UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 September 30, 1996
[ ] Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from to
Commission File Number 33-55254-03
DYNAMIC ASSOCIATES, INC.
(Exact name of Registrant as specified in its charter)
Nevada 87-0473323
(State or other jurisdiction of (IRS Employer
incorporation ) Identification No.)
7373 North Scottsdale Road, Suite B-150
Scottsdale, Arizona 85253
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (602) 483-8700
Indicate by a check mark whether the registrant (1) has 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 [X] Yes [ ] No
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding as of November 7, 1996
- ----------------------------------- -------------------------------------
$.001 par value Class A Common Stock 8,913,420 shares
1
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
BASIS OF PRESENTATION
General
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB and, therefore, do not include
all information and footnotes necessary for a complete presentation of financial
position, results of operations, cash flows, and stockholders' equity in
conformity with generally accepted accounting principles. In the opinion of
management, all adjustments considered necessary for a fair presentation of the
results of operations and financial position have been included and all such
adjustments are of a normal recurring nature. Operating results for the nine
months ended September 30, 1996, are not necessarily indicative of the results
that can be expected for the year ending December 31, 1996.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company had $853,083 in cash and cash
equivalents.
The Company through its 50% owned subsidiary, P&H Laboratories, operates in
the industry of manufacturing highly technologically advanced microwave
components and subsystems for the communications and aerospace industries. The
Company also is engaged in the acquisition and development of microwave
technologies for medical purposes through its subsidiary Microwave Medical Corp.
This subsidiary has not yet had any sales.
Item 5. Other Information.
MICROWAVE
During the nine months ended September 30, 1996, the Company's wholly owned
subsidiary Microwave Medical Corp. ("MMC"), formerly Microthermia Acquisition
Corporation, entered into a license agreement with Microthermia Technology, Inc.
(of California), whereby MMC obtained an exclusive license to develop and
manufacture medical device products related to the treatment of spider veins
(telangiectasia). The license is for an initial period of two years with
automatic one year renewals for the next eight years, at no cost, (total license
period of 10 years). The license is prepaid for the first two years, and, after
January 16, 1998, MMC will pay a royalty of two percent (2%) of the Net Sales
Revenues on all licensed products sold. MMC expended $425,039 on development of
the license product during the nine months ended September 30, 1996.
2
<PAGE>
P & H LABORATORIES, INC. ("P & H")
The agreement (dated December 18, 1995) with P & H which provides for the
acquisition of P&H by the Company was extended to April 23, 1996. The agreement
provides for the Company to acquire up to 100% of P&H in two stages. The first
stage is the acquisition of 50% of P&H for $1,000,000. The second stage (which
is optional) provides for the Company to acquire the additional 50% for up to
two years after the first 50% is acquired. On April 23, 1996, $300,000 was paid
and a check dated May 4, 1996 in the amount of $700,000 was given to finalize
the P&H acquisition. Regulation S stock was sold to raise the money to complete
the transaction. P&H is now a 50% owned subsidiary of the Company.
MICROTHERMIA TECHNOLOGY, INC. ("MTI")
The agreement with MTI, (as previously reported), which has been approved
by the majority of MTI shareholders, requires the approval of the California
Department of Corporations which to date has not been forthcoming. Minority
shareholders of MTI have complained to the California Department of Corporations
as they do not want the transaction to proceed, and it remains uncertain as to
whether this agreement can or will be completed or not. Only $1,000 was advanced
to MTI during the period, and the Company's subsidiary entered into a license
agreement with MTI, (see above).
GENESIS HEALTH MANAGEMENT CORPORATION ("Genesis")
During the quarter ended September 30, 1996, the Company paid $500,000 cash
as a deposit as part of its plan to acquire Genesis. The deposit will be applied
to the total cash purchase price of $15,000,000 which is due by December 2,
1996. The Genesis shareholders are also to receive 3,000,000 shares of Dynamic's
restricted common stock and 50% of the taxable income of Genesis at the date of
closing. Genesis has established healthcare services to the elderly specializing
in Gero-psych. Genesis has developed a program to provide psychiatric diagnosis
and at the same time treat the secondary medical problems of the elderly.
RESULTS OF OPERATIONS
The Company has not had operations (other than operations of P&H) that have
generated income since its inception. The only source of funds has been from the
sale of its common stock which has been used to pay expenses and make advances
to its subsidiary (MMC) for development of its technology and for the
acquisition of P&H, and the deposit on Genesis.
The financial statements present the activities of the Company, MMC, and
P&H as if the entities had been together for all periods presented. Sales and
cost of sales for all periods relate to P&H.
During the nine months ended September 30, 1996, management fees of $
319,500 were paid or accrued to various individuals ($102,375 is accrued at
September 30 , 1996). The Company's President received $90,000, and the
Secretary/Treasurer received $90,000 including accrued amounts of $39,000 and
$30,000 respectively.
Also during the nine months ended September 30, 1996 $104,000 was paid to
an entity controlled by the Company's Secretary for rent and other
administrative services.
3
<PAGE>
Net loss for the three months ended September 30, 1996 was $538,788
compared with a net loss of $259,714 for the same period in 1995. The main
reason for the increase in the loss is due to the large amount of research and
development expenses and general and administrative expenses that were not
present in 1995.
Net sales for the three months ended September 30, 1996 were $924,511
compared to $980,837 for the same period in 1995, a decrease of 6%.
Cost of sales for the three months ended September 30, 1996 were $663,596
compared with $651,806 for the same period in 1995. The 2% increase is
attributed to higher variable costs.
Selling and general and administrative expenses for the three months ended
September 30, 1996 were $528,985 compared with $524,866 for the same period in
1995. The increase is mainly due to increased management fees, administrative
fees, and a large amount of travel outside of the United States looking for
prospective purchasers of the Company's products and common stock.
Research and development expenses for the three months ended September 30,
1996 were $182,823 compared with $0 for the same period in 1995. The expenses
relate to the development of microwave technologies for medical purposes.
Net loss for the nine months ended September 30, 1996 was $1,208,647
compared with a net loss of $162,884 for the same period in 1995.
Net sales for the nine months ended September 30, 1996 were $2,374,162
compared with $2,843,832 for the same period in 1995, a 16% decrease.
Cost of sales for the nine months ended September 30, 1996 were $1,689,841
compared with $1,855,175 for the same period in 1995, a 9% decrease.
Selling and general and administrative expenses for the nine months ended
September 30, 1996 were $1,379,430 compared with $866,909 for the same period in
1995, an increase of 59%.
Research and development expenses for the nine months ended September 30,
1996 were $425,039 compared with $0 for the same period in 1995.
4
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Page
99-1 Financial Statements as of September 30, 1996 F-1
Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended September 30, 1996 an 8-K was filed to
announce the signing of an agreement providing for the acquisition of
Genesis Health Management Corporation as a wholly owned subsidiary.
The 8-K was dated August 27, 1996. The acquisition is to occur by
December 2, 1996.
5
<PAGE>
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.
DYNAMIC ASSOCIATES, INC.
(Registrant)
DATED: November 15, 1996 /s/ Logan B. Anderson
----------------------
Logan B. Anderson, Secretary/Treasurer
6
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
September 30,
1996
----------------------
ASSETS
CURRENT ASSETS
<S> <C>
Cash $ 749,864
Marketable securities 103,219
Accounts receivable 582,492
Loans receivable - related parties 164,600
Accrued interest 18,300
Inventories 858,462
Prepaid expense 6,262
Deferred tax benefit 61,000
----------------------
TOTAL CURRENT ASSETS 2,544,199
EQUIPMENT 270,942
OTHER ASSETS
Note receivable 92,953
Investment 50,000
Deposits 522,627
Organization costs 940
----------------------
666,520
----------------------
$ 3,481,661
======================
</TABLE>
F-1
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Continued)
(Unaudited)
<TABLE>
<CAPTION>
September 30,
1996
----------------------
LIABILITIES & EQUITY
CURRENT LIABILITIES
<S> <C>
Accounts payable $ 293,727
Accrued expenses 117,117
Current portion of long-term debt 55,530
Income taxes payable 19,907
----------------------
TOTAL CURRENT LIABILITIES 486,281
LONG-TERM DEBT 134,212
DEFERRED INCOME TAXES 57,000
----------------------
TOTAL LIABILITIES 677,493
Minority interest in subsidiary 826,519
STOCKHOLDERS' EQUITY Common stock $.001 par value:
Authorized - 25,000,000 shares
Issued and outstanding 8,780,000
shares 8,780
Additional paid-in capital 3,372,594
Retained deficit (1,078,725)
Stock subscription receivable (325,000)
----------------------
TOTAL STOCKHOLDERS' EQUITY 1,977,649
----------------------
$ 3,481,661
======================
</TABLE>
F-2
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
9/30/96 9/30/95 9/30/96 9/30/95
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Net Sales $ 924,511 $ 980,837 $ 2,374,162 $ 2,843,832
Cost of sales 663,596 651,806 1,689,841 1,855,175
------------- ------------- ------------- -------------
GROSS PROFIT 260,915 329,031 684,321 988,657
Selling and General and Administrative expenses 528,985 524,866 1,379,430 866,909
Research and development 182,823 0 425,039 0
------------- ------------- ------------- -------------
711,808 524,866 1,804,469 866,909
------------- ------------- ------------- -------------
NET OPERATING INCOME (LOSS) (450,893) (195,835) (1,120,148) 121,748
OTHER INCOME (EXPENSE)
Interest income 9,944 5,802 87,307 14,988
Interest expense (44,490) (6,043) (79,295) (17,768)
Miscellaneous income 9,038 0 11,548 0
Miscellaneous expense (4,430) (30) (4,430) (3,415)
------------- ------------- ------------- -------------
(29,938) (271) 15,130 (6,195)
NET INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST (480,831) (196,106) (1,105,018) 115,553
INCOME TAX EXPENSE (BENEFIT) 34,700 39,000 52,500 157,000
------------- ------------- ------------- -------------
NET INCOME (LOSS) BEFORE
MINORITY INTEREST (515,531) (235,106) (1,157,518) (41,447)
MINORITY INTEREST 23,257 24,608 51,129 121,437
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ (538,788) $ (259,714) $ (1,208,647) $ (162,884)
============= ============= ============= =============
Net income (loss) per weighted
average share $ (.06) $ (.25) $ (.15) $ (.16)
============= ============= ============= =============
Weighted average number of common
shares used to compute net income
(loss) per weighted average share 8,574,294 1,049,087 7,869,877 1,016,542
============= ============= ============= =============
</TABLE>
F-3
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Stock Retained
Par Value $.001 Paid-In Subscription Earnings
Shares Amount Capital Receivable (Deficit)
------------- ------------- ----------------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Balances at 12/31/95 7,000,000 $ 7,000 $ 1,335,000 $ 0 $ 129,922
Sale of common stock (Regulation
S) at $2.00 per share at 3/25/96 12,500 13 24,987
Sale of common stock (Regulation
S) at $1.75 per share 1,290,000 1,290 2,256,209 (689,862)
Sale of common stock (S-8) at
$1.00 per share 30,000 30 29,970
Sale of common stock (restricted)
at $1.00 per share 40,000 40 39,960
Acquisition of subsidiary (1,000,000)
Net loss for period (669,859)
------------- ------------- ----------------- ------------------ ------------
Balances at 6/30/96 8,372,500 8,373 2,686,126 (689,862) (539,937)
Collection of stock subscription 689,862
Sale of common stock (Regulation
S) at $1.75 per share 372,500 372 651,503 (325,000)
Sale of common stock (S-8) at
$1.00 per share 35,000 35 34,965
Net loss for period (538,788)
------------- ------------- ----------------- ------------------ ------------
Balance at 9/30/96 8,780,000 $ 8,780 $ 3,372,594 $ (325,000) $ (1,078,725)
============= ============= ================= ================== =============
</TABLE>
F-4
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------------
9/30/96 9/30/95
---------------- -----------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ (1,208,647) $ (162,884)
Adjustments to reconcile net income (loss) to cash provided (used) by
operating activities:
Depreciation & amortization 43,614 48,336
Bad debt 0 10,187
Minority interest 51,130 121,437
Deferred income tax (5,000) 35,000
Stock received for interest (50,000) 0
Changes in assets and liabilities:
Accounts receivable 213,333 242,035
Inventories (269,659) 8,626
Prepaid expenses (1,739) 3,130
Insurance receivable 0 63,001
Other assets 0 10,320
Accounts payable and accrued expenses 90,590 (22,888)
Income taxes payable (109,898) 85,832
Refund payable 0 (115,652)
----------------- -----------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (1,246,276) 326,480
INVESTING ACTIVITIES
Loans to related party and accrued interest 78,602 0
Loan - other (92,953) 0
Purchase of equipment (136,619) (9,905)
Refund of option 30,000 0
Deposits (501,312) 0
Purchase of subsidiary (1,000,000) 0
----------------- -----------------
NET CASH USED BY INVESTING ACTIVITIES (1,622,282) (9,905)
FINANCING ACTIVITIES
Decrease in book overdraft 0 (8,905)
Principal payments on debt (281,733) (45,962)
Principal payments on capital lease obligation 0 (9,322)
Loan proceeds 0 81,758
Proceeds from sale of common stock 2,714,374 483,640
----------------- -----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,432,641 501,209
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (435,917) 817,784
Cash and cash equivalents at beginning of year 1,289,000 202,821
----------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 853,083 $ 1,020,605
================= =================
SUPPLEMENTAL INFORMATION Cash paid for:
Interest $ 39,425 $ 18,022
Income taxes 168,590 43,460
</TABLE>
F-5
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000878146
<NAME> Dynamic Associates, Inc.
<LEGEND>
This schedule contains summary financial information extracted
from Dynamic Associates, Inc. and Subsidiaries September 30, 1996
financial statements and is qualified in its entirety by
reference to such financial statements
[/LEGEND]
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 749,864
<SECURITIES> 103,219
<RECEIVABLES> 765,392
<ALLOWANCES> 0
<INVENTORY> 858,462
<CURRENT-ASSETS> 2,544,199
<PP&E> 1,752,116
<DEPRECIATION> (1,481,174)
<TOTAL-ASSETS> 3,481,661
<CURRENT-LIABILITIES> 486,281
<BONDS> 0
0
0
<COMMON> 8,780
<OTHER-SE> 1,968,869
<TOTAL-LIABILITY-AND-EQUITY> 3,481,661
<SALES> 2,374,162
<TOTAL-REVENUES> 2,374,162
<CGS> 1,689,841
<TOTAL-COSTS> 1,689,841
<OTHER-EXPENSES> 1,804,469
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 79,295
<INCOME-PRETAX> (1,105,018)
<INCOME-TAX> 52,500
<INCOME-CONTINUING> (1,157,518)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,208,647)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
