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 March 31, 1997
[ ] 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 Small Business Issuer 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)
Issuer's telephone number, including area code (602) 483-8700
Indicate by a check mark whether the issuer (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 issuer 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 issuer's classes of
common stock, as of the latest practicable date.
Outstanding as of
Class March 31, 1997
- ------------------------------------ -----------------------
$.001 par value Class A Common Stock 12,625,900 shares
<PAGE>
PART 1 - 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 three
months ended March 31, 1997 are not necessarily indicative of the results that
can be expected for the year ending December 31,1997.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Company is engaged in (i) the development and acquisition of microwave
technologies for medical purposes through MMC, a wholly owned subsidiary, (ii)
managing the operation of psychiatric/geriatric units for various hospital
through Genesis and GCCA, wholly owned subsidiaries, and (iii) the manufacturing
of highly technologically advanced microwave components and subsystems for the
communications and aerospace industries through P&H, a 50% owned subsidiary.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company had $2,636,200 in cash and cash equivalents.
The Company incurred a loss of $.03 per share after deducting $702,730 for
amortization of goodwill and debt costs and depreciation. The cost of goodwill
and debt cost amortization is approximately $.06 per share. Cash flow generated
from operations was approximately $.03 per share.
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. P&H expects to
generate sufficient funds for working capital for the next quarter. The Company
also is engaged in the acquisition and development of microwave technologies for
medical purposes through its subsidiary Microwave Medical Corporation. This
subsidiary has not yet had any sales and for the next quarter will be dependent
on the Company for operating expenses.
Genesis, a Louisiana corporation, is a 100% owned subsidiary of the Company. It
provides elderly healthcare and gero-psychology services to small healthcare
facilities unable to provide these services in house. The Genesis treatment
program conforms to the guidelines of the JCAHO Accreditation Manual for
Hospitals and Medical Standards. The program is reimbursed at cost by Medicare
when established as a distinct part unit of a hospital which qualifies for an
exemption from the Medicare Prospective Payment System("PPS"). The PPS exemption
provides for a cost plus reimbursement system for the unit, which allows the
hospital to receive full reimbursement of the direct operating expenses, plus an
allocation to the unit of a substantial portion of the hospital's overall
overhead and capital costs. Genesis , together with GCCA, expects to generate a
profit.
<PAGE>
Item 5. Other Information
Microwave Medical Corporation (MMC)
The Company's wholly owned subsidiary Microwave Medical Corporation ("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 is
also researching and developing its own various microwave medical technologies
for the treatment of certain medical conditions.
P&H Laboratories (P&H)
On April 23,1996, the Company acquired 50% of the outstanding common stock of
P&H, a California corporation, for $1,000,000, together with an exclusive two
year option expiring on April 23, 1998 to acquire the remaining 50% of P&H for
an additional $1,000,000. P&H is a modern microwave component designer and
manufacturer. Devices produced at P&H are currently being used on most NASA and
military satellites, as well as communications satellites throughout the world.
Genesis Health Management Corporation (Genesis)
In December 1996, the Company purchased 100% of the outstanding common stock of
Genesis for $25,373,000. Of the purchase price, $15,050,000 was paid in cash or
notes and accounts payable and $10,323,000 was paid by issuing 3,100,000 shares
of the Common Stock of the Company at a value of $3.33 per share. The note
issued in connection with the acquisition of Genesis was paid in full on March
3, 1997. Genesis had been operating in Louisiana for 3 years prior to the
purchase by the Company. Genesis is in the business of managing and operating
psychiatric/geriatric units in various hospitals (both in-patient and
out-patient). At March 31, 1997, Genesis had 24 contracted units with billings
out to 21 of them. Genesis has contracts with hospitals in the states of
Louisiana, Arkansas, Mississippi and Tennessee.
Geriatric Care Centers of America, Inc. (GCCA)
On March 13, 1997, Geriatric Care Centers of America ("Geriatric"), a
corporation organized pursuant to the laws of the state of Tennessee, merged
with Geriatric Care Centers Acquisition Corporation, for $500,000 in cash and
150,000 shares of Common Stock of the Company. The surviving corporation is
Geriatric Care Centers of America, Inc. ("GCCA"), with its registered office at
1613 Jimmie Davis Highway, Bossier City, Louisiana, 71112. The Company owns 100%
of GCCA. GCCA is also in the business of managing and operating
psychiatric/geriatric units in hospitals. At March 31, 1997, GCCA had 4
operating units. The financial statements at March 31, 1997 do not include any
income or expenses for GCCA as it was acquired late in the quarter.
RESULTS OF OPERATIONS
The financial statements present the combined activities of the Company,
Genesis, MMC and P&H.
During the three months ended March 31, 1997, management fees of $90,000 were
paid compared to $89,625 for the same period in 1996. The Company's President
received $30,000 and the Company's Secretary/Treasurer received $30,000 and
another consultant received $30,000.
<PAGE>
Also, during the three months ended March 31, 1997, $28,521 was paid or accrued
to an entity controlled by the Company's Secretary for rent and other
administrative services compared to $22,500 for the same period in 1996.
Net loss for the three months ended March 31, 1997 was $335,838 compared to a
loss of $329,796 for the same period in 1996. The net loss is $.03 per share for
the quarter. A charge for amortization of goodwill and debt cost and
depreciation of $702,730 was incurred in the period which represents $.06 per
share. The Company generated from operations a positive cash flow of $.03 per
share.
Net sales for the three months ended March 31, 1997 were $900,233 compared to $0
for the same period in 1996. The increase is due to P & H. Management fee income
earned by Genesis was $3,453,000 for the three months ended March 31, 1997
compared to $0 for the same period in 1996.
Cost of sales for the three months ended March 31, 1997 was $658,147 compared to
$0 for the same period in 1996.
Selling and general and administrative expenses for the three months ended March
31, 1997 were $2,591,979 compared to $221,050 for the same period in 1996. The
large increase corresponds with the increase in sales from the acquisitions made
in 1996.
Research and development expenses incurred by MMC were $203,620 for the three
months ended March 31, 1997 compared to $107,538 for the same period in 1996.
Depreciation and amortization expenses for the three months ended March 31, 1997
were $654,521 compared to $659 for the same period in 1996. This increase is
mainly due to the amortization of goodwill.
Interest expense for the three months ended March 31, 1997 was $489,277 compared
with $9,670 for the same period in 1996. The substantial increase is mainly
associated with the convertible notes and also includes $48,209 of amortized
debt issue costs.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
99-1 Financial Statements as of March 31, 1997
27 Financial Data Schedule
(b) Reports on Form 8-K
None
THIS SPACE INTENTIALLY LEFT BLANK
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and 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.
DATED: May 15, 1997 /S/ Logan B. Anderson
---------------------
Logan B. Anderson, Secretary/Treasurer
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
March 31,
1997
----------------------
ASSETS
CURRENT ASSETS
<S> <C>
Cash $ 2,530,461
Short-term commercial paper 105,739
Accounts receivable (less allowance for doubtful accounts of $759,925) 2,792,981
Loans receivable - related parties 513,370
Other receivables 114,345
Accrued interest 31,377
Inventories 721,364
Prepaid expense and other current assets 135,553
Deferred Tax Benefit 394,000
----------------------
TOTAL CURRENT ASSETS 7,339,190
PROPERTY, PLANT & EQUIPMENT 535,626
OTHER ASSETS
Deferred debt issue costs 1,815,859
Investment - restricted stock 35,000
Deferred Tax Benefit 450,000
Goodwill 24,049,015
Deposits 40,466
Organization Costs 820
----------------------
26,391,160
----------------------
$ 34,265,976
======================
LIABILITIES & EQUITY
CURRENT LIABILITIES
Accounts payable $ 489,609
Accrued expenses 370,246
Current portion of long-term debt 75,314
Income taxes payable 153,195
Accrued interest payable 330,144
----------------------
TOTAL CURRENT LIABILITIES 1,418,508
LONG-TERM DEBT 161,128
CONVERTIBLE NOTES 18,315,000
DEFERRED INCOME TAX 55,000
----------------------
18,531,128
----------------------
TOTAL LIABILITIES 19,949,636
Minority interest in subsidiary 851,801
STOCKHOLDERS' EQUITY Common stock $.001 par value:
Authorized - 25,000,000 shares
Issued and outstanding 12,625,900 shares 12,626
Additional paid-in capital 15,365,039
Retained deficit (1,913,126)
----------------------
TOTAL STOCKHOLDERS' EQUITY 13,464,539
----------------------
$ 34,265,976
======================
</TABLE>
F-1
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
------------------ -----------------
<S> <C> <C>
Net sales $ 900,233 $ 0
Management fees 3,453,000 0
Cost of sales 658,147 0
------------------ -----------------
GROSS PROFIT 3,695,086 0
Selling and General & administrative expenses 2,591,979 221,050
Depreciation and amortization 654,521 659
Research and development 203,620 107,538
------------------ -----------------
3,450,120 329,247
------------------ -----------------
NET OPERATING INCOME (LOSS) 244,966 (329,247)
OTHER INCOME (EXPENSE)
Interest income 23,587 9,121
Interest expense (489,277) (9,670)
Miscellaneous income 3,072 0
Unrealized increase in investment 31,400 0
------------------ -----------------
(431,218) (549)
------------------ -----------------
NET (LOSS) BEFORE INCOME
TAXES AND MINORITY INTEREST (186,252) (329,796)
INCOME TAX EXPENSE 137,785 0
------------------ -----------------
NET (LOSS) BEFORE
MINORITY INTEREST (324,037) (329,796)
MINORITY INTEREST 11,801 0
------------------ -----------------
NET (LOSS) $ (335,838) $ (329,796)
================== =================
Net (loss) per weighted average share $ (.03) $ (.05)
================== =================
Weighted average number of common shares used to compute
net (loss) per weighted average share 12,353,511 7,000,687
================== =================
</TABLE>
F-2
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
Par Value $.001 Paid-In Retained
Shares Amount Capital Deficit
----------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Balances at 12/31/96 12,158,900 $ 12,159 $ 14,765,238 $ (1,577,288)
Sale of common stock (S-8)
at $1.00 per share 317,000 317 316,683
Issuance of common stock
(restricted) at $2.00 per
share for subsidiary 150,000 150 299,850
Capital raising and
subsidiary costs (16,732)
Net loss for quarter (335,838)
----------------- ------------------ ------------------ -----------------
Balances at 3/31/97 12,625,900 $ 12,626 $ 15,365,039 $ (1,913,126)
================= ================== ================== =================
</TABLE>
F-3
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
1997 1996
------------------ -----------------
OPERATING ACTIVITIES
<S> <C> <C>
Net (loss) $ (335,838) $ (329,796)
Adjustments to reconcile net (loss) to cash used by operating
activities:
Depreciation and amortization 702,730 659
Minority interest 11,801 0
Adjustment for Investment received as interest income 5,000 0
Unrealized increase in investment (31,400) 0
Deferred taxes 11,500 0
Changes in assets and liabilities:
Accounts receivable (481,778) 0
Inventories (3,537) 0
Prepaid expenses and other (10,443) 0
Accounts payable and accrued expenses (732,324) 118,769
Income taxes payable 63,335 (800)
------------------ -----------------
NET CASH USED BY OPERATING ACTIVITIES (800,954) (211,168)
INVESTING ACTIVITIES
Loans to related parties and accrued interest (12,445) (2,541)
Loan - other 0 (92,953)
Purchase of equipment (137,004) (82,095)
Deposits (17,429) 0
Goodwill (500,000) 0
Deferred debt issue costs (340,356) 0
Organization costs 0 0
------------------ -----------------
NET CASH USED BY INVESTING ACTIVITIES (1,007,234) (177,589)
FINANCING ACTIVITIES
Cash from subsidiary 41,518 0
Principal payments on debt (3,169,149) 0
Proceeds from sale of common stock 317,000 25,000
Capital raising costs (3,000) 0
Convertible note proceeds 3,811,000 0
------------------ -----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 997,369 25,000
------------------ -----------------
DECREASE IN CASH AND CASH EQUIVALENTS (810,819) (363,757)
Cash and cash equivalents at beginning of period 3,447,019 780,976
------------------ -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,636,200 $ 417,219
================== =================
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 298,420 $ 78
Cash paid for income taxes 62,950 800
</TABLE>
During the quarter, the Company issued 150,000 shares of its restricted common
stock as part of the acquisition of GCCA. The transaction has been recorded at
$300,000.
F-4
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
STATEMENT OF OPERATIONS
Quarter ended March 31, 1997
<TABLE>
<CAPTION>
Pro Forma Consolidated
Dynamic (1) Geriatric (2) Adjustments Pro Forma
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net Sales $ 900,233 $ 0 $ $ 900,233
Management fee income 3,453,000 244,125 3,697,125
Cost of sales 658,147 0 658,147
--------------- --------------- --------------- ---------------
GROSS PROFIT 3,695,086 244,125 3,939,211
Selling and general and administrative expenses 2,591,979 26,792 2,618,771
Depreciation and amortization 654,521 0 654,521
Research and development 203,620 0 203,620
--------------- --------------- --------------- ---------------
3,450,120 26,792 3,476,912
--------------- --------------- ---------------
NET OPERATING INCOME 244,966 217,333 462,299
OTHER INCOME (EXPENSE)
Interest income 23,587 0 23,587
Interest expense (489,277) 0 (489,277)
Miscellaneous income 3,072 0 3,072
Unrealized increase in investment 31,400 0 31,400
--------------- --------------- --------------- ---------------
(431,218) 0 (431,218)
--------------- --------------- ---------------
NET INCOME (LOSS) BEFORE INCOME
TAXES AND MINORITY INTEREST (186,252) 217,333 31,081
INCOME TAX EXPENSE 137,785 13,000 150,785
--------------- --------------- --------------- ---------------
NET INCOME (LOSS) BEFORE
MINORITY INTEREST (324,037) 204,333 (119,704)
MINORITY INTEREST 11,801 0 11,801
--------------- --------------- --------------- ---------------
NET INCOME (LOSS) $ (335,838) $ 204,333 $ $ (131,505)
=============== =============== =============== ===============
Net income (loss) per weighted average share $ (.03) $ (.01)
=============== ===============
Weighted average number of common shares
used to compute net income (loss) per weighted
average share 12,353,511 12,308,900
=============== ===============
</TABLE>
(1) Includes all subsidiaries except Geriatric which was acquired on March
14, 1997.
(2) Not included on page F-2 since acquisition was made late in the
quarter.
F-5
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
STATEMENT OF OPERATIONS
Quarter ended March 31, 1996
<TABLE>
<CAPTION>
Geriatric & Pro Forma Consolidated
Dynamic (1) P & H Genesis * Adjustments Pro Forma
---------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net sales $ 0 $ 713,828 $ 0 $ $ 713,828
Management fees 0 0 3,485,864 3,485,864
Cost of sales 0 500,825 0 500,825
---------------- --------------- --------------- --------------- ---------------
GROSS PROFIT 0 213,003 3,485,864 3,698,867
Selling and general and administrative
expenses 221,709 154,625 2,100,110 2,476,444
Research and development 107,538 0 0 107,538
---------------- --------------- --------------- --------------- ---------------
329,247 154,625 2,100,110 2,583,982
---------------- --------------- --------------- ---------------
NET OPERATING INCOME
(LOSS) (329,247) 58,378 1,385,754 1,114,885
OTHER INCOME (EXPENSE)
Interest income 9,121 5,977 21 15,119
Interest expense (9,670) (5,095) 0 (14,765)
---------------- --------------- --------------- --------------- ---------------
(549) 882 21 354
---------------- --------------- --------------- --------------- ---------------
NET INCOME (LOSS) BEFORE
INCOME TAXES AND
MINORITY INTEREST (329,796) 59,260 1,385,775 1,115,239
INCOME TAX EXPENSE 0 20,400 0 20,400
---------------- --------------- --------------- --------------- ---------------
NET INCOME (LOSS) BEFORE
MINORITY INTEREST (329,796) 38,860 1,385,775 1,094,839
MINORITY INTEREST 0 0 0 19,430 19,430
---------------- --------------- --------------- --------------- ---------------
NET INCOME (LOSS) $ (329,796) $ 38,860 $ 1,385,775 $ (19,430) $ 1,075,409
================ =============== =============== =============== ===============
Net income (loss) per weighted
average share $ (.05) $ .10
================ ===============
Weighted average number of
common shares used to
compute net income (loss)
per weighted average share 7,000,687 10,250,687
================ ===============
</TABLE>
(1) Includes the activities of Microwave Medical
* Geriatric had management fee income of $32,864, general and administrative
expenses of $30,551, interest income of $21 and net income of $2,334.
Genesis had management fee income of $3,453,000, general and administrative
expenses of $2,069,559 and net income of $1,383,441. Genesis was taxed as
an S corporation at the time with income taxes being the responsibility of
the shareholders.
F-6
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Dynamic Associates, Inc. and Subsidiary March 31, 1997 financial
statements and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000878146
<NAME> Dynamic Associates Inc.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,636,200
<SECURITIES> 0
<RECEIVABLES> 3,552,906
<ALLOWANCES> (759,925)
<INVENTORY> 721,364
<CURRENT-ASSETS> 7,339,190
<PP&E> 2,131,687
<DEPRECIATION> (1,596,061)
<TOTAL-ASSETS> 34,265,976
<CURRENT-LIABILITIES> 1,418,508
<BONDS> 18,315,000
0
0
<COMMON> 12,626
<OTHER-SE> 13,451,913
<TOTAL-LIABILITY-AND-EQUITY> 34,265,976
<SALES> 900,233
<TOTAL-REVENUES> 4,353,233
<CGS> 658,147
<TOTAL-COSTS> 658,147
<OTHER-EXPENSES> 3,450,120
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 489,277
<INCOME-PRETAX> (186,252)
<INCOME-TAX> 137,785
<INCOME-CONTINUING> 244,966
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (335,838)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
