOLDERS
Diversified Acquisition Trust, LLC
Geoffrey J. Eiten is the sole beneficial owner of Diversified
Acquisition Trust, LLC ("DAT"). Mr. Eiten, through the Trustee, exercises sole
investment and voting powers over the Trust. On September 5, 2005 for an
investment of $400,000, the Trust was issued a convertible Promissory Note,
bearing 10% annual interest, convertible to Dynamic's common stock at a $0.68
per share. In addition, the Company issued a warrant to purchase common stock at
a price of $0.68 per share.
DAT had also provided the Company with short-term loans held unsecured
promissory notes in the amounts of $10,000, $30,000, and $25,000 all with a
maturity date of February 28, 2006, and bearing an annual interest rate of
10.0%. The loans were repaid during the first quarter of 2006.
DAT owns 1,906,667 shares of the Company's stock as of June 30, 2006.
Mr. Eiten was a shareholder and investor but was not employed by the
Company at any time through June 30, 2006.
16
DYNAMIC LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
Street Venture Partners, LLC
Street Venture Partners, LLC is a privately-held company owned equally
by Daniel G. Brandano, the Company's CEO and Chairman, and his spouse. As of
June 30, 2006, Street Venture Partners LLC owned 1,066,667 shares of Dynamic's
common stock.
See Note 13 for purchase of asset from this related party.
Claudale Ltd.
Claudale Limited is a Gibraltar-based company that manages a family
trust (which owns no shares of the Company's common stock) for Mr. Daniel G.
Brandano, the Company's CEO and Chairman. Mr. Brandano has no ownership interest
in Claudale Limited and disclaims beneficial ownership or control of any shares
of the Company's common stock owned by Claudale Limited.
At June 30, 2006, Claudale Ltd. owned 693,333 shares of the Company's
common stock.
Brian J. Brandano
At June 30, 2006, Brian J. Brandano owned 333,333 shares of the
Company's common stock. Brian J. Brandano was employed by the Company at June
30, 2006, and is the son of Daniel G. Brandano, the Company's CEO and Chairman.
Payable to Stephen A. Hicks
At June 30, 2006 there is $50,000 payable to Stephen A. Hicks, former
100% shareholder of IRT-ITR, for advances made to IRT-ITR prior to the
acquisition by the Company. There is currently no interest being charged for the
use of the advance, nor is any interest anticipated to be paid.
NOTE 12 RECAPITALIZATION OF DYNAMIC LEISURE GROUP
On January 13, 2006, DynEco entered into an agreement with the former
shareholders of DLG, under which DynEco acquired all of the outstanding capital
stock of DLG, and DLG became a wholly-owned subsidiary of DynEco.
As consideration for its acquisition of the outstanding capital stock
of DLG, DynEco issued an aggregate of 197,000 shares of its Series A Preferred
Stock to the former shareholders of DLG.
Issuance of the Series A Preferred Stock in exchange for the
outstanding capital stock of DLG pursuant to the Stock Exchange Agreement
resulted in a change in control of DynEco where (a) the former shareholders of
DLG acquired voting rights over approximately 83% of the currently outstanding
voting securities of DynEco, and (b) the designees of the former shareholders of
DLG were appointed as the executive officers and a majority of the board of
directors of DynEco. The Series A Preferred Stock converted into 6,566,667
shares of the common stock of DynEco when DynEco's Articles of Incorporation
were amended to increase the number of authorized shares of DynEco common stock
sufficient to permit full conversion of the Series A Preferred Stock. DynEco
also agreed that the currently outstanding options and warrants of DLG would be
exchanged for options and warrants to purchase an aggregate of 1,493,887
post-reverse shares of common stock of DynEco, and that the then-outstanding
convertible promissory notes of DLG would become convertible into 1,386,111
post-reverse shares of common stock of DynEco.
17
DYNAMIC LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
The transaction was exempt from the registration requirements of the
Securities Act by reason of Section 4(2) thereunder as a transaction by an
issuer not involving any public offering.
The transaction is treated as a recapitalization of DLG. Accordingly,
the financial statements of the Company just subsequent to the recapitalization
consists of the balance sheets of both companies at historical cost, the
historical operations of DLG, and the operations of DynEco from the
recapitalization date.
NOTE 13 BUSINESS ACQUISITIONS AND ACQUISITION LIABILITIES
Casual Car
On January 3, 2006, Street Venture Partners, LLC (See Note 9), sold the
US rights to the Casual Car General Service Agreement ("GSA") to DLG for an
unsecured convertible Promissory Note in the amount of $350,000, and a warrant
to purchase 388,889 shares of common stock at a fixed price of $.90 per share.
The Promissory Note is convertible to Dynamic's common stock at $.90 per share
and paying 10% interest annually. The agreement was recorded as an Intangible
Asset at a value of $348,413, and a short term deposit of $1,587 and will be
amortized over 2.5 years. The GSA allows the Company to sell car rental products
to leisure travelers primarily in Europe and the United Kingdom, through Skycars
International Rent a Car, Middlesex, United Kingdom.
The Company plans to continue with the Casual Car GSA, selling direct
to the final consumer via the Internet, under the Casual Car rental brand. The
Casual Car GSA allows the Company to begin to establish a foundation in certain
desired leisure travel markets with multiple product offerings.
Changes in L'Attitudes, Inc.
On February 8, 2006, the Company consummated the purchase of all of the
issued and outstanding capital stock of Changes in L'Attitudes, Inc. ("CLA"),
for a purchase price of $2,090,680. CLA is in the travel industry, specializing
in providing resort destination travel packages to the Caribbean and Eastern
Mexico. Almost all of its business originates through the Internet via its
on-line site. CLA is located in Largo, Florida. It has since been incorporated
into the corporate office in Tampa, Florida. The purchase price consists of a
combination of cash ($640,000), 340,000 shares of Dynamic's common stock, valued
at $2.50 per share or the average closing price of Dynamic's common stock 5 days
before and after the announcement of the purchase ($850,680), and a one-year
secured Convertible Promissory Note in the principal amount of $600,000. The
cash portion consists of $200,000 delivered at closing, with the balance to be
delivered on or before June 9, 2006, following completion of audits of the
financial statements of CLA for the years ended December 31, 2004, and December
31, 2005. As of June 30, 2006, the remaining cash portion of the agreement has
not been paid. There is no penalty associated with this default status.
Additional shares of common stock may be issued if the Company, as part
of any subsequent business acquisitions on or before December 31, 2006, issues
to the acquiree/seller Dynamic's common stock at a rate of less than $1.50 per
share. The Company agreed to include resale of the shares issued and those
issuable upon conversion of the Note in the next registration statement filed by
the Company. That registration statement was filed with the SEC on May 12, 2006.
18
DYNAMIC LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
The Convertible Promissory Note is payable with interest at the rate of
9% per annum, and matures on February 7, 2007 ("Maturity Date"). The Note is
convertible into Dynamic common stock, on or before the Maturity Date, at a rate
of $1.50 per share. The conversion rate may be adjusted downward if the Company,
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 the Company obtains
cumulative net external financing of $2,500,000 or more, early repayment of 50%
of the outstanding balance on the Promissory Note may be required. If the
Company receives in excess of $5,000,000 in cumulative net external financing,
an early repayment of the full outstanding balance on the Promissory Note may be
required. The Company has agreed to include resale of the shares issued, and
those issuable upon conversion of the Note in the next registration statement
filed by the Company. The Convertible Promissory Note is secured by a lien on
the assets of CLA. A beneficial conversion value of $480,000 was recorded as a
debt discount to be amortized over the life of the debt term.
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of acquisition. The allocation
includes estimates that were not finalized at June 30, 2006. Purchase price
adjustments following the closing are customary.
February 8, 2006
----------------
Current assets ....................... $ 836,330
Other assets ......................... 53,011
Intangible assets..................... 590,000
Goodwill ............................. 1,610,336
----------
Total assets ......................... 3,089,677
Current liabilities .................. 998,997
----------
Net assets acquired .................. $2,090,680
==========
The goodwill of $ 1,610,336 is expected to be deductible over 15 years
for tax purposes. The Intangible asset relates to the values of certain web
based assets that drive inquires to the Company. With the increased resources of
the Company in comparison to CLA the conversion of these inquires to sales will
increase over time.
The results of CLA operations are included in the consolidated
financial statements beginning with the date of acquisition.
Island Resort Tours, Inc. and International Travel and Resorts, Inc.
On March 6, 2006, the Company purchased all of the issued and
outstanding capital stock of Island Resort Tours, Inc. ("IRT") and International
Travel and Resorts, Inc. ("ITR"), for a purchase price of $4,783,300. The
acquisition of IRT and ITR is expected to increase the Company's presence in the
desired Caribbean leisure travel market, provide access to key travel industry
products, and add to the expertise of the Company's management team. IRT and ITR
are both located in New York, New York.
19
DYNAMIC LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
The purchase price consists of a combination of cash ($1,500,000),
700,000 shares of Dynamic common stock ($1,833,300), 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 IRT and ITR for the years ended December 31, 2004 and
2005. The Company is currently in discussion with the former owner of IRT - ITR
to reduce the cash portion of the payment. The agreed upon amount will be paid
when an agreement is reached.
Additional shares of Dynamic common stock may be issued if the Company,
as part of any subsequent business acquisitions on or before December 31, 2006,
issues Dynamic 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 Dynamic common stock could be issued as a result of
this adjustment provision.
The common stock was valued at $2.62 based on the average closing price
of Dynamic's common stock for the five days before and after the acquisition was
agreed to an announced, multiplied by the number of shares of common stock
issued.
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. The conversion rate may be adjusted downward if the Company,
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. A beneficial value of $1,208,334 was recorded as a debt
discount to the amortized over the life of the debt term.
Subsequent to the Closing Date, if the Company 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. If the
Company 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. The Company agreed to include resale of the shares
issued and those issuable upon conversion of the Note in the next registration
statement filed by the Company. That registration statement was filed with the
SEC on May 12, 2006.
The Convertible Note is secured by a lien on assets of IRT and ITR
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of acquisition. The allocation
includes estimates that were not finalized at June 30, 2006. Purchase price
adjustments following the closing are customary.
20
DYNAMIC LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
March 6, 2006
-------------
Current assets ........................ $ 708,167
Other assets .......................... 80,236
Intangible............................. 1,600,000
Goodwill .............................. 3,505,360
----------
Total assets .......................... 5,893,763
Current liabilities ................... 1,110,463
----------
Net assets acquired ................... $4,783,300
==========
The goodwill of $3,482,956 is expected to be deductible over 15 years
for tax purposes.
The intangible represents the value of certain airline contacts that
the Company assumed in the purchase of IRT / ITR. These contacts allow the
Company to purchase airline ticket on a wholesale basis with in many cases
better pricing and will be amortized over a term of 32 months beginning July 1,
2006.
The results of IRT/ITR operations are included in the consolidated
financial statements beginning with the date of acquisition.
The table below summarizes the unaudited pro forma information of the
consolidated results of operations for the six months end June 30, 2006 and 2005
as though the CLA and IRT-ITR business combinations had been completed as of the
beginning of the period reported on:
2006 2005
---- ----
Revenues $ 3,927,581 $ 3,337,425
Cost of Revenue 2,717,509 2,259,377
Gross Profit 1,210,072 1,078,048
Operating Expenses 2,698,320 1,220,888
Operating Loss (1,488,248) (142,840)
Other Expenses 3,219,066 3,219,066
Net Loss (4,707,314) (3,076,226)
Net Loss per share $0.54 $0.35
The main difference in the net loss between 2006 and 2005 is due to
Dynamic Leisure being a start up last year with minimal expenses last year. This
year expenses were incurred in acquisition related expenditures, set up of a
company structure, expenditures related to being a public company and the
building of a corporate staff.
NOTE 14 OTHER MATTERS
Separation Agreement dated January 13, 2006
In connection with the transactions contemplated by the Stock Exchange
Agreement described elsewhere in this Report, DynEco and Dr. Thomas Edwards
entered into a Separation Agreement dated January 13, 2006 under which:
o The Employment Agreement dated as of January 1, 2004 by and between
DynEco Corporation and Dr. Edwards was terminated;
o Dr. Edwards irrevocably waived, forfeited and relinquished any right to
receive any accrued or deferred compensation in connection with his
prior services rendered to Dynamic Corporation. As of March 31, 2006,
$283,625 in deferred compensation payable to Dr. Edwards was accrued;
21
DYNAMIC LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
o The parties confirmed that they entered into a modification agreement
relating to the Exclusive Patent License and Know-How Agreement dated
February 4, 2004;
o DynEco irrevocably waived, forfeited and relinquished any right, title
or interest in any intellectual property created by Dr. Edwards during
the course of his services to DynEco, other than the intellectual
property covered by the Exclusive Patent License and Know-How Agreement
dated February 4, 2004;
o DynEco transferred and assigned to Dr. Edwards, all of DynEco's right,
title and interest in the lease covering Dynamic's facilities in
Rockledge, Florida, and Dr. Edwards assumed all of Dynamic's
obligations thereunder; and
o DynEco transferred and assigned to Dr. Edwards, all of DynEco's right,
title and interest in the furniture, property and equipment located at
DynEco's facilities in Rockledge, Florida, and Dr. Edwards has assumed
all of DynEco's obligations thereunder.
The Separation Agreement resulted in the the forfeiture of accrued
compensation of $283,625 by Dr. Edwards in 2006, and thetransfer to him of
$33,418 recorded net value of fixed assets, both of these itemswere written off
the balance sheet of DynEco prior to the recapitalization that occurred on
January 13,2006.
MANAGEMENT OF DYNAMIC
In connection with the transactions contemplated by the Stock Exchange
Agreement dated January 13, 2006 described elsewhere in this Note, Thomas C.
Edwards resigned as an officer (President and Chief Executive Officer) and
director of DynEco Corporation, and Kevin Hooper resigned as a director of
DynEco Corporation. In accordance with the terms of the Stock Exchange
Agreement, Leonard Sculler, who has served as a director of DynEco Corporation
since June 2003, continues to serve as a director of Dynamic for a period of at
least one year. George R. Schell, who served as a director of DynEco since 1998,
confirmed in a January 2006 telephone conversation with the Company's General
Counsel that he had informally resigned as a director of DynEco Corporation, and
was not re-elected at a January 31, 2006 Meeting of Shareholders.
At the Meeting of Shareholders, the following persons were elected to
serve as directors of DynEco Corporation until the next annual meeting of
shareholders and until their successors are duly elected and qualified:
Daniel G. Brandano
Thomas W. Busch
Robert A.G. LeVine
Leonard Sculler
In connection with the transactions contemplated by the Stock Exchange
Agreement dated January 13, 2006 described elsewhere in this Report, the
following persons were appointed to serve as officers of DynEco, in the
capacities indicated, until the next annual meeting of the board of directors
and until their successors are duly elected and qualified:
Daniel G. Brandano - President
Thomas W. Busch - Vice President and Treasurer
Robert A.G. LeVine - Secretary
22
DYNAMIC LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
EXCLUSIVE PATENT AND KNOW-HOW LICENSE AGREEMENT DATED JANUARY 12, 2006
On January 12, 2006, DynEco and Dr. Thomas C. Edwards, then CEO entered
into an Exclusive Patent and Know-How License Agreement that amends and
superseded the Exclusive Patent and Know-How License Agreement dated February 4,
2004, by and between DynEco and Dr. Edwards. The 1994 Agreement granted DynEco
the exclusive license to use certain patented technology owned by Dr. Edwards,
in return for a royalty payment to Dr. Edwards based upon a percentage of
revenues generated from sales of products incorporating the licensed technology.
The Company subsequently granted the Parker-Hannifin Corporation an exclusive
license to use the technology covered by 1994 License Agreement in UniVane(R)
products developed by Parker-Hannifin.
Under the January 12, 2006 Exclusive Patent and Know-How License
Agreement, Dr. Edwards has relinquished any entitlement to royalty payments
under the Exclusive Patent and Know-How License Agreement dated February 4, 2004
and has assigned and transferred to DynEco all of his right, title and interest
under the Exclusive Patent and Know-How License Agreement dated February 4,
2004. The Company acquired the right, title and interest as part of the Stock
Exchange Agreement.
ARTICLES OF CORRECTION TO CHANGE DYNECO CORPORATION'S NAME
On February 28, 2006, DynEco filed Articles of Correction with the
Secretary of State of Minnesota, to change DynEco's name to Dynamic Leisure
Corporation. These Articles were effective in the State of Minnesota at the
close of business on March 3, 2006.
There was no financial effect related to this filing.
NOTE 15 SUBSEQUENT EVENTS
On July 1, 2006, the Company entered into an agreement Redwood
Consultants LLC to provide investor relation services to the Company As part of
this agreement the Company issued 400,000 shares of stock, the fair value of
$500,000 will be amortized over the one year term of the agreement. The fair
value was determined using the market stock price as of the date of the
agreement.
On July 1, 2006, the Company issued 100,000 shares of common stock
pursuant to a stock purchase agreement with MMA Capital, LLC. On July 12, 2006,
the Company issued 100,000 additional shares of common stock pursuant to a stock
purchase agreement with MMA Capital, LLC. The shares were issued in reliance on
the exemption from registration provided by section 4(2) of the Act, on the
basis that their issuance did not involve a public offering, that no
underwriting fees or commissions were paid by us in connection with such sale,
and that the Purchaser represented to us that it was an "accredited investor" as
defined in the Act.
On July 10, 2006, the Company entered into a Subscription Agreement
with David O. Jensen to purchase 15,000 shares of the Company's common stock,
plus 15,000 warrants to purchase the Company's common stock at $1.00 per share.
The Agreement was a private offering of unregistered securities. The shares were
issued in reliance on the exemption from registration provided by section 4(2)
of the Act, on the basis that their issuance did not involve a public offering,
that no underwriting fees or commissions were paid by us in connection with such
sale, and that the Purchaser represented to us that he was an "accredited
investor" as defined in the Act.
On July 11, 2006, the Company entered into an agreement with The
Research Works, LLC to provide equity research about the Company. As part of the
agreement the Company agreed to issue 80,000 shares of stock, the fair value of
$128,000 will be amortized over the term of the agreement from July 11, 2006 to
August 1, 2007. The fair value was determined using the market stock price as of
the date of the agreement.
On July 28, 2006, the Company issued 250,000 shares of common stock
pursuant to a stock purchase agreement with Miller Investments, LLC. In
connection with the Stock Purchase Agreement, on July 28, 2006 the Company also
issued to the Purchaser warrants to purchase Two Hundred Fifty Thousand
(250,000) shares of common stock of the Company at an exercise price of One
Dollar ($1.00) per share, subject to potential adjustment(s) in the exercise
price as set forth in the Warrant to Purchase Shares of Common Stock. The
warrants are exercisable for a period of five (5) years from the date of
issuance. The shares were issued in reliance on the exemption from registration
provided by section 4(2) of the Act, on the basis that their issuance did not
involve a public offering, that no underwriting fees or commissions were paid by
us in connection with such sale, and that the Purchaser represented to us that
it was an "accredited investor" as defined in the Act.
On August 8, 2006 the Company entered into an agreement with MMA to
defer interest payments due each quarter until the end of the term of the loan
on January 11, 2007. In exchange for this deferral the Company agreed to
increase the interest rate retroactively from 8% to 10% and to issue MMA 100,000
shares of the Company's stock. In accordance with EITF 96-19, this transaction
was treated a modification of debt since the extra consideration give in the
agreement did not amount to more than a ten percent change in the present value
of the amount due to MMA over the life of the promissory note. This means that
the increase in interest rate and the additional consideration will be accounted
for prospectively from the date of the modification.
23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Certain disclosures in this Quarterly Report on Form 10-QSB include
certain forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. Statements that include words such
as "believe," "expect," "should," intend," "may," "anticipate," "likely,"
"contingent," "could," "may," "estimate," or other future-oriented statements,
are forward-looking statements. Such forward-looking statements include, but are
not limited to, statements regarding our business plans, strategies and
objectives, and, in particular, statements referring to our expectations
regarding our ability to continue as a going concern, realize improved gross
margins, and timely obtain required financing. These forward-looking statements
involve risks and uncertainties that could cause actual results to differ from
anticipated results. The forward-looking statements are based on our current
expectations and what we believe are reasonable assumptions given our knowledge
of the markets; however, our actual performance, results and achievements could
differ materially from those expressed in, or implied by, these forward-looking
statements. Factors, within and beyond our control, that could cause or
contribute to such differences include, among others, the following: the success
of our capital-raising and cost-cutting efforts, developing and marketing new
technology devices, including technological advancements and innovations;
consumer receptivity, preferences and availability and affordability; whether a
third-party can successfully develop, manufacture and market products that
incorporate our technology; political and regulatory environments and general
economic and business conditions; the effects of our competition; the success of
our operating, marketing and growth initiatives; development and operating
costs; the amount and effectiveness of our advertising and promotional efforts;
brand awareness; the existence of adverse publicity; changes in business
strategies or development plans; quality and experience of our management;
availability, terms and deployment of capital; labor and employee benefit costs,
as well as those factors in our filings with the Securities and Exchange
Commission, particularly the discussions under "Risk Factors." Readers are urged
to carefully review and consider the various disclosures made by us in this
report and those detailed from time to time in our reports and filings with the
SEC.
Our fiscal year ends on December 31. References to a fiscal year refer
to the calendar year in which such fiscal year ends.
The following analysis of our consolidated financial condition and
results of operations for the three and six months ended June 30, 2006 should be
read in conjunction with the Consolidated Financial Statements and other
information presented elsewhere in this report, in the Company's 10-KSB/A annual
report, and Form 8-K's, which include the latest financials statements of
Dynamic Leisure Group, Inc., Changes in L'Attitudes, Inc., Island Resort
Tours,Inc, and International Travel and Resorts, Inc, combined financial
statements,
All share and per share data and information included in this report
has been restated to consider the effect of a 1 for 30 reverse stock split that
occurred on the close of business March 3, 2006.
GENERAL
Dynamic Leisure Group (DLG) was formed in Tampa, Florida in May 2005,
with the intention of entering the wholesale leisure travel industry. Our
primary strategy was to align ourselves with established businesses in key
leisure travel destinations through acquisition, mergers, or strategic
alliances, then grow revenues through improved service and product offerings
selling directly to consumers, primarily over the Internet, and also through the
travel agencies and other third parties.
24
Since January 2006, the Company has proceeded to follow a plan of
strategic acquisitions to obtain supplier contracts or revenue streams primarily
in the travel industry. The Stock Exchange Agreement between DynEco and DLG on
January 13, 2006 included the patent rights to UniVane Technology. The UniVane
technology may have a number of future applications in various markets and
potential commercialization, including in combinations with fuel cells, and
aquaculture. DynEco had previously agreed to license the technology to Parker
Hannifin, in order to minimize certain development costs and potentially
increase time and uses to market. On February 8, 2006, the Company acquired
Changes in L'Attitudes, Inc. (CLA) a Largo, Florida online leisure travel
company. On March 6, 2006, the Company acquired Island Resort Tours, Inc. and
International Travel and Resorts, Inc (collectively "IRT-ITR"), two New York
based wholesale tour operators. CLA, and IRT-ITR, are primarily focused on
leisure travel in the Caribbean and Mexico.
Our strategy will change to focus primarily on the acquisition and
integration of key assets in the leisure travel industry to provide an ongoing
business base, including the implementation of its proprietary TourScape dynamic
packaging travel software. We expect to produce initial revenue growth via
opportunities in the leisure travel market, including developing a more
prominent Internet presence, as well as continue to look for the most
advantageous and efficient way to accelerate or enhance the development and
commercialization of UniVane Technology under our Parker Hannifin licensing
agreement.
Our executive offices are currently located at 5680A Cypress Street
Tampa, Florida 33607, and our telephone number there is (813) 877-6300.
CRITICAL ACCOUNTING ESTIMATES
Stock Based Compensation Plans
The Company has one active stock-based compensation plan. The board of
directors administers this plan and may grant options to key individuals at
their discretion. Terms and prices are to be determined by the compensation
committee or the board. This plan has an aggregate of 11,055 shares of common
stock reserved for future issuance. Total options outstanding were 104,539 at
June 30, 2006. No options were granted during the six months ended June 30,
2006.
On January 1, 2006, the Company implemented Statement of Financial
Accounting Standard 123 (revised 2004) ("SFAS 123(R)"), "Share-Based Payment"
which replaced SFAS 123 "Accounting for Stock-Based Compensation" and superseded
APB Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS 123(R)
requires the fair value of all stock-based employee compensation awarded to
employees to be recorded as an expense over the related vesting period. The
statement also requires the recognition of compensation expense for the fair
value of any unvested stock option awards outstanding at the date of adoption.
During 2006, all employee stock compensation is recorded at fair value using the
Black Scholes Pricing Model. In adopting SFAS 123(R), the Company used the
modified prospective application ("MPA"). MPA requires the Company to account
for all new stock compensation to employees using fair value. For any portion of
awards prior to January 1, 2006 for which the requisite service has not been
rendered and the options remain outstanding as of January 1, 2006, the Company
shall recognize the compensation cost for that portion of the award for which
the requisite service was rendered on or after January 1, 2006. The fair value
for these awards is determined based on the grant-date. There was no cumulative
effect of applying SFAS 123R at January 1, 2006.
25
Warrant Liability
During our efforts to raise capital from external investments, we have
issued secured and unsecured Convertible Promissory Notes that include
provisions requiring us to register related shares of common stock. Per SFAS 133
and EITF 00-19 we are required to record the value of warrants issued in
connection with these Promissory Notes as a warrant liability.
The valuation of the warrant liability is based on a Black Scholes
model and will vary, potentially significantly, based on factors such as the
remaining time left to exercise the warrants, recent volatility (change) in the
price of Dynamic's common stock, and the market price of our common stock.
Changes in the valuation of the warrant liability are recorded as other income
or expense in the period of the change.
The value of the warrant liability was $2,804,877 at June 30, 2006 for
both the MMA and DynEco March 2005 financing. The MMA was valued at $2,432,126
using the following assumptions: $1.25 Stock Price, $1.00 exercise price, 2.5
year term, 271% volatility, 5.07% discount rate. The DynEco March 2005 warrants
were valued at $372,751 using the following assumptions: $1.25 Stock Price,
$1.00 exercise price. 2.75 expected term, 271% volatility, 5.07% discount rate.
During the three months ended June 30, 2006 there was warrant valuation income
of $1,441,491. For the six months ended June, the warrant valuation was an
expense of $778,551.
RESULTS OF OPERATIONS
Because DLG was founded in May 2005, there exists limited operating and
no comparable financial results in prior years for the three months ended March
31, 2005. The comparable 2005 results begin at our inception date of May 16,2005
The operating results of Dynamic are included beginning January 13, 2006, CLA
are included beginning February 8, 2006 and IRT-ITR beginning March 6, 2006, the
respective dates of acquisition occurring during the six-month period ended June
30, 2006. Revenues for the near term will depend upon our ability to continue
existing revenue streams from leisure travel businesses and execute our plans
for additional revenue growth.
Our revenues for 2006 were derived from the acquisitions of Changes in
L'Attitudes, Inc. and IRT-ITR as we begin to expand in the leisure travel
market. Operating expenses for the three months and six months ended June 30,
2006 are a combination of the operating expenses included in the acquisitions
and the concurrent establishment of administrative technology, and operations
functions to support the planned growth of the business.
A net loss of $4,693,304 was reported for the period, primarily as a
result of significant expenses recognized for the recording of warrant valuation
expense and related liability for detachable warrants issued with convertible
notes payable, interest expense from amortization of discounts on convertible
promissory notes and charges incurred for the extinguishment of debt for part of
the outstanding balance of a convertible note payable from investors in the
Company.
THREE MONTHS ENDED JUNE 30, 2006 COMPARED TO THE PERIOD FROM INCEPTION (MAY 16,
2005) TO JUNE 30,2005.
With an inception date of May 16, 2005, Dynamic Leisure Group, Inc was
in a developmental state during the second quarter of last year and as such did
not generate any revenue. Of the $49,825 in general and administrative expenses
incurred during the second quarter last year the vast majority were salaries of
$33,500 and professional fees of $15,750, which mostly related to capital rising
efforts.
26
During the first quarter of 2006,the Company moved from the
developmental stage by to the operational stage by acquiring Changes in
L'Attitudes, Inc (CIL). on February 8, 2006 and IRT-ITR on March 6, 2006. The
operating results for our three months ended June 30, 2006 include activity from
these acquisitions for the whole quarter. We had $1,904,547 in revenues, and
gross profit of $564,299 for the three months ended June 30,2006. Our revenue is
derived primarily from the value of travel packages paid for and traveled during
the period, the sale of certain airline tickets when issued, and certain fees or
commissions considered earned by the customer during the period.
Operating expenses were $1,534,873 for the second quarter of 2006
compared to $831,028 in the first quarter of 2006 as the Company builds its
infrastructure to support a larger multi-location organization and due to the
CIL and IRT -ITR expenses being included for the whole quarter. Corporate
expenses were $389,822 higher in the second quarter of 2006 due to $80,161
professional fees, $81,027 of salaries , $73,272 of amortization , $36,685 of
recruiting expenses and $24,875 of travel. As we increase the volume of our
business and relationships with suppliers, and sell more products directly to
the traveling customer over the Internet, we anticipate operating expenses as a
percentage of revenue to decrease.
Interest expense for the three months ended June 30, 2006 was
$1,002,449. This amount was lower than the first quarter of 2006 by $179,797 due
the conversion of several notes payable to stock during the year which reduce
the debt discount amortization and by the write down on the debt discount of the
March 2005 in the first quarter of 2006 from the Modification and Waiver
agreement.
The Warrant valuation for the second quarter of 2006 was income of
$1,441,491 from the reduction of the Company stock price from $1.85 to $1.25 and
a reduction is the volatility from 335% to 271%. The valuation of the warrant
liability is a non-cash income or expense to the Company.
Mainly due to the change from expense of the warrant liability from a
$2,220,042 in the first quarter of 2006 to an income of $1,441,491 the Company's
net loss reduced to $532,995.
SIX MONTHS ENDED JUNE 30, 2006 COMPARED TO. THE PERIOD FROM INCEPTION (MAY 16,
2005) TO JUNE 30,2005.
With an inception date of May 16, 2005, Dynamic Leisure Group, Inc was
in a developmental stage during the second quarter of last year and as such did
not generate any revenue. Of the $49,825 in expenses incurred during the second
quarter last year the vast majority were salaries of $33,500 and professional
fees of $15,750, which mostly related to capital rising efforts.
During the first quarter the Company moved from the developmental stage
to the operational stage by acquiring Changes in L'Attitudes, Inc. on February
8, 2006 and IRT-ITR on March 6, 2006. The operating results for our six months
ended June 30, 2006 include activity from the date of these acquisitions to June
30, 2006.
We had $2,997,045 in revenues, and gross profit of $839,473 in the
first six months of 2006. Our revenue is derived primarily from the value of
travel packages paid for and traveled during the period, the sale of certain
airline tickets when issued, and certain fees or commissions considered earned
by the customer during the period.
Operating expenses were $2,365,901 for the first six months of 2006, as
the Company builds its infrastructure to support a larger multi-location
organization. As we increase the volume of our business and relationships with
suppliers, and sell more products directly to the traveling customer over the
Internet, we anticipate operating expenses as a percentage of revenue to
decrease.
27
Interest expense for the first six months of 2006 was $2,184,895.
Interest expense through June 30, 2006 included $1,694,036 of amortization of
debt discount on notes payable and discounts of notes payable. The holders of
the outstanding convertible notes have the option to receive the interest
payments in either cash or common stock. While we expect the interest to be paid
with our common stock, there is no guarantee that will occur.
For the six months ended June 30, 2006, we incurred a $208,452 loss on
extinguishment of debt, and $778,551 of warrant valuation expense related to the
issuance of new warrants as part of a financing transaction in the six months
ended June 30, 2006 and the revaluation of warrants previously issued. The
amounts recorded for loss on extinguishment of debt, and warrant valuation
expense were non-cash transactions, which did not affect our use of cash
resources, but created significant increases in other expenses during the
period. Therefore, our net loss was $4,693,304 for the first six months of 2006.
FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 2006, the Company came to own
proprietary software technology, proprietary engineering technology, and
operations in the wholesale leisure travel market. Our financial condition
relies on continuing equity investment until the Company is able profitably to
grow our wholesale leisure travel business. During the first six months of 2006
travel revenue and income from operations was not enough to offset financing
expenses related to the Stock Exchange Agreement, subsequent financing expenses
related to an investment by MMA Capital, acquisition costs for CLA and IRT-ITR,
and professional fees.
During the first six months of the year, the Company's main sources of
liquidity were from the issuance of convertible notes payable and common stock
issuances. The Company issued three convertible notes for total proceeds of
$2,060,000 with the MMA note of $2,000,000 on January 13, 2006 representing the
vast majority. The common stock proceeds for the six months ended June 30, 2006
were $285,739. The main uses of these proceeds was to fund the cash operating
deficit of $1,728,782, repayment of debt of $344,632, debt issue costs of
$176,322, investing activities of 65,762 and a increase in the level of cash of
$37,740.
For the six months ended June 30, 2006, we had a net loss of
$4,693,304. The loss was primarily the result of other expense of $3,166,876 for
the six months ended June 30, 2006. The other income/loss consisted of interest
expense $2,184,895, loss on extinguishment of debt $208,452, other expense of
$8,020 and $778,551 in warrant valuation expense. While the warrant valuation
expense was charged to expense it did not result in cash outlays as of June 30,
2006. In addition, amortization of debt discount for the six months ended June
30, 2006 was $1,694,036 which is also a non-cash charge.
As of June 30, 2006, our primary source of liquidity was $139,776 of
cash and $266,275 of accounts receivable. There is a working capital deficit of
$8,711,794 at June 30, 2006, primarily due to a warrant liability of $2,804,877,
acquisitions payable of $1,440,000, convertible notes payable, net of discount
of $2,087,008, and convertible notes payable - related party of $750,000. The
convertible notes payable and convertible notes payable - related parties,
consists of promissory notes convertible to Dynamic's common stock. While we
expect these notes to be converted into Dynamic's common stock, reducing the
amount of cash payments for the liabilities, we have no guarantee that this will
occur. We had total assets of $9,541,955 of which long-term assets of $7,779,875
consisted of goodwill of $5,115,696 intangible assets of $2,472,446, other
assets of $96,651, debt issue cost of $95,082 and $851,455 of property and
equipment. Of our total liabilities of $9,833,178, long term liabilities total
$210,759 including $117,370 of notes payable, $15,501 of loans payable and
$77,888 of long term capital lease. Total shareholders' deficit was $291,223. At
June 30, 2006, we had an accumulated deficit of $5,178,618.
28
We were in default on $2,155,158 in notes payable at June 30, 2006. On
August 16, 2006 we entered in to a Modification of the MMA note, which deferred
the interest payments until January 13, 2007. In return for this deferral, MMA
was granted 100,000 shares of Company stock and the interest rate was increased
retroactively from 8% to 10%. The Company is accruing the default interest rate
of 10% on the remaining $155,158 from the March 2005 DynEco financing.
We are also in default of the repayment terms on unsecured notes
payable aggregating $35,000 at June 30, 2005 and 2006, initially issued by
DynEco. No extension has been granted by the debt holders. We had anticipated
settling the balance owing on these notes payable through issuance of common
stock in 2005 however as of June 30, 2006 this had not yet occurred nor is there
any assurance that this will take place.
Four convertible note totaling $140,000 were due on June 30, 2006 and
were not paid on that date. Subsequent to June 30, 2006 one holder has converted
and the other three are in discussion to convert to stock. There were repayments
during the first quarter of $204,632 of convertible promissory notes and
$140,000 of non-convertible promissory notes. In addition, there were
conversions to common stock of promissory notes of $325,000 during the first six
months of 2006.(See financial statement note 8).
We have limited historical results, and only a limited time of combined
operations with Dynamic, DLG, CLA, and IRT-ITR. We have relied upon equity
financing in order to fund operations. During the six months ended June 30,
2006, there were limited activities or resources to provide cash flow in excess
of immediately needed funding. Our inability to generate cash flow in excess of
immediately needed funds may create a situation where we are likely to require
additional capital from external sources. There is no guarantee that we will be
able to obtain any necessary financing on terms favorable to us, if at all.
As of June 30, 2006, and the date of this filing, our sources of
internal and external financing are limited. Additionally, as part of the
acquisitions of CLA and IRT-ITR, we issued an additional 1,040,000 shares of
Dynamic common stock, agreed to pay $1,440,000 in additional cash, and
$2,050,000 of secured Convertible Notes payable. While we anticipate all of the
Convertible Notes Payable to convert to shares of Dynamic's common stock, should
this occur and reduce our potential cash payment for the notes, we would issue
additional shares of stock that would further dilute our existing shareholders
holdings. It is not expected that the internal sources of liquidity will improve
until net cash is provided from operating activities, and until such time, we
will rely upon external sources of liquidity, including additional private
placements of Dynamic's common stock and exercise of various outstanding stock
warrants and stock options. We are hopeful that the continued listing of our
shares on the OTC Bulletin Board and expansion of our business opportunities
further in the leisure travel market, which should help increase the Company's
market capitalization, encourage the exercise of outstanding warrants and
attract new sources of financing. We have no understandings or commitments from
anyone with respect to external financing, and we cannot predict whether we will
be able to secure necessary funding when needed, or at all.
As we continue to expand our business and deploy our technology in our
leisure travel business, our current monthly cash flow requirements will exceed
our near term cash flow from operations. We are still unable to quantify the
amount of revenue anticipated from commercializing UniVane products through
Parker Hannifin however, we do not believe that it will be material to meeting
our cash requirements going forward. Even if we are not required to meet our
financing and interest payment needs from cash, and instead our investors
convert their outstanding convertible notes to common stock, our available cash
resources and anticipated cash flow from operations are insufficient to satisfy
29
our anticipated costs associated with new product development, deployment of
software technology and integration of acquisitions in the near future. There
can be no assurance, however, that we will be able to generate sufficient cash
from operations, if any, in future periods to satisfy our capital requirements,
or anticipated additional acquisitions. Therefore, we will have to continue to
rely on external financing activities, including the sale of our equity
securities, to satisfy our capital requirements for the foreseeable future. Due,
in part, to our lack of historical earnings, our prior success in attracting
additional funding has been limited to transactions in which our equity is used
as currency. In light of the availability of this type of financing, and the
lack of alternative proposals, our board of directors has determined that the
continued use of our equity for these purposes may be necessary if we are to
sustain operations. Equity financings of the type we have been required to
pursue are dilutive to our stockholders and may adversely impact the market
price for our shares. However, we have no commitments for borrowings or
additional sales of equity, the precise terms upon which we may be able to
attract additional funding is not known at this time, and there can be no
assurance that we will be successful in consummating any such future financing
transactions on terms satisfactory to us, or at all.
OFF BALANCE SHEET ARRANGEMENTS
Under SEC regulations, we are required to disclose our off-balance
sheet arrangements that have or are reasonably likely to have a current or
future effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or
capital resources that are material to investors. An off-balance sheet
arrangement means a transaction, agreement or contractual arrangement to which
any entity that is not consolidated with us is a party, under which we have:
o Any obligation under certain guarantee contracts;
o Any retained or contingent interest in assets transferred to an
unconsolidated entity or similar arrangement that serves as credit,
liquidity or market risk support to that entity for such assets;
o Any obligation under a contract that would be accounted for as a
derivative instrument, except that it is both indexed to our stock and
classified in stockholder's equity in our statement of financial
position; and
o Any obligation arising out of a material variable interest held by us
in an unconsolidated entity that provides financing, liquidity, market
risk or credit risk support to us, or engages in leasing, hedging or
research and development services with us.
On May 15, 2006, the Company entered into a five-year lease of the
premises located at 5680A W. Cypress Street, Tampa, Florida 33607. The Company
moved into these offices on July 1, 2006. This lease is not reasonably likely to
have a material effect on the Company's current and future financial condition.
As of the date of this Report, the Company has no off-balance sheet
arrangements that have or are reasonably likely to have a current or future
effect on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources that is material to investors.
30
SEASONALITY AND INFLATION
Our leisure travel business is currently concentrated in the Caribbean
islands and certain destinations in primarily eastern Mexico, while are
customers are primarily from the United States . The leisure travel in this
market typically is greater in the first four or five months of the calendar
year, as people travel to warmer and resort destinations, The summer and early
fall months between June and November may be negatively affected by the weather,
such as in 2005 when a record 28 named tropical storms developed in the area,
including 7 storms classified as either category 4 or 5. During 2006, tropical
storm activity has been at a slower pace than 2005. Travel in the Caribbean and
Mexico involves traveling to different countries which can have significantly
different rates of inflation or currency valuation compared to the US dollar,
with certain destinations considered to be more luxury oriented and relatively
more expensive, and others more price or value oriented. A reduction in
disposable income for inflation, has recently meant a reduction of the overall
spending on a leisure travel, which could affect our revenue or gross margin.
The Company is working to establish more travel destinations to lessen the
effect on whether and seasonality for 2007.
ITEM 3. CONTROLS AND PROCEDURES
The Company's management has concluded its evaluation of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. Disclosure controls and procedures are controls and procedures
designed to reasonably assure that information required to be disclosed in our
reports filed under the Securities Exchange Act of 1934, such as this Quarterly
Report, is recorded, processed, summarized and reported within the time periods
prescribed by SEC rules and regulations, and to reasonably assure that such
information is accumulated and communicated to our management, including the
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure.
The Company's management, including the Chief Executive Officer and
Chief Financial Officer, does not expect that our disclosure controls and
procedures will prevent all error and all fraud. A control system, no matter how
well designed and operated, can provide only reasonable, not absolute, assurance
that the control system's objectives will be met. Further, the design of a
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, have been detected. These inherent limitations include the realities that
judgments in decision-making can be faulty, and that breakdowns can occur
because of simple error or mistake. The design of any system of controls is
based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions.
As of the evaluation date, the Company's Chief Executive Officer and
its Chief Financial Officer concluded that the Company maintains disclosure
controls and procedures that are effective in providing reasonable assurance
that information required to be disclosed in the Company's reports under the
Exchange Act is recorded, processed, summarized and reported within the time
periods prescribed by SEC rules and regulations, and that such information is
accumulated and communicated to the Company's management, including its Chief
Executive Officer and its Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure.
There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect these controls
subsequent to the evaluation date.
31
PART II. OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On January 3, 2006, DLG issued a Convertible Promissory Note to Street
Venture Partners, LLC in the amount of $350,000, with interest at the rate of
ten percent (10%) per annum, due and payable on January 3, 2007 but convertible
into shares of the Company's common stock at the rate of ninety cents ($0.90)
per share. In addition, the security holder was issued 388,500 warrants to
purchase shares of the Company's common stock at an exercise price of ninety
cents ($0.90) per share. Should the security holder decide to convert the note
on the maturity date and exercise its warrants, the Company would issue a total
of 427,350 shares of common stock to the security holder. The Company has
reasonable grounds to believe that the security holder was an "accredited
investor" within the meaning of Rule 501 of Regulation D under the Securities
Act. The investor was provided access to business and financial about us and had
such knowledge and experience in business and financial matters that it was able
to evaluate the risks and merits of an investment. Accordingly, the investor was
also "sophisticated" within the meaning of federal securities laws. The
certificate evidencing securities issued to the investor included a legend to
the effect that the securities were not registered under the Securities Act and
could not be resold absent registration or the availability of an applicable
exemption therefrom. No general solicitation or advertising was used in
connection with the transactions. The issuance of the shares and warrants was
exempt from the registration requirements of the Securities Act by reason of
Section 4(2) of the Securities Act and the rules and regulations thereunder, as
transactions by an issuer not involving any public offering.
On January 13, 2006, DynEco entered into a Stock Exchange Agreement
(the "reverse merger") with all of the shareholders of Dynamic Leisure Group,
Inc., a Florida corporation (now known as Dynamic Leisure Group North America,
Inc.). As part of the reverse merger transaction, and to cure a default with two
of the selling security holders, the Company entered into Restructured
Financing, (See financial statements note 6), under which 100,000 (post-reverse
split) shares of common stock were issued to Alpha Capital Aktiengesellschaft
and another 100,000 (post-reverse split) shares of common stock were issued to
JM Investors, LLC. Under the terms of the Restructured Financing, the Company is
required to register shares sufficient to cover one hundred fifty percent (150%)
of the common stock issued. In addition, under the terms of the anti-dilution
terms of the Restructured Financing, Alpha Capital Aktiengesellschaft has been
granted an additional 29,800 warrants, and JM Investors, LLC has been granted an
additional 15,700 warrants, both covered by the registration statement.
Also as part of the reverse merger transaction, the Company entered
into a new financing, (See Financial Statements Note 6), including issuance of a
Secured Convertible Promissory Note to MMA Capital LLC, a Delaware limited
liability company, in the amount of $2,000,000, with simple interest at the rate
of eight percent (8%) per annum, convertible into shares of common stock at a
conversion price of one dollar ($1.00) per share. In addition, the Company
issued warrants to MMA Capital, LLC to purchase 2,000,000 shares of common stock
at an exercise price of one dollar ($1.00) per share.
In connection with the Stock Exchange Agreement of January 13, 2006, on
March 6, 2006 the Company issued the former shareholders of Dynamic Leisure
Group, Inc. an aggregate of 6,566,667 shares of Dynamic's common stock.
32
On January 16, 2006, the Company entered into a Consulting Agreement
with MBN Consulting, LLC, under which the security holder was granted 200,000
warrants to purchase shares of the Company's common stock at an exercise price
of one dollar twenty-five cents ($1.25) per share. The Company had reasonable
grounds to believe that the security holder was an "accredited investor" within
the meaning of Rule 501 of Regulation D under the Securities Act. The investor
was provided access to business and financial about us and had such knowledge
and experience in business and financial matters that it was able to evaluate
the risks and merits of an investment. Accordingly, the investor was also
"sophisticated" within the meaning of federal securities laws. The certificate
evidencing securities issued to the investor included a legend to the effect
that the securities were not registered under the Securities Act and could not
be resold absent registration or the availability of an applicable exemption
therefrom. No general solicitation or advertising was used in connection with
the transactions. The issuance of the shares and warrants was exempt from the
registration requirements of the Securities Act by reason of Section 4(2) of the
Securities Act and the rules and regulations thereunder, as transactions by an
issuer not involving any public offering.
On January 25, 2006, the Company issued a Convertible Promissory Note
in the amount of $50,000 to Peter H. Clark in exchange for financing. On March
9, 2006, the security holder converted the note, and the Company has issued
55,500 shares to the security holder. In addition, the security holder was
issued 50,000 warrants to purchase common stock of the Company at an exercise
price of one dollar ($1.00) per share. The Company had reasonable grounds to
believe that the security holder was an "accredited investor" within the meaning
of Rule 501 of Regulation D under the Securities Act. The investor was provided
access to business and financial about us and had such knowledge and experience
in business and financial matters that it was able to evaluate the risks and
merits of an investment. Accordingly, the investor was also "sophisticated"
within the meaning of federal securities laws. The certificate evidencing
securities issued to the investor included a legend to the effect that the
securities were not registered under the Securities Act and could not be resold
absent registration or the availability of an applicable exemption therefrom. No
general solicitation or advertising was used in connection with the
transactions. The issuance of the shares and warrants was exempt from the
registration requirements of the Securities Act by reason of Section 4(2) of the
Securities Act and the rules and regulations thereunder, as transactions by an
issuer not involving any public offering.
In connection with the Company's purchase of Changes in L'Attitudes,
Inc., on March 6, 2006 the Company issued 340,000 shares of Dynamic's common
stock to Raymon Valdes. In addition, under the Purchase Agreement governing that
transaction, the Company issued Mr. Valdes a convertible promissory note in the
amount of $600,000, bearing an annual interest rate of 9%, maturing one year
from the acquisition date, and convertible into Dynamic's common stock at the
rate of $1.50 per share.
33
In connection with the purchase of Island Resort Tours, Inc. and
International Travel and Resorts, Inc., on March 6, 2006 the Company issued
700,000 shares of Dynamic common stock to Stephen A. Hicks. In addition, under
the Purchase Agreement governing that transaction, the Company issued Mr. Hicks
a convertible promissory note in the amount of $1,450,000, bearing an annual
interest rate of 9%, maturing one year from the acquisition date, convertible
into Dynamic's common stock at the rate of $1.50 per share.
On April 25, 2006, the Company entered into a Subscription Agreement
with David Halperin, under which the Company issued 50,000 shares of common
stock to the security holder. In addition, the security holder was issued 50,000
warrants to purchase the common stock of the Company at an exercise price of one
dollar ($1.00) per share. The investor was provided access to business and
financial information about the Company and had such knowledge and experience in
business and financial matters that it was able to evaluate the risks and merits
of an investment. Each certificate evidencing securities issued to the investors
included a legend to the effect that the securities were not registered under
the Securities Act and could not be resold absent registration or the
availability of an applicable exemption from registration. No general
solicitation or advertising was used in connection with the transactions.
On May 31, 2006, the Company entered into a Subscription Agreement with
Peter L. Johnson, under which the Company issued 10,000 shares of common stock
to the security holder. In addition, the security holder enjoys 10,000 warrants
to purchase the common stock of the Company at an exercise price of one dollar
($1.00) per share. The investor was provided access to business and financial
information about the Company and had such knowledge and experience in business
and financial matters that it was able to evaluate the risks and merits of an
investment. Each certificate evidencing securities issued to the investors
included a legend to the effect that the securities were not registered under
the Securities Act and could not be resold absent registration or the
availability of an applicable exemption from registration. No general
solicitation or advertising was used in connection with the transactions.
On June 29, 2006, the Company entered into a Common Stock Purchase
Agreement with MMA Capital, LLC, a Delaware Limited Liability Company, under
which MMA agreed to purchase, and the Company agreed to sell and issue to the
Purchaser, One Hundred Thousand (100,000) shares of the Company's common stock,
at a purchase price of One Hundred Thousand Dollars ($100,000.00), a rate of
$1.00 per share for the common stock. On July 10, 2006, the Company entered into
a second Common Stock Purchase Agreement with MMA, under which MMA agreed to
purchase, and the Company agreed to sell and issue to the Purchaser, Four
Hundred Thousand (400,000) shares of the Company's common stock, at a purchase
price of Four Hundred Thousand Dollars ($400,000.00), a rate of $1.00 per share
for the common stock. The Agreements were private offerings of unregistered
securities and did not involve the issuance of any debt or promissory note,
convertible or otherwise, nor any warrants to purchase stock of the Company.
On July 1, 2006, the Company issued 400,000 shares of common stock
pursuant to a consulting agreement with Redwood Consultants, LLC. The shares
were issued in reliance on the exemption from registration provided by section
4(2) of the Act, on the basis that their issuance did not involve a public
offering, that no underwriting fees or commissions were paid by us in connection
with such sale, and that the Purchaser represented to us that he was an
"accredited investor" as defined in the Act.
34
On July 1, 2006, the Company issued 100,000 shares of common stock
pursuant to a stock purchase agreement with MMA Capital, LLC. On July 12, 2006,
the Company issued 100,000 additional shares of common stock pursuant to a stock
purchase agreement with MMA Capital, LLC. The shares were issued in reliance on
the exemption from registration provided by section 4(2) of the Act, on the
basis that their issuance did not involve a public offering, that no
underwriting fees or commissions were paid by us in connection with such sale,
and that the Purchaser represented to us that it was an "accredited investor" as
defined in the Act.
On July 10, 2006, the Company entered into a Subscription Agreement
with David O. Jensen to purchase 15,000 shares of the Company's common stock,
plus 15,000 warrants to purchase the Company's common stock at $1.00 per share.
The Agreement was a private offering of unregistered securities. The shares were
issued in reliance on the exemption from registration provided by section 4(2)
of the Act, on the basis that their issuance did not involve a public offering,
that no underwriting fees or commissions were paid by us in connection with such
sale, and that the Purchaser represented to us that he was an "accredited
investor" as defined in the Act.
On July 11, 2006, the Company issued 80,000 shares of common stock for
services through August 2007 to The Research Works, LLC. The shares were issued
in reliance on the exemption from registration provided by section 4(2) of the
Act, on the basis that their issuance did not involve a public offering, that no
underwriting fees or commissions were paid by us in connection with such sale,
and that the Purchaser represented to us that it was an "accredited investor" as
defined in the Act.
On July 28, 2006, the Company issued 250,000 shares of common stock
pursuant to a stock purchase agreement with Miller Investments, LLC. In
connection with the Stock Purchase Agreement, on July 28, 2006 the Company also
issued to the Purchaser warrants to purchase Two Hundred Fifty Thousand
(250,000) shares of common stock of the Company at an exercise price of One
Dollar ($1.00) per share, subject to potential adjustment(s) in the exercise
price as set forth in the Warrant to Purchase Shares of Common Stock. The
warrants are exercisable for a period of five (5) years from the date of
issuance. The shares were issued in reliance on the exemption from registration
provided by section 4(2) of the Act, on the basis that their issuance did not
involve a public offering, that no underwriting fees or commissions were paid by
us in connection with such sale, and that the Purchaser represented to us that
it was an "accredited investor" as defined in the Act.
35
ITEM 6. EXHIBITS
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
SIGNATURES
In accordance with the requirements of the Exchange Act the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: August 21, 2006 DYNAMIC LEISURE CORPORATION
By: /s/ Daniel G. Brandano
----------------------
Daniel G. Brandano
Chief Executive Officer
EXHIBIT INDEX
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
36