UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended: March 31, 2001
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period from to
---- ------------
Commission File Number: 0-12806
DYNATEC INTERNATIONAL, INC.
----------------------------
(Exact name of small business issuer as specified in its charter)
UTAH 87-0367267
--------------------------------------------- --------------------------
(State or other jurisdiction of incorporation (IRS employer
or organization) identification no.)
3820 Great Lakes Drive
Salt Lake City, Utah 84120
--------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
(801) 973-9500
----------------
(Issuer's telephone number, including area code)
N/A
-------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or 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. X Yes No
The Company had 5,745,640 shares of common stock outstanding at May 2, 2001.
The aggregate market value of voting stock held by non-affiliates of the Company
at May 2, 2001 was $492,050.
Transitional small business disclosure format. Yes X No
------ ---
DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000.................3
Condensed Consolidated Statements of Operations for the three months ended
March 31, 2001 and 2000, respectively............................................................5
Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 2001 and 2000, respectively............................................................6
Notes to Condensed Consolidated Financial Statements.............................................8
Item 2. Management's Discussion and Analysis or Plan of Operation.......................................12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..........................................................................17
Item 6. Exhibits and Reports on Form 8-K...........................................................20
2
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, 2001 December 31,
2000
--------------- ---------------
--------------- ---------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 12,047 $ 128,536
Trade accounts receivable, net of allowance for doubtful accounts of $54,297
and $56,800, at March 31, 2001 and December 31, 2000 respectively 1,092,286 806,421
Inventories (note 2) 1,047,106 1,251,052
Prepaid expenses and other
96,157 101,096
Net assets of discontinued operations 178,873
-
------------- -------------
Total current assets 2,247,596 2,465,978
------------- -------------
PROPERTY AND EQUIPMENT, at cost:
Building and improvements 2,865,000 2,865,000
Furniture, fixtures, and equipment 2,976,585 2,965,150
------------ -------------
5,841,585 5,830,150
Less accumulated depreciation and amortization 2,394,035 2,274,813
------------- -------------
Net property and equipment 3,447,550 3,555,337
GOODWILL AND OTHER IDENTIFIABLE INTANGIBLES, net (note 2) 141,795 150,128
DEFERRED LOAN COSTS, net of accumulated amortization of $62,388 and $56,001,
respectively 4,258
10,645
OTHER ASSETS 72,623 91,987
-------------- -------------
$ 5,913,822 $ 6,274,075
============== =============
See accompanying notes to condensed consolidated financial statements.
3
DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, 2001 December 31, 2000
----------------- ----------------
----------------- ----------------
(Unaudited)
CURRENT LIABILITIES:
Short-term note payable $ 475,586 $ 485,250
Current portion of long-term debt 60,550 81,175
Current portion of capital lease obligations 73,172 71,848
Accounts payable 1,340,477 1,369,958
Note payable-related party 150,000 -
Accrued expenses 560,501 559,974
Accrued advertising 239,066 365,000
Accrued royalties payable 138,465 105,127
Net liabilities of discontinued operations 21,190
-------------
-
Total current liabilities 3,059,007 3,038,332
DEFERRED GAIN ON SALE OF ASSET 228,962 232,043
CAPITAL LEASE OBLIGATIONS, net of current portion 2,870,221 2,887,526
------------- -------------
Total liabilities 6,158,190 6,157,901
------------- -------------
STOCKHOLDERS' EQUITY :
Common stock, $.01 par value; 100,000,000 shares authorized and 5,745,640
shares outstanding at March 31, 2001 and December 31, 1999 57,456 57,456
Additional paid-in capital 10,320,949 10,320,949
Accumulated deficit (10,622,773) (10,262,231)
-------------- --------------
Net stockholders' (deficit) equity (244,368) 116,174
---------------- ---------------
COMMITMENTS AND CONTINGENCIES - -
$ 5,913,822 $ 6,274,075
============= =============
See accompanying notes to condensed consolidated financial statements.
4
DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Three months ended
March 31, 2001 March 31, 2000
---------------------- ----------------------
---------------------- ----------------------
(Unaudited) (Unaudited)
PRODUCT SALES 1,942,632 $ 2,651,289
COST OF SALES (981,427) (1,444,509)
------------ --------------
Gross Margin 961,205 1,206,780
------------ --------------
OPERATING COSTS AND EXPENSES:
Selling expenses 599,791 915,104
General and administrative 576,488 797,553
Research and development - 94,966
------------ --------------
Total operating costs and expenses 1,176,279 1,807,623
------------ --------------
Operating loss from continuing operations (215,074) (600,843)
------------ --------------
OTHER INCOME (EXPENSE):
Interest expense (126,051) (135,219)
Equity in loss of affiliate (note 4) (19,477) -
Other income 60 1,577
------------ --------------
Total other expense, net (145,468) (133,642)
------------ --------------
Loss from continuing operations before income tax benefit
(360,542) (734,485)
INCOME TAX BENEFIT - -
------------ --------------
Loss from continuing operations (360,542) (734,485)
------------ --------------
DISCONTINUED OPERATIONS:
Income from operations of discontinued home storage and
organization segment net of income tax - 225,695
------------ --------------
Net loss $ (360,542) $ (508,790)
============ ==============
LOSS PER SHARE FROM CONTINUING OPERATIONS- BASIC AND DILUTED
$ (.06) $ (.17)
============ ==============
EARNINGS PER SHARE FROM DISCONTINUED OPERATIONS- BASIC AND DILUTED
$ - $ .05
============ ==============
NET LOSS PER SHARE- BASIC AND DILUTED $ (.06) $ (.12)
============ ==============
WEIGHTED AVERAGE SHARES - BASIC AND DILUTED 5,745,640 4,268,896
============ ==============
See accompanying notes to condensed consolidated financial statements.
5
DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended Three months ended
March 31, 2001 March 31, 2000
---------------------- ----------------------
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited) (Unaudited)
Net loss $ (360,542) $
(508,790)
Net income from discontinued operations - (225,695)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 128,346 145,958
Amortization of deferred loan costs 6,387 6,387
Amortization of deferred gain on sale of assets (3,081) (3,082)
Forgiveness of liquidated damages related to convertible
debenture (note 4) - (13,523)
Gain on sale of assets (60) (1,577)
Provision for losses on accounts receivable (2,503) 7,190
Changes in operating assets and liabilities:
Trade accounts receivable (283,362) (363,204)
Inventories 203,946 (260,926)
Prepaid expenses 4,939 159,987
Other assets 19,364 (26,336)
Accounts payable (29,481) 646,461
Accrued expenses 527 (11,241)
Accrued advertising (125,934) (262,097)
Accrued royalties 33,338 5,046
---------------- ----------------
Net cash used in continuing operating activities (408,116) (705,442)
Net cash provided by discontinued operating activities 200,063 451,390
---------------- ----------------
Net cash used in operating activities (208,053) (254,052)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from the sale of assets 200 2,600
Purchase of property and equipment (12,366) (96,490)
---------------- ----------------
Net cash used in continuing investing activities (12,166) (93,890)
Net cash used in discontinued investing activities - -
---------------- ----------------
Net cash used in investing activities (12,166) (93,890)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) on line of credit (9,664) 226,554
Net payments on long-term debt (20,625) (20,625)
Net principal payments on capital lease obligations (15,981) (14,373)
Net proceeds from related party note payable 150,000 -
Payment to retire convertible debenture - (1,500,000)
Proceeds from the issuance of common stock related to private
placement - 1,600,000
---------------- ----------------
Net cash provided by continuing financing activities 103,730 291,556
Net cash used in provided by discontinued financing activities - -
---------------- ----------------
Net cash provided by financing activities 103,730 291,556
---------------- ----------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (116,489) (56,386)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 128,536 244,755
---------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 12,047 $ 188,369
================ ================
See accompanying notes to condensed consolidated financial statements.
6
DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Three months ended Three months ended
March 31, 2001 March 31, 2000
---------------------- ----------------------
---------------------- ----------------------
(Unaudited) (Unaudited)
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid for interest $ 123,793 $ 144,492
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Property and equipment acquired under capital leases - 2,220
Conversion of Convertible Debentures and accrued interest for
common stock - 135,819
See accompanying notes to condensed consolidated financial statements.
7
DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
Dynatec International, Inc., a Utah corporation ("Dynatec" or the
"Company"), is a manufacturer and distributor of consumer products in the
following major product lines: telecommunication headsets and amplifiers and
telephone accessories, and flashlights. Dynatec is located in Salt Lake City,
Utah. The Company conducts most of its operations through its wholly owned
subsidiaries: Softalk, Inc., SofTalk Communications, Inc., Arnco Marketing,
Inc., and Nordic Technologies, Inc. Unless specified to the contrary herein,
references to Dynatec or to the Company refer to the Company and its
subsidiaries on a consolidated basis.
The Company's business follows seasonal trends. As a result the Company
experiences its highest revenues in the fourth quarter. Because the Company
sells its products primarily to major retailers, the Company's sales performance
is significantly dependent on the performance of those retailers.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared by the Company in accordance with the rules and regulations
of the Securities and Exchange Commission for Form 10-QSB, and accordingly, do
not include all of the information and footnotes required by generally accepted
accounting principles. In the opinion of management, these unaudited condensed
consolidated financial statements reflect all adjustments, which consist only of
normal recurring adjustments, which are necessary to present fairly the
Company's financial position, results of operations and cash flows as of March
31, 2001, and for the periods presented herein. These unaudited condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 2000.
The results of operations for the three months ended March 31, 2001 are
not necessarily indicative of the results that may be expected for the remainder
of the year ending December 31, 2001.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventories
Inventories, consisting principally of telecommunication headsets and
amplifiers and telephone accessories, flashlights, and other miscellaneous
products as of March 31, 2001 and December 31, 2000, respectively, are
summarized as follows:
March 31, 2001 December 31,
2000
--------------- --------------
Raw materials............................ $ 333,308 $423,667
Work-in-Process.......................... 61,911 65,390
Finished Goods........................... 651,887 761,995
--------------- --------------
$1,047,106 $1,251,052
=============== ==============
Basic and Diluted Net Income (Loss) Per Common Share
Basic net loss per common share is calculated based upon the weighted
average number of common shares outstanding during the periods presented.
Diluted loss per common share is the amount of loss for the period for each
share of common stock outstanding during the reporting period and for each share
that would have been outstanding assuming the issuance of common shares for all
dilutive potential common shares outstanding during the period.
In calculating net loss per share for the three months ended March 31,
2001, and 2000, warrants and options to purchase 593,250 and 775,750 potential
common shares, respectively, are not included in the computation of diluted
8
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-(continued)
net loss per common share as their effect would have been anti-dilutive, thereby
decreasing the net loss per common share.
Goodwill
Goodwill represents the excess of the purchase price over the fair
value of the net assets acquired from Transworld Products, Inc. (Transworld) on
July 15, 1999. The goodwill is being amortized using the straight-line basis
over two years. The balance as of March 31, 2001 and December 31, 2000 was as
follows:
2001 2000
---------- -----------
---------- -----------
Goodwill $ 34,306 $ 34,306
Accumulated amortization 27,873 25,729
---------- -----------
---------- -----------
$ 6,433 $ 8,577
========== ===========
(3) BUSINESS SEGMENT INFORMATION
Information as to the operations of the Company in different business
segments is set forth below based on the nature of the products and services
offered. Management evaluates performance based on several factors, of which the
primary financial measure is business segment operating income before non-cash
amortization of intangible assets ("EBITDA"). The accounting policies of the
business segments are the same as those described in the summary of significant
accounting policies.
THREE MONTHS ENDED MARCH 31,
-----------------------------------------
REVENUES: 2001 2000
----------------------------------------------------- --------------- ------------------
Telecommunication Headsets and
Amplifiers and Telephone Accessories.......... $ 1,714,000 $ 1,866,000
Flashlights...................................... 201,000 588,000
Hardware/Houseware............................... 28,000 197,000
--------------- ------------------
--------------- ------------------
Total..................................... $ 1,943,000 $ 2,651,000
=============== ==================
THREE MONTHS ENDED MARCH 31,
-----------------------------------------
OPERATING INCOME (LOSS): 2001 2000
----------------------------------------------------- ---------------- ----------------
Telecommunication Headsets and
Amplifiers and Telephone Accessories.......... $ (64,000) $ (137,000)
Flashlights...................................... (137,000) (412,000)
Hardware/Houseware............................... (14,000) (52,000)
---------------- ----------------
---------------- ----------------
$ (215,000) $ (601,000)
================ ================
9
(3) BUSINESS SEGMENT INFORMATION (Continued)
THREE MONTHS ENDED MARCH 31,
-----------------------------------------
DEPRECIATION AND AMORTIZATION (1): 2001 2000
----------------------------------------------------- ---------------- ------------------
Telecommunication Headsets and
Amplifiers and Telephone Accessories.......... $ 113,000 $ 103,000
Flashlights...................................... 14,000 32,000
Hardware/Houseware............................... 1,000 11,000
Miscellaneous/Mass Market........................
- -
---------------- ------------------
Total..................................... $ 128,000 $ 146,000
================ ==================
(1) Amortization includes all amortization relating to goodwill, product license
rights, non-competes and purchased patents.
Information as to the assets and capital expenditures of Dynatec International, Inc. is as follows:
MARCH 31, DECEMBER 31, 2000
ASSETS: 2001
---------------------------------------------------- ------------------ --------------------
Telecommunication Headsets and
Amplifiers and Telephone Accessories.......... $ 4,945,000 $ 4,098,000
Flashlights...................................... 682,000 1,111,000
Hardware/Houseware............................... 102,000 554,000
Discontinued operations.......................... - 179,000
------------------ --------------------
Total assets for reportable segments...... 5,729,000 5,942,000
Other assets..................................... 73,000 92,000
Deferred loan costs and other assets not
allocated to segments......................... 112,000 240,000
------------------ --------------------
Consolidated total........................ $ 5,914,000 $ 6,274,000
================== ====================
THREE MONTHS ENDED MARCH 31,
------------------------------------------
CAPITAL EXPENDITURES: 2001 2000
---------------------------------------------------- ------------------ ------------------
Telecommunication Headsets and
Amplifiers and Telephone Accessories.......... $ 12,000 $ 72,000
Flashlights...................................... - 21,000
Hardware/Houseware............................... $ - 5,000
------------------ ------------------
Total..................................... $ 12,000 $ 98,000
================== ==================
Information as to Dynatec International, Inc.'s operations in different
geographical areas is as follows:
THREE MONTHS ENDED MARCH 31,
-------------------------------------
REVENUES: 2001 2000
------------------------------------------ ------------- ----------------
United States.......................... $ 1,935,000 $ 2,543,000
Other (1).............................. 8,000 108,000
------------- ----------------
Total........................... $ 1,943,000 $ 2,651,000
============= ================
(1) Includes Canada, Europe, and other miscellaneous.
10
(3) BUSINESS SEGMENT INFORMATION (Continued)
THREE MONTHS ENDED MARCH 31,
-------------------------------------
OPERATING LOSS: 2001 2000
------------------------------------- ----------------- -------------------
United States........................ $ (215,000) $ (601,000)
================= ===================
MARCH 31, DECEMBER 31,
ASSETS: 2001 2000
------------------------------------- ----------------- -------------------
United States........................ $ 5,638,000 $ 5,978,000
Asia................................. 276,000 296,000
----------------- -------------------
Total......................... $ 5,914,000 $ 6,274,000
================= ===================
(4) JOINT VENTURE
In January 2001, the Company's Nordic Technologies, Inc. subsidiary
("Nordic") formed a joint venture called Nordic ASI, L.L.C. that is owned 50% by
Nordic and 50% by Sarkat International, L.L.C., a Utah limited liability company
that is owned, in part, by Reed Newbold, who is a member of the Company's board
of directors. Nordic ASI was formed specifically to enable the Company to pursue
sales of its flashlight product line (and other flashlights and products not
then offered by the Company) in the advertising, specialty and promotional
market (the "ASI Market"). Prior to the formation of Nordic ASI, the Company was
not engaged directly in the ASI Market, although until the end of 2000, it was a
supplier of flashlight products to one or more companies that sell in the ASI
Market. As its capital contribution, the Company contributed rights to sell its
products in the ASI Market to Nordic ASI, and agreed to incur the administrative
expense associated with operating Nordic ASI and marketing its products for a
period of two years. For its capital contribution, Sarkat agreed to provide
$200,000 of debt financing to Nordic ASI to enable it to start up its
operations. Profits and losses of Nordic ASI will be allocated 70% to Nordic and
30% to Sarkat. Nordic ASI obtained the $200,000 of debt financing provided by
Sarkat and has commenced its business of selling to the ASI Market by ordering
LED flashlights provided by an unaffiliated third party. The Company believes
that, given its current financial condition, it could not have commenced any
sales effort in the ASI Market or supplemented its product line for that market
absent the formation of the joint venture with Sarkat.
(5) GOING CONCERN
Based on current operations, the Company believes that its present
sources of liquidity will not be adequate to meet its projected requirements for
working capital, capital expenditures, scheduled debt service requirements and
other general corporate purposes for the remainder of the year 2001. The Company
is currently pursuing additional sources of liquidity in the form of traditional
commercial credit, asset based lending or additional sales of the Company's debt
or equity securities to finance its ongoing operations. Additionally, the
Company has entered into interim financing transactions, including $150,000 of
revolving unsecured credit provided by an entity affiliated with a member of the
Company's board of directors. The Company also is pursuing other, types of
commercial and private financing which could involve sales of substantial
portions of the Company's accounts receivable, sales of the Company's assets or
sales of one or more operating divisions. The Company's sales have been
adversely affected by the Company's reduced credit availability and lack of
access to other financing because of its reduced ability to purchase product to
fill existing orders. If additional financing is not obtained in the near
future, the Company will be required to more significantly curtail its
operations or seek protection under bankruptcy laws.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
The following table sets forth, for the periods indicated, certain
information relating to the operations of the Company expressed in dollars
(rounded) and percentage changes from period to period. Data in the table
reflects the consolidated results of the Company for the three months ended
March 31, 2001 and 2000, respectively. As supplemental information, the table
also segregates the Company's revenues by product line type.
(ROUNDED)
For the Three Months
Ended
--------------------------
%OF
CHG
FROM
2000
MARCH 31, MARCH 31, TO
2001 2000 2001
--------- -------- ----
Unaudited Statement of
Operations Data:
Product sales............. $1,943,000 $2,651,000 (26.7)%
Cost of sales............. 982,000 1,444,000 (32.0)
---------- ----------
Gross margin...... 961,000 1,207,000 (20.4)
---------- ----------
Operating Costs and Expenses:
Selling expenses.......... 600,000 915,000 (34.4)
General and administrative 576,000 798,000 (27.8)
Research and development.. - 95,000 (100.0)
---------- ----------
Total operating
costs and
expenses.......... 1,176,000 1,808,000 (35.0)
---------- ----------
Other Income (Expense), net:
Interest expense.......... (127,000) (135,000) (5.9)
Equity in loss of (19,000) - -
affiliate.................
Other income.............. - 2,000 (100.0)
---------- ----------
Total other income
(expense).................. (146,000) (133,000) 9.8
Loss from continuing (361,000) (734,000) (50.8)
operations................
Discontinued Operations:
Income from discontinued
operations - 225,000 (100.0)
---------- ----------
Net loss.................. $ (361,000) $ (509,000) (29.1)
=========== ===========
Unaudited Supplemental Information:
Revenue by product line type:
Telecommunication headsets
and amplifiers and
telephone accessories....... $ 1,714,000 $ 1,866,000 (8.1)
Flashlights.................. 201,000 588,000 (65.8)
Hardware/houseware........... 28,000 197,000 (85.8)
---------- ----------
Total product $1,943,000 $ 2,651,000 (26.7)
sales and other.......... ========== ===========
Following are explanations of significant period-to-period changes for the three
months ended March 31, 2001 and 2000:
Revenues
Total Product Sales. Total product sales decreased by $708,000, or
26.7%, from $2,651,000 to $1,943,000 for the three months ended March 31, 2001
compared to the three months ended March 31, 2000.
Telecommunication Headsets and Amplifiers and Telephone Accessories.
Telecommunication headsets and amplifiers and telephone accessories sales
decreased $152,000, or 8.1%, from $1,866,000 to $1,714,000 for the three months
12
ended March 31, 2001 compared to the three months ended March 31, 2000. This
decrease is primarily related to decreases in sales of the Company's shoulder
rest products of $251,000, and telephone headsets and amplifiers of $162,000.
These sales decreases were partially attributable to the Company's inability to
acquire product to fill existing orders because of decreased credit availability
and a lack of alternate capital resources. The decrease was offset in part by an
increase of $202,000 in the Company's Twisstop products and $59,000 in other
telephone accessory products. Overall gross margins for this product line
decreased to 53.7% from 57.4% for the three months ended March 31, 2001 compared
to the three months ended March 31, 2000, as a result of the sales mix.
Flashlights. Flashlight revenues decreased $387,000, or 65.8% from
$588,000 to $201,000 for the three months ended March 31, 2001 compared to the
three months ended March 31, 2000. This decrease was primarily the result of the
company's decision to move its flashlight manufacturing to a different Asian
supplier causing some short term delays in the delivery of product and to the
Company's decreased credit availability and lack of alternate capital resources.
Overall gross margins for products in this category increased from 14.9% to
18.6% for the three months ended March 31, 2001 when compared to March 31, 2000,
as a result of a decrease in material costs of the products due to a change in
the manufacturer.
Houseware/Hardware. Houseware/hardware revenues decreased $169,000, or
85.8%, from $197,000 to $28,000 for the three months ended March 31, 2001
compared to the three months ended March 31, 2000. The decrease is primarily
attributable to the loss of the Company's main customer in the doorstops product
line as a result of an increase in the Company's pricing. Overall gross margins
for products in this category increased from 24.8% to 40.3% for the three months
ended March 31, 2001 compared to March 31, 2000, as a result of the increase in
pricing.
Operating Costs and Expenses
Selling Expenses. Selling expenses decreased $315,000, or 34.4%, from
$915,000 to $600,000 for the three months ended March 31, 2001 compared to the
three months ended March 31, 2000. This decrease is due in part to a decrease in
salaries for sales personnel of $61,000 due to a reduction in force of the sales
support staff, as well as decreases in commissions paid to outside sales
representatives of $65,000, travel related expenses of $48,000, consulting fees
of $47,000, freight expenses of $45,000 and royalties of $21,000.
General and Administrative Expenses. General and administrative
expenses decreased $222,000, or 27.8%, from $798,000 to $576,000 for the three
months ended March 31, 2001 compared to the three months ended March 31, 2000.
The decrease in general and administrative expenses was primarily the result of
a decrease of $50,000 in salaries paid as a result of the Company's August 11,
2000 reduction in force, as well as a decrease in legal and accounting fees of
$52,000, consulting fees of $41,000, office and computer supplies of $25,000,
employee recruitment and education expenses of $19,000, and a decrease of
$18,000 in travel related expenses.
Research and Development. Research and development expenses decreased
by $95,000, from $95,000 to -0- for the three months ended March 31, 2001
compared to the three months ended March 31, 2000. The decrease was primarily
attributable to the completion in 2000 of the Company's research and development
efforts associated with the Company's flashlight line to improve the function
and appearance of the products.
Total Operating Costs and Expenses. Total operating costs and expenses
decreased by $632,000, or 35.0%, from $1,808,000 to $1,176,000 for the three
months ended March 31, 2001 compared to the three months ended March 31, 2000,
for the reasons discussed above.
Interest Expense. Interest expense decreased $8,000, or 5.9%, from
$135,000 to $127,000 for the three months ended March 31, 2001 compared to the
three months ended March 31, 2000. This decrease is primarily the result of the
Company's reduction in interest expenses related to its revolving credit
facility. These decreases were offset in part by an increase in interest expense
related to the Company's joint venture and financing arrangement with Sarkat
International, LLC (see note 4 to the condensed consolidated financial
statements).
Equity in loss of affiliate. Equity in loss of affiliate decreased by
$19,000 from -0- to $(19,000) for the three months ended March 31, 2001 compared
to the three months ended March 31, 2000. This decrease is attributable to the
Company's joint venture with Sarkat International, LLC (see note 4 to the
condensed consolidated financial statements).
13
Other Income/expense. Other income (expense) decreased $2,000, from
$2,000 to -0- for the three months ended March 31, 2001 compared to the three
months ended March 31, 2000. The decrease is due to a gain on sale of assets of
$2,000 that occurred in the three months ended March 31, 2000.
Discontinued operations. Income from discontinued operations decreased
$225,000 from $225,000 to -0 for the three months ended March 31, 2001 compared
to the three months ended March 31, 2000. This decrease is attributable to the
sale of the assets of the Company's Neat Things! (TM) home organization and
storage product line in November 2000.
Net loss. The net loss decreased by $148,000, or 29.1%, from a loss of
$509,000 to a loss of $361,000 for the three months ended March 31, 2001
compared to the three months ended March 31, 2000 due to a combination of the
factors described above.
Liquidity and Capital Resources
General
The Company's principal sources of liquidity historically have been
cash flows from operations, cash on hand and borrowing under the Company's
existing secured revolving credit facility. On May 27, 1998, the Company
obtained its secured revolving credit facility from a regional financing
institution for up to $5,000,000, bearing interest at a rate of prime plus one
percent, with interest payable monthly. In previous amendments to the credit
agreement the maximum line was decreased to $2,200,000 and the interest rate was
increased to a rate of prime plus five percent. The Company's assets, including
accounts receivable and inventories, secure the credit facility. The note
underlying the revolving credit line is due May 26, 2001. On April 5, 2001 the
Company and its lending institution entered into a Tenth Amendment to the Credit
Agreement (the "Tenth Amendment"). Pursuant to this amendment the maximum line
decreased from $2,200,000 to $600,000. Notwithstanding the extent of the maximum
borrowing under the note, the covenants of the agreement limit the Company's
borrowing availability based on percentages of current inventory and accounts
receivable. Under the terms of the loan agreement, the Company is required to
maintain financial covenants and ratios, including book net worth, net income
and debt service coverage. As of March 31, 2001 the Company was in default of
certain of these financial covenants. Although the Company's secured lender has
not indicated its intention to accelerate payment of the outstanding balance
payable under the note because of such defaults, it has informed the Company
will not extend the payment deadline for the note, nor will the lender extend
additional credit to the Company. The Company is therefore attempting to locate
an alternate source of commercial lending.
In February 2001, and due to decreases in the Company's operating
capital and borrowing availability, the Company entered into a relationship with
Sarkat International, LLC ("Sarkat"), a limited liability company that is owned
in part by Reed Newbold, who currently is a member of the Company's board of
directors. In connection with this arrangement, Sarkat agreed to provide
unsecured, revolving debt financing to Softalk, Inc. or Softalk Communications,
Inc., each a subsidiary of the Company, in the aggregate amount of $150,000. In
exchange for each advance of funds by Sarkat, the Company (or its subsidiary
directly receiving such funds) is obligated to repay the principal amount
advanced, plus interest calculated on a daily basis at the annual rate of the
greater of eight and one-half percent or the actual rate of interest paid by
Sarkat to obtain such funds, plus a "lender's premium" of 12.5% of the principal
amount advanced. Such borrowed funds are disbursed by direct payment by Sarkat
to the Company's supplier, who then ships product to the Company, which allows
the Company to service pending orders from its customers. Principal, interest
and lender's premiums payable to Sarkat, to the extent paid, have been repaid
out of loan advances from the Company's secured lender when the Company's
accounts receivable borrowing base increases as result of the sales facilitated
by the Sarkat loans. The Company's secured lender has consented to this
mechanism. As of May 2, 2001, the Company owes Sarkat $150,000 in principal
$2,493 in interest and $5,625 in lenders premium. Sarkat has been paid $27,619
in lender's premiums. The principal and interest are due 180 days from the date
of the advance. Debt financing on similar or terms more preferential to the
Company was not available to the Company at the time.
14
March 31, 2001 Compared to December 31, 2000
As of March 31, 2001 the Company had liquid assets (cash and cash
equivalents and trade accounts receivable) of $1,104,000, an increase of 18.1%,
or $169,000, from December 31, 2000 when liquid assets were $935,000. Cash
decreased $116,000, or 90.6%, to $12,000 at March 31, 2001 from $128,000 at
December 31, 2000. The decrease in cash was primarily the result of the Company
utilizing its revolving credit facility, under which "draws" are made by the
Company to fund capital expenditures, purchase inventory and for general-purpose
use. After a draw is made a corresponding payable is setup, when collections of
outstanding accounts receivable are made the monies collected, are swept, the
next day, and re-applied against outstanding draws. Trade accounts receivable
increased $286,000, or 35.5%, to $1,092,000 at March 31, 2001 from $806,000 at
December 31, 2000. This increase is primarily the result of increased sales in
March 2001.
Current assets decreased by $218,000, or 8.8%, to $2,248,000 at March
31, 2001 from $2,466,000 at December 31, 2000. This decrease was primarily the
result of a decrease in cash of $116,000, discussed above, a decrease in
inventory by $204,000 primarily due to the Company's efforts to reduce inventory
levels to a one month's supply, and a decrease in net assets of discontinued
operations of $179,000 due to the sale of the assets of the Company's Neat
Things! (TM) home organization and storage product line. The decrease in current
assets was offset in part by an increase in trade accounts receivable, as
discussed above.
Long-term assets decreased $142,000, or 3.7%, to $3,666,000 at March
31, 2001 from $3,808,000 at December 31, 2000. This decrease was primarily the
result of recurring depreciation expense on property and equipment, and
amortization of deferred loan costs, and other intangibles.
Current liabilities increased by $21,000, or 0.7%, to $3,059,000 at
March 31, 2001 from $3,038,000 at December 31, 2000. This increase was primarily
due to an increase of $150,000 in note payable-related party as a result of the
Company's February 2001 agreement with Sarkat, and an increase in accrued
royalties of $54,000. These increases were offset in part by a decrease in
accrued advertising of $126,000, trade accounts payable of $29,000 and the
current portion of long term debt of $21,000.
The Company's working capital deficit increased by $239,000, or 41.8%,
to ($811,000) at March 31, 2001 from ($572,000) at December 31, 2000, for the
reasons described above.
The Company used cash of $408,000 from continuing operating activities
during the three months ended March 31, 2001, primarily from the net loss
incurred during the period, an increase in trade accounts receivable and a
decrease in accrued advertising, offset in part by decreased inventory levels.
The Company used net cash of $12,000 in investing activities during the
three months ended March 31, 2000, primarily for capital expenditures for
property and equipment.
The Company provided net cash of $104,000 from financing activities
during the three months ended March 31, 2001 primarily as a result of the
proceeds from the related party note payable, offset in part by payments made on
the Company's revolving line-of-credit, long-term debt and capital lease
obligations during the period.
Based on current operations, the Company believes that its present
sources of liquidity will not be adequate to meet its projected requirements for
working capital, capital expenditures, scheduled debt service requirements and
other general corporate purposes for the remainder of the year 2001. The Company
is currently pursuing additional sources of liquidity in the form of traditional
commercial credit, asset based lending or additional sales of the Company's debt
or equity securities to finance its ongoing operations. Additionally, the
Company has entered into interim financing transactions, including $150,000 of
revolving unsecured credit provided by an entity affiliated with a member of the
Company's board of directors. The Company also is pursuing other types of
commercial and private financing which could involve sales of substantial
portions of the Company's accounts receivable, sales of the Company's assets or
sales of one or more operating divisions. The Company's sales and financial
condition have been adversely affected by the Company's reduced credit
availability and lack of access to alternate financing because of its reduced
ability to purchase product to fill existing orders. If additional financing is
not obtained in the near future, the Company will be required to more
significantly curtail its operations or seek protection under bankruptcy laws.
15
Seasonality
The Company's business is seasonal. The Company typically experiences
its highest sales volume in the fourth quarter of each year as a result of the
retail environment in which most of its customers conduct business. Because the
Company sells its products primarily to major retailers, the Company's sales
performance is significantly dependent on the performance of those retailers.
Accordingly, the fourth quarter is a key determinate to overall profitability
for the year.
Forward Looking Statements
The foregoing Management's Discussion and Analysis of Financial
Condition and Results of Operations contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which are
intended to be covered by the safe harbors created thereby. Although the Company
believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate, and
therefore, there can be no assurance that the forward-looking statements will
prove to be accurate. Factors that could cause actual results to differ from
results discussed in forward-looking statements include, but are not limited to,
potential increases in inventory costs, competition, the Company's ability to
obtain additional working capital to fund future growth and any of the risks
described in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 2000.
16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On February 8, 2001, the Company waived service of a summons with
respect to a complaint filed in the U.S. District court in the District of Utah
by K&S Flashlight, Inc. ("K&S"), a Taiwan company that was the Company's
flashlight supplier from 1998 through 2000. The lawsuit names as defendants both
Dynatec and its subsidiary, Nordic Technologies, Inc. The lawsuit alleges that
the Company owes K&S in excess of $100,000 for the Company's alleged failure to
pay amounts due to K&S for flashlight products shipped during 2000, and seeks
damages in an unspecified amount. The Company has filed its answer and intends
to vigorously defend the lawsuit.
On August 4, 2000, the Company filed suit (the "Utah WAC Action")
against WAC Research, Inc., a Utah corporation ("WAC"), in Utah state court in
Salt Lake City, Utah. WAC is a corporation at least fifty percent of which is
owned by Donald M. Wood ("Wood"), the Company's former Chairman and Chief
Executive Officer. The dispute with WAC arose out of a series of royalty
agreements between the Company and WAC dated in 1990 and 1998 that purported to
obligate the Company to pay perpetual royalties to WAC on sales of products in
the Company's telephone accessories product line. In return for this perpetual
royalty (which the Company paid for approximately 10 years) WAC purported to
assign and grant to the Company the intellectual property rights underlying
certain of the Company's Softalk products. At the times the WAC agreements were
negotiated, Wood controlled both WAC and the Company. The Company amended its
complaint in the Utah WAC Action on August 29, 2000 and on October 19, 2000.
After the Company was unable to negotiate a settlement of its disputes with WAC,
and after WAC filed its own complaint in state court in Phoenix, Arizona (the
"Arizona WAC Action") on October 6, 2000, the Company served process in the Utah
WAC Action. The Company's complaint in the Utah WAC Action, as amended to date,
seeks the court's declaration that no further royalties are owed by the Company
to WAC because, among other reasons, (i) WAC never had any interest in or to any
of the intellectual property rights underlying the Company's Softalk products,
(ii) WAC breached its representations and warranties of ownership as to such
intellectual property rights as set forth in the WAC agreements, (iii) patents
covering certain of the key products in the Company's Softalk product line have
expired, and such products are not otherwise covered by enforceable copyrights
or other intellectual property rights, (iv) the Company owns all trademark
rights with respect to its Softalk products, (v) WAC has no right to continue
forcing the Company to pay royalties under expired patents, (vi) WAC's ongoing
attempts to enforce the WAC royalty agreements constitute patent misuse, and
(vii) as a consequence of WAC's patent misuse, WAC is liable to the Company for
royalties paid under a 1998 agreement between WAC and the Company. The complaint
in the Utah WAC Action also includes claims for damages stemming from WAC's
alleged patent misuse, failure of consideration, unjust enrichment and
additional declaratory relief. WAC's complaint in the Arizona WAC Action alleges
that WAC made unspecified loans to the Company that were never repaid, and that
the Company is in breach of its royalty payment obligations under the WAC
royalty agreements. In the Arizona WAC Action, WAC sought declaratory judgment
that the Company is required prospectively to pay royalties under the WAC
agreements and for money damages in the amount of $308,841. The Company moved to
dismiss the Arizona WAC Action for lack of jurisdiction or, in the alternative
to stay the Arizona WAC Action pending a resolution of the Utah WAC Action. On
February 26, 2001, the court in the Arizona WAC Action granted the Company's
motion to dismiss that action. On March 27, 2001, WAC filed a counterclaim
against the Company in the Utah WAC Action. This counterclaim asserts claims
that are identical to those that were asserted by WAC in the Arizona WAC Action
before it was dismissed. The Utah WAC Action is still pending, and the Company
intends to vigorously prosecute it.
In February 1999, Mag Instrument, Inc., a manufacturer and distributor
of flashlights and one of the Company's competitors ("Mag"), filed a lawsuit
against the Company's subsidiary, Nordic Technologies, Inc. ("Nordic"), of
infringing certain of Mag's patents and committing false advertising and unfair
competition. The lawsuit was filed in the U.S. District Court for the Central
District of California. The Company and Mag attempted to settle that lawsuit,
and entered into an agreement whereby the lawsuit was dismissed without
prejudice, with Mag having the express right to refile the complaint in the same
court and venue. No settlement was ever reached. On October 30, 2000, Mag filed
17
a new complaint in the same federal district court that it subsequently served
on the Company. The new Mag complaint alleges that Nordic has infringed two
patents and related trademarks owned by Mag, and also has engaged in unfair
competition arising out of Nordic's alleged use of a flashlight design that is
confusingly similar to the shape, style and overall appearance of Mag's
miniature "AA" light, all in violation of various provisions of federal and
California state law. Mag seeks unspecified money damages, punitive damages and
injunctive relief. The Company does not believe that any of Nordic's flashlight
products have infringed any patents or trademarks of Mag, and intends to
vigorously defend the suit.
On May 4, 2000, Grandur, Inc., a Taiwan corporation ("Grandur"), sued
the Company in the United States District Court for the District of New Jersey.
The summons and complaint were served on the Company in Salt Lake City, Utah on
May 12, 2000. The complaint alleges that the Company has breached a
manufacturing agreement between the Company and Grandur pursuant to which the
Company is alleged to have a minimum annual purchase requirement and an
exclusive manufacturing arrangement with Grandur for the Company's Twisstop
product. The complaint further alleges that Grandur is entitled to recover, in
addition to such damages as may be proved at trial, liquidated damages per the
terms of the contract in the amount of $500,000. Grandur and the Company have
entered into an oral agreement to settle this litigation and are making efforts
to memorialize their agreement. On February 6, 2001, Grandur and the Company
reported the terms as their settlement to the court. On February 7, 2001, the
court entered an order conditionally dismissing the lawsuit subject to being
reopened if the settlement is not consummated. In the event the settlement is
not consummated, the Company intends to vigorously defend the lawsuit.
In February 2000, Merrill Lynch & Co., Inc. ("Merrill Lynch") notified
the Company that American Stock Transfer & Trust Co., New York, New York, the
Company's stock transfer agent ("AST"), had confiscated three separate
certificates purporting to represent a total of 208,000 shares of restricted
common stock issued in the name of an entity affiliated with Donald M. Wood, the
Company's former Chairman and Chief Executive Officer. AST confiscated such
certificates because they were not then shown as valid certificates representing
the Company's issued and outstanding common stock. Based on further
investigation by AST, the Company believes that its former stock transfer agent
had transferred the shares represented by such certificates to third parties,
but had not received the original certificates representing such shares at the
time of those transfers. Nor did the former transfer agent obtain documentation
indicating that such certificates had been lost, stolen or destroyed. In January
2000, several years after the shares represented by such certificates
purportedly had been transferred, the original certificates were tendered to
Merrill Lynch with instruction to sell the shares represented by such
certificates. Merrill Lynch then sold such shares and tendered the certificates
to AST for transfer, at which time AST confiscated the certificates. On March
28, 2000, the Company received a letter from counsel for Merrill Lynch. In that
letter, Merrill Lynch advised the Company of its intention to enforce its
clients' rights to compel the Company to recognize the transfers of the shares
represented by the certificates tendered to it in January 2000 under the Uniform
Commercial Code as adopted by the State of Utah. The Company complied with
Merrill Lynch's demand. The net effect of this action was that the Company was
required to recognize as having been previously issued 208,000 shares of common
stock that were not then shown as being issued and outstanding on the books and
records of the Company. On March 29, 2000, the Company filed a lawsuit in Utah
state court against Mr. Wood, WAC Research, Inc. ("WAC") and Muito Bem Ltd
Partnership ("Muito Bem"), Alpha Tech Stock Transfer & Trust Company, the
Company's former stock transfer agent ("Alpha Tech"). Both WAC and Muito Bem are
entities affiliated with Wood. The case sought damages from all defendants, and
specifically asked the court to award to the Company the proceeds of the sales
by WAC and/or Muito Bem of the shares that the Company was compelled to
reinstate on the basis that those entities and their principals had been
unjustly enriched. In a settlement, dated April 12, 2000, among Wood, WAC, Muito
Bem, Merrill Lynch and the Company, the Company received cash in the amount of
$200,714, in exchange for which it released its claims for further damages
against Wood, WAC, Muito Bem and Merrill Lynch. The Company's claims against
Alpha Tech are still pending.
On December 7, 1999, Donald M. Wood, the former Chairman and Chief
Executive Officer of the Company, and the Stith Law Office (Wood's personal
legal counsel) filed a lawsuit in the District Court of Salt Lake County, State
of Utah (Case No. 990912153). In that lawsuit, Wood and Stith asserted that the
Company has breached a Settlement Agreement executed by the Company and Wood
upon Wood's resignation as the Company's Chairman and Chief Executive Officer,
effective as of January 14, 1999. The lawsuit includes claims for breach of
18
contract, fraud and intentional infliction of emotional distress, and seeks
money damages and punitive damages in the aggregate amount of $1,162,246. On
February 7, 2000, the Company filed its answer to the Wood litigation, in which
the Company asserted that its payment obligations under the Settlement Agreement
were excused by repeated breaches by Wood of various covenants of the Settlement
Agreement. Simultaneously, the Company filed a counterclaim against Wood for
money damages incurred by the Company as a result of Wood's various breaches of
the Settlement Agreement. The Company also simultaneously filed motions to
dismiss the fraud and intentional infliction of emotional distress claims. The
Company's management believes the Wood litigation is without merit and intends
to vigorously defend.
On March 19, 1999, Alpha Tech Stock Transfer Company ("Alpha Tech")
filed a lawsuit against the Company in Utah state court in Salt Lake City, Utah.
Alpha Tech was the Company's stock transfer agent for a period of approximately
ten years until the Company terminated its relationship with Alpha Tech in
January 1999 and instructed Alpha Tech to transfer the Company's stock transfer
records to American Stock Transfer, New York, New York. The complaint alleges
that the Company breached its service contract with Alpha Tech by failing to pay
$132,165 to Alpha Tech for transfer agent services rendered and reimbursement
for legal expenses incurred by Alpha Tech. Alpha Tech never served the
complaint; the Company learned about the complaint through an unrelated third
party. In March 2000, Alpha Tech refiled essentially the same complaint, thereby
commencing another lawsuit against the Company. The March 2000 complaint is
virtually identical to the March 1999 complaint. In April 2000, the Company
accepted service of process, and has filed a motion to dismiss the March 2000
complaint. The Company disputes the claims of Alpha Tech's complaint and intends
to vigorously defend this action.
On April 27, 1998, the Enforcement Division of the Securities and
Exchange Commission notified the Company that the SEC was anticipating filing an
administrative proceeding in the latter part of calendar year 1998 against
various individuals and entities who had engaged in transactions with a Canadian
corporation. The SEC Enforcement Division further indicated that the Company may
be named as a defendant in such administrative action. In July 1998, the Company
submitted a Wells Submission to clarify why, in the Company's estimation, it
should not be named in the administrative proceeding, if any. The Company
suggested in the Wells Submission that it should not be named in any
administrative proceeding because the Company never consummated either of the
two transactions with the subject Canadian company that the Company was
considering, and the Company received no consideration in connection with those
aborted transactions. Moreover, the Company believes that its conduct in
connection with those proposed but aborted transactions met applicable legal
requirements. As of December 31, 2000, the Company had received no response from
the Enforcement Division about whether the SEC plans to name the Company in any
administrative action.
In addition, the Company has previously disclosed that, in the first
quarter of 1999, it was informed of an investigation by the Enforcement Division
of the Securities and Exchange Commission. The Company believes this
investigation concerns certain trading activity in the Company's common stock
and other transactions involving the Company's securities, however, the Company
has not been informed of the specifics of such investigation. The Company has
cooperated fully with these administrative proceedings. The Company had no
contract from the Enforcement Division regarding this investigation during the
entirety of 2000.
On February 12, 1998, Fuji Corporation filed a claim with the
International Trade Commission seeking a cease and desist order against
approximately 30 entities. Fuji sought to enlist the aid of the U.S. Customs
Department in preventing the importation of single-use cameras which are
manufactured by any of the defendant entities and which infringe the patents of
Fuji. The Company does not manufacture single-use cameras, but previously has
distributed single-use cameras, which have been refurbished and reloaded in
Mainland China. The Company was therefore involved in the Fuji proceeding. The
Company engaged intellectual property counsel and vigorously defended its
position until December 1998, when the Company sold its remaining inventory of
single-use cameras to another entity. In connection with that sale, any
liability of the Company in connection with the Fuji proceeding, including the
costs of further defending the action, were assumed by the purchaser of the
Company's single-use camera inventory, although the Company nominally remains
part of that litigation.
The Company is involved in various other claims and legal actions
arising in the ordinary course of business. In the opinion of management, the
ultimate disposition of these other matters will not have a material adverse
effect on the Company's operations or financial condition.
19
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
No. Description
10.1 Convertible Debenture and Equity Line of Credit Agreement
between the Company and five investors dated as of May 28,
1998. (Incorporated by reference from Current Report on Form
8-K filed by the Company with the SEC on June 8, 1998).
10.2 Form of Convertible Debentures issued in May 1998.
(Incorporated by reference from Current Report on Form 8-K
filed by the Company with the SEC on June 8, 1998).
10.3 Form of A Warrants issued in conjunction with Convertible
Debentures. (Incorporated by reference from Current Report on
Form 8-K filed by the Company with the SEC on June 8, 1998).
10.4 Form of B Warrants issued in conjunction with Convertible
Debentures. (Incorporated by reference from Current Report on
Form 8-K filed by the Company with the SEC on June 8, 1998).
10.5 Registration Rights Agreement entered into with the holders of
Convertible Debentures. (Incorporated by reference from
Current Report on Form 8-K filed by the Company with the SEC
on June 8, 1998).
10.6 Modification Agreement between the Company and the holders of
Convertible Debentures, dated as of June 25, 1999.
(Incorporated by reference from Quarterly Report on Form
10-QSB for the period ended June 30, 1999).
10.7 Amendment to Modification Agreement between the Company and
the holders of Convertible Debentures, dated as of November
12, 1999. (Incorporated by reference from Quarterly Report on
Form 10-QSB for the period ended September 30, 1999.)
10.8 Convertible Debenture Retirement Agreement between the Company
and the holders of the Convertible Debentures, dated as of
February 1, 2000. (Incorporated by reference from Annual
Report on Form 10-KSB for the year ended December 31, 1999.)
10.9 Stock Purchase Agreement between the Company and seven
investors, dated as of February 11, 2000. (Incorporated by
reference from Annual Report on Form 10-KSB for the year ended
December 31, 1999.)
10.10 Employment Agreement between the Company and Frederick W.
Volcansek, dated as of February 5, 1999. (Incorporated by
reference from Annual Report on Form 10-KSB for the year ended
December 31, 1998).
10.11 Employment Agreement between the Company and Lloyd M. Taggart,
dated as of June 22, 1999. (Incorporated by reference from
Quarterly Report on Form 10-QSB for the period ended September
30, 1999.)
10.12 Commercial Lease between the Company and FRE III Corporation,
a California corporation, dated as of November 4, 1999.
(Incorporated by reference from Quarterly Report on Form
10-QSB for the period ended September 30, 1999.)
10.13 Commercial Real Estate Purchase Contract between the Company
and Darwin Datwyler dated as of July 16, 1999, as amended
through November 4, 1999. (Incorporated by reference from
Quarterly Report on Form 10-QSB for the period ended September
30, 1999.)
20
10.14 Stock Purchase Agreement between the Company and three
investors, dated as of May 18, 2000. (Incorporated by
reference from Quarterly Report on Form 10-QSB for the period
ended June 30, 2000).
10.15 Asset Purchase Agreement dated November 22, 2000, by and among
Dynatec International, Inc., and Expandable Home Organizers,
Inc., a California corporation (Incorporated by reference from
Current Report on Form 8-K dated as of November 22, 2000).
10.16 Form of Promissory Note in favor of Sarkat International,
L.L.C. (Incorporated by reference from Annual Report on Form
10-KSB for the year ended December 31, 2000).
10.17 Articles of Organization of Nordic ASI, L.L.C. (Incorporated
by reference from Annual Report on Form 10-KSB for the year
ended December 31, 2000)
10.18 Operating Agreement of Nordic ASI, L.L.C. (Incorporated by
reference from Annual Report on Form 10-KSB for the year ended
December 31, 2000)
(b) Forms 8-K
None
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DYNATEC INTERNATIONAL, INC.
/s/ Frederick W. Volcansek, Sr. May 14, 2001
-------------------------------------------- ------------
Frederick W. Volcansek, Sr. Date
Chairman & CEO
/s/ Mark W. Sperry May 14, 2001
-------------------------------------------- ------------
Mark W. Sperry Date
Vice President & Chief Accounting Officer
22