SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to ____________
Commission File No. 33-55254-03
DYNAMIC ASSOCIATES, INC.
(Name of Small Business Issuer in its charter)
NEVADA 87-0473323
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
7373 NORTH SCOTTSDALE ROAD, SUITE B150
SCOTTSDALE, ARIZONA 85253
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (602) 483-8700
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act: NONE
Indicate by check mark whether the registrant (l) 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year $4,517,598.
As of March 13, 1997, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $24,578,953. This was based on an average
bid and asked price of $4.188 on March 13 and 5,868,900 shares which were
considered to be held by non-affiliates. The Company believes there are 218,700
shares of free-trading, 1,834,900 shares of Regulation S, and 3,815,300 shares
of restricted stock held by non-affiliates of the Company.
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 December 31,1996
$.001 PAR VALUE CLASS A COMMON STOCK 12,158,900 SHARES
Transitional Small Business Disclosure Format: Yes[ ] No[ X ]
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PART I
ITEM 1. Description of Business.
Overview
Dynamic Associates, Inc., a Nevada corporation (the "Company" "Dynamic")
was incorporated on July 20, 1989 for the purpose of developing venture
businesses. Dynamic was previously a development stage company through 1995.
Through acquisitions Dynamic has become a holding company for a variety of
entities as detailed below. The Company has a 50% equity ownership in a
microwave research and production company (P&H Laboratories) and has a licensing
agreement with Microthermia Technology, Inc. through Microwave Medical
Corporation, a wholly owned subsidiary, that utilizes microwave technology for
various medical treatments. The Company, through its wholly owned subsidiary
Genesis Health Management Corporation ("Genesis") operates a health care
management company, specializing in geriatric and psychiatric care. The
Company's executive offices are presently located at 7373 North Scottsdale Road,
Suite B150, Scottsdale, Arizona 85253, its telephone number at this location is
(602) 483-8700 and the telefax number is (602) 443-1235.
Capital General
Beginning in January, 1986, Capital General Corporation (CGC) organized
multiple companies in Utah or Nevada, one of which was Dynamic Associates, Inc.,
by acquiring shares from the respective corporations upon incorporation, and
then gifted these shares to various individuals, companies and institutions.
Prior to distributing the shares to the giftees, CGC received legal opinions
indicating that such gifts were legal pursuant to applicable state and federal
securities laws. Some states, the U.S. Securities Exchange Commission (SEC) and
the National Association of Securities Dealers (NASD) took the position that
such distributions of stock are in contravention to their respective securities
laws. Further, it is the position of the SEC staff that the gift transfers
effectuated by Capital General should have been registered under Form S-l of the
Act . A registration statement (S-1) was filed and declared effective June 30,
1993. Dynamic was purchased from the principals of Capital General and has been
separately managed and has entered into the acquisition agreements discussed
without Capital General involvement. Capital General and its principal
shareholders have had no involvement or interest in Dynamic since September 1,
1995 when David R. Yeaman and Krista Castleton resigned as Directors of the
Company.
Dynamic Associates Evolution
Harry Moll, Jan Wallace and David Hunter acquired controlling interest in
Dynamic Associates, Inc. on August 30, 1995 with the intent of acquiring a
viable business. Jan Wallace is the current President and a Director, with Logan
B. Anderson as the Secretary/Treasurer and a Director. Herb Capozzi, Billy
Means, Jr., and Florian Homm are Directors. Craig Hurst is Vice President of
Corporate Communications, and Grace Sim is Vice President of Finance.
Microthermia Technology, Inc.
Management determined that it had expertise in the medical field and during
discussions with Microthermia Technology, Inc. (MTI) a licensing agreement was
executed providing for the funding of a newly established company to provide for
the treatment of certain vascular conditions. MTI was established to create and
develop microwave energy based therapy, as an alternative to surgical treatments
or other therapies for certain urinary and vascular conditions. MTI has obtained
a patent on the microwave systems utilized for treatment of the conditions.
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On September 15, 1995 Microthermia Acquisition Corporation (MAC)(later renamed
Microwave Medical Corp.) was formed to provide for joint development of the
technology of MTI. The joint venture agreement was approved by the shareholders
and directors of MTI, and required the approval of the Secretary of State of
California, which was not given.
Because of the delays, the Company through Microwave Medical Corp. (MMC)
entered into a licensing agreement with MTI to allow the Company the exclusive
use of the technology of MTI for the treatment of telangiectasia. The licensing
agreement has been prepaid for two years and has provisions for automatic annual
renewal for eight additional years at no cost. Under the Licensing Agreement a
2% royalty fee will be required to be paid by the Company for net sales of the
products and services related to the technology utilized. MMC is currently
researching and developing Microwave technologies for the treatment of certain
human vascular problems.
P&H Laboratories
Management also entered into a Share Purchase Agreement with P&H to provide
for the engineering and manufacturing capability to more expeditiously bring the
products of the Company to market. On April 23, 1996 the Company acquired 50% of
P&H for $1,000,000, and has an exclusive two year option to acquire the
remaining 50% for $1,000,000. The offer to acquire this additional 50% will
expire April 23, 1998. P&H Laboratories 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.
P&H Laboratories (P&H) is a privately held corporation, incorporated in the
state of California. The executive offices of the company are at 4496 Runway
Street, Simi Valley, California and include manufacturing and engineering space
of approximately 18,000 square feet. The Board of Directors manages the affairs
of the corporation and consists of seven members. Two members are active in the
normal daily operations at P&H and the remaining five directors are outside
directors and experienced business persons. This team controls the long term
strategic planning of the corporation and directs the officers of the
corporation, who handle the day to day affairs and manage the business.
Genesis Health Management Corporation
The Company entered into an Acquisition Agreement on August 1, 1996 to
acquire 100% of Genesis Health Management Corporation, ("Genesis"), of Bossier
City, Louisiana, for $15,000,000, and 3,000,000 common shares of stock of the
Company, which were valued at $3.33 per share. The agreement was extended by
mutual consent of the parties and a final agreement was executed by the parties
on December 2, 1996. The final agreement provided that the Company pay
$12,000,000, issue a Promissory Note for $3,000,000 and issue 3,000,000 shares
of common stock of the Company. The Promissory Note for the $3,000,000 bears
interest at 10% per annum and is due on or before September 2, 1997. The note is
secured by a Pledge of the Company of 51% of the authorized stock of Genesis.
The Promissory Note, (including interest) was paid in full on March 3, 1997.
Genesis is in the business of managing and operating geriatric and psychiatric
units in various hospitals, (both in-patient and out-patient). At December 31,
1996, Genesis had 19 operating units.
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<TABLE>
<CAPTION>
Financial Information Relating to Industry Segments and Classes of Products or Services
Year
---------------------------------------------------
1996 1995 1994
---------------- --------------- ----------------
Sales to unaffiliated customers:
<S> <C> <C> <C>
Microwave Medical Corp. 0 0 0
P & H Laboratories 3,395,098 3,723,013 3,448,251
Genesis Health Management Corporation* 1,122,500 3,832,188 65,000
Intersegment sales or transfers 0 0 0
Operating profit or (loss):
Microwave (604,856) (87,184) 0
P & H 171,969 507,591 92,799
Genesis* 440,487 241,470 (62,681)
Identifiable assets:
Microwave 79,322 0 0
P & H 1,415,795 1,570,335 1,641,754
Genesis 1,451,361 837,321 109,220
</TABLE>
* 1996 is for the month of 12/96 only.
Narrative Description of Business
Microwave Medical Corporation (MMC) was created to exploit medical
applications for microwaves. Its arrangement with Microthermia Technology, Inc.
(MTI) is based on a 10 year contractual Licensing Agreement to develop the
specific treatment of Telangiectasia or spider veins. Development of Benign
Prostate Hyperplasia (BPH), the non-cancerous enlargement of the prostate gland
is on MMC's 1999 schedule.
Benign Prostate Hyperplasia (BPH) is an enlargement of the prostate gland
leading to various difficulties. Surgical alternatives, mechanical devices and
certain pharmaceutical treatments are the competitive treatments. MMC will be
using microwaves, with its specialized delivery system that will cause the
prostate gland to shrink. MMC will be undertaking the necessary steps for
application of patents and FDA approval as we lead into product readiness only.
One other company in Massachusetts has obtained FDA approval for use of its
machine applying microwave technology, to the treatment of BPH. MMC does not
have a patent in place on this technology.
Currently, surgical, sclerotherapy (injection) and laser or pulsed light
treatments are the main competitive treatments for telangiectasia and can be
accomplished through dermatologists, plastic surgeons or vascular surgeons. The
FDA has not approved MMC's process at this time. MMC intends to complete animal
tests, obtain Investigative Device Exemption (IDE), and start clinical trials,
leading to a submission of data to the FDA, and application for approval of the
process with FDA in 1997. At the same time, MMC is developing its own treatment
technology outside of the license agreement with MTI.
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P&H Laboratories (P&H) also provides special engineering services to
customers with specific needs. P&H will be able to provide the Company with this
capability to produce and develop manufacturing processes for the medical
systems. P&H has experience with the engineering and manufacturing of microwave
components, super components and subsystems and also supports major programs and
operating platforms. P&H manufacturing operations include the thin film
processing, top assembly, production testing and tuning and subsystems
integration, wire bonding environmental test and packaging.
P&H Laboratories (P&H) has been engaged since its inception in Mil-Standard
and Hi-Reliability Aerospace programs for various types of devices. The products
of P&H are highly technical and are sold to various government and industrial
users. The products and the development expertise of P&H will enable Dynamic to
reduce its research and development costs for all new products and to provide
state of the art engineering for microwave systems. The Company is currently a
50% holder in P&H and has no other relationship involving the business of P&H.
Genesis Health Management Corporation is a Louisiana Company which was
established on July 23, 1994 to provide elderly healthcare and gero-psychology
to small healthcare facilities unable to provide the service in house.
Gero-psych, while a relatively new field, has historically neglected access to
treatment for a large number of elderly people in serious need of this
treatment. Gero-psych treatment, as administered today, is primarily geared to
low-functioning patients requiring only medication management and patients
without medical complications. Elderly people, however, frequently have medical
and psychiatric problems, including severe depression, due to the natural aging
process, traumatic losses, strokes and various other causes. Psychiatric
problems are being treated on gero-psych units and medical problems are being
treated on acute care units, many times exceeding authorized lengths of stay,
and have become a burden for the hospital's financial resources.
In order to resolve these problems, Genesis has developed a program which
it has operated in various hospitals. Aggressive management has treated the
psychiatric diagnosis and at the same time treated the secondary medical
problems, allowing for higher medical acuity. This approach has proven
beneficial in many respects. In addition to treating the primary diagnosis, the
Genesis Program assists the host hospital in lowering lengths of stays on the
acute care side of the hospital. Furthermore, the acute care physician is able
to resolve many medical problems, as opposed to just stabilizing them. This
method of payment results in an overall reduction in the frequency of a
patient's returns to the hospital and increases the patient's quality of life.
Genesis Senior Care Program provides comprehensive care for elderly
patients experiencing acute psychiatric disorders, cognitive impairment and
age-related psychological difficulties while concurrently encouraging resolution
of medical problems contributing to or inhibiting the resolution of acute care
emotional or psychiatric problems. This program targets higher-functioning
patients with acute emotional problems, allowing the therapeutic milieu to be
effective, as opposed to focusing on lower-functioning patients (who only
require medication management). This method achieves maximum therapeutic results
after 10-18 days of treatment. Senior Care Units are allowed to treat patients
with higher medical acuity than regular geriatric-psychiatric programs, thus
producing higher ancillary costs while providing a higher standard of care for
the patients.
The Genesis treatment program conforms to the guidelines of the JCAHO
Accreditation Manual for Hospitals and Medicare Standards. The program is
reimbursed at cost by Medicare when established as a distinct
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part unit of a hospital which qualifies for an exemption from the Medicare
Prospective Payment System. That 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.
ITEM 2. Description of Property
Dynamic Associates
Dynamic is headquartered in leased office premises at 7373 North Scottsdale
Road, Suite B150, Scottsdale, Arizona 85253. The lease arrangement is for three
years beginning March 15, 1996. Amteck Management, Inc. is responsible for the
monthly payments of $1,200 and expects to bill Dynamic $600 each month and
another entity $600 each month. The Company owns no other property.
Microwave Medical Corporation
The Company has no direct interest in any property of Microthermia
Technology, Inc. except for the security it holds over the assets and technology
of MTI pursuant to a Promissory Note. MMC utilizes the facilities of P&H for its
Research and Development Program and currently has 600 square feet set aside for
its sole use. The Company has only the licensing agreement with MTI and
equipment as any form of tangible or intangible property.
P & H Laboratories, Inc.
P&H Laboratories, Inc., ("P&H") is a fifteen year old company with sixty
employees in an 18,000 square foot facility in Simi Valley, California. Sales in
1995 reached $4 million. The Company has no ownership interest in the property
of P&H and is only an equity participant in the corporation, controlling 50% of
the shares of P&H.
Genesis Health Management Corporation
The head office for Genesis is located at 1613 Jimmie Davis Highway, Suite
No. 1, Bossier City, Louisiana, 71112. The Genesis head office is approximately
3,000 square feet and is leased for a period of two years. Genesis is in the
business of managing and operating geriatric and psychiatric units for various
hospitals in the southern United States.
Genesis Health Management Corporation is a Louisiana Company which has
established healthcare to the elderly specializing in Gero-psych. Genesis has
developed a program which it has operated in various hospitals for the past
three years to provide the psychiatric diagnosis and at the same time treat the
secondary medical problems of the elderly. This will integrate with Dynamic,
Microwave and P&H Technologies in providing services to clients of advanced
years. The business is ongoing.
ITEM 3. Legal Proceedings.
On January 7, 1994, the Bureau of Securities of the State of New Jersey
filed a complaint in the matter of Capital General Corporation, David R. Yeaman
and 74 other named defendants, Nevada and Utah corporations, including the
Company, which complaint proposes that civil monetary penalties totaling $30,000
be assessed against Capital General Corporation for alleged violations of the
Uniform Securities Law (1967), N.J.S.A. 49:3-47 et. seq. by (1) selling to 24
New Jersey residents between April 1986 and May 1991, securities in 25 of the 74
above referred to respondent corporations named in the proceeding, not including
the Company, which were neither
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registered nor exempt from registration, and (2) making untrue statements of
material fact and omitting to state material facts in connection with said New
Jersey sales in 6 of the 74 above referred to resident corporations named in the
proceeding, not including the Company. Also on January 7, 1994, the Bureau of
Securities of the State of New Jersey, based on substantially similar
allegations as in the above referred complaint, issued its Order Denying
Exemptions and to Cease and Desist. This order summarily denied the exemptions
contained in N.J.S.A. 49:3-50(b), (1), (2), (3), (9), (11) and (12) of the
securities of Capital General Corporation and the other 74 respondent
corporations, including the Company, except that excluded from the summary
denial of the exemption contained in N.J.S.A. 49-3-50(b)(12) is the Offer of
Rescission by Capital General Corporation to 24 New Jersey residents pursuant to
the offer of rescission which began about April 28, 1993. This order also
ordered Capital General Corporation and David Yeaman to Cease and Desist from
offering or selling any securities in blind pool corporations into, or from, the
State of New Jersey.
Capital General and David Yeaman filed answers denying the material
allegations of the complaint and resisting the imposition of civil monetary
penalties, and the said Order Denying Exemptions and to Cease and Desist.
Subsequently the issues raised in the complaint and order were settled by
agreement between the Bureau of Securities and Mr. Yeaman and Capital General
Corporation in a consent order dated July 11, 1994 and approved by an
administrative law judge of the State of New Jersey Office of Administrative Law
September 2, 1994. Under the terms of the consent order, all claims in the
complaint against all named respondents were settled by the payment of $3,000
civil penalty, and the order was modified so as not to apply to 27 of the
respondent companies, not including the Company.
Other than this matter, the Company and any of its subsidiaries and any of
their property, are not involved in any material pending legal proceeding. At
this time, neither the Company, nor any of its subsidiaries, have any material
bankruptcy, receivership, or similar proceeding pending.
Item 4. Submission of Matters to a Vote of Security Holders.
On October 28, 1996, an annual shareholders meeting was held. The following
Directors were elected: Jan Wallace, Herb Capozzi, and Logan Anderson. The three
individuals were also Directors before the election. Each Director received
votes as follows:
Jan Wallace Herb Capozzi Logan Anderson
Votes For: 2,470,000 2,470,000 2,470,000
None of the Directors received votes against or withheld, neither were
there any abstention votes or Broker non votes.
The following items were approved with 2,470,000 votes For, 0 against or
withheld, 0 abstentions and 0 broker non votes:
1. To increase the size of the Board of Directors from no less than three
or more than seven members.
2. To increase the number of authorized shares from 25,000,000 shares to
100,000,000 shares.
3. To change the requirement that the annual meeting be held on a
specific day each year.
4. To approve the acts and actions of the Board to the date of the
meeting and to ratify and adopt the acts of the Corporation.
5. To remove the designated Class "A" voting common stock, and to
classify all shares of the Company as "Common Shares".
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PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholders Matters.
The Company trades on the NASDAQ-OTC system, (trading symbol DYAS). The
Company also trades on the Frankfurt and Berlin Exchanges in Germany, (trading
symbol DYA).
The following table lists the high and low sales prices for the common
stock of the company during the two most recent fiscal years:
NASDAQ-OTC
High Sales Price Low Sales Price
1996 First Quarter $ 0.00 $ 0.00
Second Quarter 4.25 2.00
Third Quarter 3.75 2.00
Fourth Quarter 4.25 2.87
1995 First Quarter 0.00 0.00
Second Quarter 0.00 0.00
Third Quarter 0.00 0.00
Fourth Quarter 0.00 0.00
As of December 31, 1996 there were 419 record holders of the Company's
common stock.
The Company has not previously declared or paid any dividends on its common
stock and does not anticipate declaring any dividends in the foreseeable future.
ITEM 6. Management's Discussion and Analysis or Plan of Operation
During the year the Company completed a Regulation S Stock Offering to
Non-US Residents of 1,822,400 shares at $1.75 per share, and, 12,500 shares at
$2.00 per share and sold 184,000 shares to employees and consultants at $1.00
per share pursuant to the Company's Incentive Stock Option Plan and an S-8
registration.
The Company issued 784 Convertible Notes in Reliance on Regulation S to non
U.S. persons. Each note is for $18,500 and bears interest at 10% per annum and
is convertible into common stock of the Company at $3.50 per share. The notes
mature September 16, 2006. The proceeds were used to acquire Genesis Health
Management Corporation and also provided the Company with the additional capital
as detailed in the attached financial statements. This discussion covers the
years 1995 and 1996, the years in which the Company had operations and was doing
business. Prior to that time the Company was a development stage company and was
not engaged in any substantial business.
The notes may be converted into common stock by the holder at a price of
$3.50 per share. The Notes may be redeemed by the Company at any time after
September 15, 1997 with payment to the holder of the investment, accrued
interest and a premium from 10% reduced to 0% by the year 2005. The Company is
obligated to make
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interest payments to the investors of 10% of the total invested semi-annually
until the Notes are either converted or redeemed.
The Company entered into an agreement to acquire up to 75% of Microthermia
Technology, Inc., (MTI), for $2,850,000. In advance of the acquisition the
Company loaned Microthermia $56,080 which bears interest at 5.5% per annum and
was due to be paid to the Company March 8, 1996. The shareholders of MTI
approved the transaction, however, the required approval of the Secretary of
State of California was not received. The Company did not proceed with this
transaction. The Company did however, through its wholly owned subsidiary MAC
which became Microwave Medical Corp., enter into a licensing agreement with MTI
for the exclusive use of certain technology. This licensing agreement is
renewable by the Company and will provide access of the Company to the medical
treatments using the microwave technology without incurring the cost of
acquiring the underlying company. As the treatments are approved by the FDA it
is expected that this business segment will contribute revenue to the Company.
In order for the Company to fund day to day operations it was necessary to
obtain a loan of $220,000 from a Canadian company. Of this $220,000 amount
$20,000 is a fee and the remaining $200,000 represents cash advanced to the
Company. As collateral for the loan 100,000 shares of common stock of the
Company were pledged and 100,000 shares of Claire Technology have been pledged
by a person who provides management services to the Company and to Claire
Technologies. Upon the payment of the loan 20,000 shares of common stock of the
Company will be paid. If the loan was not paid on time the Company was required
to pay a penalty of 10,000 shares of common stock for every 15 days the payment
was overdue. The interest rate was 5% for 90 days beginning December 21, 1995.
The loan was due March 21, 1996, and was mutually extended. The loan was repaid
during the year along with a negotiated bonus of 40,000 shares.
GENESIS HEALTH MANAGEMENT CORP.
The Company acquired Genesis Health Management Corporation (GHMC) effective
December 2, 1996. The final agreement of the parties provided that the Company
was to pay $12,000,000 in cash, execute a promissory note to the previous owners
of Genesis for $3,000,000 and issue 3,000,000 shares of the common stock of the
Company. The shares of stock were valued at $3.33 per share by agreement of the
parties as the estimated fair market value of the shares at the time of the
transaction. This acquisition was funded by the sale of the convertible notes
detailed above. The proceeds of the convertible notes provided for payment of
the acquisition of Genesis Health Management and for working capital to the
Company to sustain operations. The $3,000,000 loan has an interest rate of 10%,
which the Company intends to pay off in the first quarter of 1997. The note was
paid off on March 3, 1997.
GHMC manages and operates 19 geriatric and psychiatric units in various
hospitals on both an in-patient and out-patient basis. The Gross revenue from
the date of the acquisition to the year ended December 31, 1996 was $1,122,500.
The operating expenses accounted for 61% of revenues totaling $682,013.
DISCUSSION OF CONSOLIDATED OPERATIONS
The consolidated financial statements for 1996 as presented provide
information for the first time of the wholly owned subsidiaries Microwave
Medical Corp. (MMC had only minor activity in 1995) and Genesis Health
Management Corporation and the 50% subsidiary, P&H Laboratories. All significant
intercompany balances and transactions have been eliminated in the
consolidation.
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The following items need to be understood in connection with reading the
following financial information: The pro forma information assumes that Genesis
was part of the Company for all of 1995 and 1996 and that P&H was part of the
Company for all of 1995.
NET SALES AND MANAGEMENT FEES. Actual: Sales and management fees increased
from $0 in 1995 to $4,517,598 with the acquisition of P&H and Genesis. Pro
Forma: Sales and management fees increased from $7,555,201 in 1995 to
$13,073,458 in 1996, mainly due to the new contracts obtained by Genesis.
GROSS PROFIT. Actual: Gross profit increased from $0 in 1995 to $2,020,601
in 1996. The increase resulted from the gross profit provided by Genesis and
P&H. Pro Forma: Gross profit increased from $5,185,033 in 1995 to $10,576,461 in
1996, due to the profitability of Genesis and P&H.
COST OF SALES. Actual: Cost of sales increased from $0 in 1995 to
$2,496,997 in 1996 and related to P&H. Pro Forma: Cost of sales increased from
$2,370,168 in 1995 to $2,496,997 in 1996. The 5% increase relates to higher
costs of P&H.
SELLING AND GENERAL AND ADMINISTRATIVE EXPENSES. Actual: These expenses
increased from $562,273 in 1995 to $2,785,635 in 1996. The major reason for the
increase relates to Genesis and P&H and higher management fees incurred by the
Company. Pro Forma: These expenses increased from $4,950,820 in 1995 to
$8,884,355 in 1996, mainly due to Genesis and P&H.
NET INTEREST INCOME/EXPENSE. Actual: The Company had net interest expense
of $171,500 for 1996 compared with net interest income of $2,786 in 1995. The
substantial increase in interest expense relates mainly to the interest expense
associated with the convertible notes. Pro Forma: Net interest expense for 1996
was $186,635 compared with net interest expense of $13,089 in 1995. The increase
relates mainly to interest expense related to the convertible notes.
NET LOSS. Actual: Net loss increased from $619,467 in 1995 to $956,821 in
1996. The increase was due to the large amount of research and development
incurred by Micro ($605,599) and large amounts of general and administrative
expenses incurred by the Company. The main items of expense incurred by the
Company were management fees of approximately $428,000, legal fees of
approximately $233,000, amortization of goodwill of approximately $202,000 and
travel expense of approximately $225,000 relating to looking for potential
investors for the Company and purchasers of the convertible notes. Pro Forma:
Net income increased from a loss of $300,474 in 1995 to income of $1,487,484 in
1996. Approximately $685,000 of the increase results from expected tax benefits
in the future and the balance of the increase is due to the increased
profitability of Genesis and P&H.
LIQUIDITY AND CAPITAL RESOURCES. Actual: Working capital was $2,266,990 at
December 31, 1996 compared to $688,363 at December 31, 1995. The increase arises
from the profitability of Genesis and P&H and an increase in convertible notes.
Pro Forma: Working capital at December 31, 1996 was $2,266,990 compared to
$2,711,339 for 1995. The 1995 figures do not include the Genesis pro forma
transaction which distorts working capital by adding $3,050,000 to current
liabilities without reflecting cash from convertible notes that would have
resulted if the transaction had taken place in 1995 rather than in 1996.
The Company's growth in the future is expected to be financed by working
capital provided by equity and debt offerings and excess cash generated by
Genesis. Genesis expects to be able to meet cash requirements from operations.
Micro will need assistance from the Company to fund operations. P&H expects to
meet cash requirements from operations. Several California banks have expressed
interest in providing lines of credit to P&H.
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ITEM 7. Financial Statements and Supplementary Data.
See Item 13.
ITEM 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
No independent accountant previously engaged as the principal accountant to
audit the Company's financial statements, nor an independent accountant who was
previously engaged to audit a significant subsidiary and on whom the principal
accountant expressed reliance in its report, has resigned or was dismissed. The
Company has not changed accountants nor has it had any disagreements with any
accountants.
PART III
ITEM 9. Directors, Executive Officers, Promoters and Control Persons, Compliance
with Section 16(a) of the Exchange Act.
The following table shows the positions held by the Company's officers and
directors. The directors were appointed and will serve until the next annual
meeting of the Company's stockholders, and until their successors have been
elected and have qualified. The officers were appointed to their positions, and
continue in such positions at the discretion of the directors.
Name Age Position
- ---- --- --------
Jan Wallace 41 President, Director
Logan Anderson 42 Secretary-Treasurer, Director
Florian Homm 37 Director
Herb Capozzi 71 Director
Billy Means, Jr. 42 Director
Jan Wallace (age 41) is a Director, President and Chief Executive Officer of the
Company. Ms. Wallace has been employed by the Company since April 1995, when she
was elected to the Board of Directors and accepted the position of Chief
Executive Officer. Ms. Wallace was previously Vice President of Active Systems,
Inc. a Canadian Company specializing in SGML Software, an ISO standard in
Ottawa, Ontario. Prior to that she was President and Owner of Mailhouse Plus,
Ltd., an office equipment distribution company which was sold to Ascom
Corporation. She has also been in management with Pitney Bowes-Canada and Bell
Canada where she received its highest award in Sales and Marketing. Ms. Wallace
was educated at Queens University in Kingston, Ontario and Carleton University,
Ottawa, Ontario in Political Science with a minor in Economics. Ms. Wallace is
also an officer and director of Claire Technologies, Inc.
Logan Anderson (age 42) is Secretary-Treasurer of the Company. Mr. Anderson has
been Secretary-Treasurer of the Company since April 1995. Since 1993 Mr.
Anderson has been principal and president of Amteck Financial Services Corp., a
financial consulting company in Vancouver, B.C. During 1992 and 1993 Mr.
Anderson was an Officer and Director of Centrepoint Equities Inc., in Vancouver,
B.C. From 1982 to 1992 Mr. Anderson was Controller of Cohart Management group,
which was responsible for management of private and public corporations. Mr.
Anderson received his Bachelors of Commerce degree in Accounting and Economics
from Otago University, New Zealand in 1977. Mr. Anderson is an Associated
Chartered Accountant (New Zealand). Mr. Anderson is also an officer and director
of Claire Technologies, Inc.
11
<PAGE>
William H. Means, Jr. (age 42) is President of Genesis. Mr. Means received his
B.S. in Business Administration from Louisiana Tech University in 1976 and his
M.B.A. in Personnel Management from Louisiana Tech in 1978. From 1978 to 1980,
Mr. Means worked as an Assistant Credit Manager, Salary Administrator and
Commercial Loan Review Analyst at Commercial National Bank in Shreveport,
Louisiana. From 1980 through 1984 he was the Vice President of Commercial Loan
Administration at Bossier Bank and Trust in Bossier City, Louisiana. From 1984
through 1986 he was a Senior Vice President at National Bank of Bossier and from
1986 through 1988 he was a Senior Vice President at Bank of Mid-South in Bossier
City, Louisiana. From 1988 through 1989 he was a co- owner and Account Executive
at United Advertising Network and from 1989 through 1991 he was an Office and
Site supervisor at McNeely Construction Company. Mr. Means owned and operated
Space Center Painting and Construction Company, Space Center Mini Storage and
Terrace Acres Apartments from 1991 through 1994, when he joined Genesis as an
Executive Vice President and later became President of Genesis.
Florian Homm (age 37) has been in the investment management and banking
businesses for over fifteen years, much of it in senior management positions
with firms such as Merrill Lynch, Fidelity Management and Research, Bank Julius
Baer and Tweedy, Browne in London, New York, Boston and Frankfurt. Mr. Homm is
Managing Partner of Value Management and Research GmbH in Germany, a firm
specializing in investment management and corporate financial services. VMR
includes amongst its fund management clients highly regarded institutional
investors as well as European blue chip companies and fast growing corporations
in North America and Europe. Mr. Homm is an honors graduate in Economics from
Harvard College. He received his Master of Business Administration degree from
Harvard Business School. Mr. Homm is a Board Member of the European Association
of Securities Dealers (EASD), on the board of a number of European public
companies, has received several investment awards and has published extensively
on a wide range of financial topics.
Herb Capozzi (age 71) is a Director of the Company. Mr. Capozzi is currently a
Director and the Co-founder of PLC Systems, Inc., a cardiac revascularization
company developing medical systems and technology which trades on the American
Stock Exchange. He was President and Director of International Potter
Distillers, and Director and Co-founder of the Keg Restaurant chain in Canada.
Mr. Capozzi was a partner in bringing McDonald's restaurants to Canada. From
1981 to 1986, Mr. Capozzi was one of three original Directors of EXPO '86, the
1986 World's Fair in Vancouver, Canada. Mr. Capozzi was an elected member of
Legislative Assembly, Province of British Columbia, for two terms and Chairman
of the Insurance Committee and the Procedure Committee. He also had a football
career with the New York Giants (NFL), the Calgary Stampeders (CFL), and the
Montreal Alouttes (CFL), and with the B.C. Lions as General Manager for 10
years. Mr. Capozzi was a principal owner of the soccer organization, the
Vancouver White Caps. Mr. Capozzi received his Bachelor's Degree of Arts for
Chemistry and a Bachelor's Degree of Commerce from the University of British
Columbia. He also received a Bachelor's Degree of Education from the University
of Italy.
12
<PAGE>
ITEM 10. Executive Compensation.
<TABLE>
<CAPTION>
Annual Compensation Table
Annual Compensation Long Term Compensation
------------------------------------------------- ------------------------------------
Other Restricted
Annual Stock Options/* LTIP All Other
Name Title Year Salary Bonus Compen. Awarded SARs (#) payouts($) Compen.
- -------- ------------ --------- ----------- ----------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Jan
Wallace President, 1996 $ 120,000 $ 0 $ 0 0 150,000 $ 0 $ 0
CEO,
Director 1997 120,000
Logan
Anderson Secretary/
Treasurer, 1996 120,000 0 0 0 405,000 0 0
Director 1997 120,000
Florian
Homm Director
since 1/9/97 1996 0 0 0 0 200,000 0 0
Herb
Capozzi Director 1996 0 0 0 0 100,000 0 0
Billy
Means Director 1996 6,731** 0 0 0 0 0 0
1997 101,000***
</TABLE>
*Options
The following options were granted to former or current directors and
officers of the Company. The options were granted when the Company did not
publicly trade and no monetary value had been attributed to the granting of the
options. The stock options are at a price of $1.00 per share. 2,000,000 shares
were granted in 1996. 1,816,000 options were issued but not yet exercised at the
end of 1996.
<TABLE>
<CAPTION>
Date Date Expiration % of Total
Granted Issued Number Date Granted
---------------- ----------------- ----------------- ---------------- ------------------
<S> <C> <C> <C> <C> <C>
Jan Wallace 04/09/96 04/09/96 150,000 04/09/99 7.50
Logan Anderson 04/09/96 04/09/96 150,000 04/09/99 7.50
Logan Anderson 04/09/96 10/04/96 255,000 10/04/99 12.75
Florian Homm 04/09/96 04/09/96 100,000 04/09/99 5.00
Florian Homm 09/16/96 09/16/96 100,000 09/16/99 5.00
Herb Capozzi 04/09/96 04/09/96 100,000 04/09/99 5.00
Harry Moll 04/09/96 04/09/96 270,000 04/09/99 13.50
------------------
56.25%
</TABLE>
** This was Mr. Mean's salary after Genesis was acquired.
*** Salary per employment contract for 1997.
Jan Wallace and Logan Anderson have two year employment contracts with
Dynamic which call for compensation of $120,000 per year per person for 1997 and
1998.
13
<PAGE>
ITEM 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of December 31, 1996, information
regarding the beneficial ownership of shares by each person known by the Company
to own five percent or more of the outstanding shares, by each of the directors
and officers, and by the directors and officers as a group.
<TABLE>
<CAPTION>
Name and Address Amount of Percent
Title of Class of Beneficial Owner Beneficial Ownership of Class
------------------------- ---------------------------------- ------------------------ -------------------
<S> <C> <C> <C> <C>
Class A Common Cede & Co. 2,405,002 19.8%
PO Box 222
Bowling Green Station
New York, NY 10274-0000
Class A Common Vickie T. Lucky 2,370,000 19.5%
1613 Jimmie Davis Highway, Suite 1 & 2
Bossier City, LA 71112
Class A Common Brant Investments, Ltd. 1,631,480 13.4%
Global Securities Service
BH Level Royal Bank Plaza
200 Bay Street
Toronto, Canada M5J255
Class A Common Harry Moll 1,770,000(1) 14.2%
Box 836
Georgetown
Grand Cayman, BWI
Class A Common Jan Wallace 550,000(2) 4.5%
(President & Director)
6929 East Cheney
Paradise Valley, AZ 85253
Class A Common Herb Capozzi (Director) 100,000(3) 0.8%
308-595 Howe Street
Vancouver, BC Canada
Class A Common Logan Anderson 940,000(4) 7.5%
(Secretary/Treasurer/Director)
7373 North Scottsdale Road, # B-150
Scottsdale, AZ 85253
Class A Common Florian Homm (Director) 400,000(5) 3.2%
Amselweg 7b
61462 Koningstein
Germany
Class A Common Billy Means, Jr. (Director) 30,000 0.2%
1613 Jimmie Davis Highway, Suite 1 & 2
Bossier City, LA 71112
Class A Common All Officers and Directors 2,020,000 15.4%
as a Group (5 persons)
</TABLE>
(1) Includes 300,000 shares owned by SSM, Ltd., which is controlled by Mr. Moll
and 270,000 options held by Mr. Moll.
(2) Includes 150,000 options held by Ms. Wallace.
(3) Includes 100,000 options held by Mr. Capozzi.
(4) Includes 100,000 shares owned by Amteck Management, Inc., which is
controlled by Mr. Anderson and 405,000 options held by Mr. Anderson.
(5) Includes 200,000 options held by Mr. Homm.
14
<PAGE>
ITEM 12. Certain Relationships and Related Transactions.
Harry Moll was paid $120,000 by the Company for consulting services
rendered to the Company during 1996. In order for the Company to fund day to day
operations, it was necessary to obtain a loan of $220,000 from a Canadian
company. This loan was arranged through Mr. Moll and it is his collateral that
has been pledged against repayment of the loan. Of this $220,000 amount $20,000
is a fee and the remaining $200,000 represents cash advanced to the Company. As
collateral for the loan 100,000 shares of common stock of the Company were
pledged and 100,000 shares of Claire Technology have been pledged by Mr. Moll
who provides management services to the Company and to Claire Technologies. Upon
the payment of the loan 20,000 shares of common stock of the Company will be
paid. If the loan is not paid in a timely fashion, the Company will be required
to pay a penalty of 10,000 shares of common stock for every 15 days the payment
is overdue. The interest rate is 5% for 90 days beginning December 21, 1995. The
loan was due December 21, 1995. The loan was repaid during the current year, and
a total of 40,000 bonus shares were issued to settle the loan.
Florian Homm, Director, is Managing Partner of Value Management and
Research GmbH in Germany ("VMR"). VMR owns $92,500 of convertible debt issued by
the Company in 1996.
Jan Wallace and Logan Anderson each received $120,000 in compensation.
Amteck Management, Inc., controlled by Logan Anderson, received $92,000 in 1996
for rent and administrative services.
PART IV
ITEM 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following financial statements, financial statement schedules and
supplementary data are included:
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Independent Auditor's Report F-1
Financial Statements:
Consolidated Balance Sheets - December 31, 1996 and 1995. F-2
Consolidated Statements of Operations - Years Ended December 31, 1996, 1995, and 1994. F-4
Consolidated Statement of Changes in Stockholders' Equity - Years Ended
December 31, 1996 and 1995. F-5
Consolidated Statements of Cash Flows - Years Ended December 31, 1996, 1995, and 1994. F-6
Notes to Financial Statements F-7
The following exhibits are included:
(3)(i) Articles of Incorporation are incorporated by reference.
(ii) By-Laws are incorporated by reference.
(4)(ii) Instruments defining the rights of holders of long-term debt 17
(iii)Copies of indentures qualified under the Trust Indenture Act of 1939 19
(21) Subsidiaries of the registrant 23
(27) Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter of 1996. A Form
8-K/A was filed on November 14, 1996 and another Form 8-K/A was filed on
December 17, 1996 to provide further information not originally included in the
8-K filing dated August 27, 1996 relating to the acquisition of Genesis. The
information filed included audited financial statements of Genesis for 1996,
1995, and 1994.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: __03/24/97__ By: _/s/___Jan Wallace_______________________
Jan Wallace, President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: __3/24/97___ By: __/s/___Jan Wallace_________________________
Jan Wallace, President and Director
Date: __3/24/97___ By: __/s/____Logan Anderson_____________________
Logan Anderson, Secretary/Treasurer and Director
Date: __3/24/97___ By: __/s/_____Herb Capozzi______________________
Herb Capozzi, Director
Date: __3/24/97___ By: _/s/_____Billy Means_______________________
Billy Means, Director
Date: __3/24/97___ By: _/s/____Florian Homm_______________________
Florian Homm, Director
16
<PAGE>
SMITH & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
MEMBERS OF: CRANDALL BUILDING SUITE 700
AMERICAN INSTITUTE OF 10 WEST 100 SOUTH
CERTIFIED PUBLIC ACCOUNTANTS SALT LAKE CITY, UTAH 84101
UTAH ASSOCIATION OF TELEPHONE: (801) 575-8297
CERTIFIED PUBLIC ACCOUNTANTS FACSIMILE: (801) 575-8306
- -------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Dynamic Associates, Inc.
We have audited the accompanying consolidated balance sheets of Dynamic
Associates, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for the years ended December 31, 1996, 1995 and 1994. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Dynamic Associates,
Inc. and Subsidiaries as of December 31, 1996 and 1995, and the results of their
operations, changes in stockholders' equity and their cash flows for the years
ended December 31, 1996, 1995 and 1994 in conformity with generally accepted
accounting principles.
/s/ Smith & Company
CERTIFIED PUBLIC ACCOUNTANTS
Salt Lake City, Utah
February 28, 1997, except Note 8 which is dated March 6, 1997.
F-1
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1996 1995
----------------- ------------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash $ 3,342,478 $ 780,976
Short-term commercial paper 104,541 0
Accounts receivable (less allowance for doubtful accounts of
$759,925 in 1996 and $0 in 1995) 2,118,174 0
Loans receivable - related parties (Note 7) 510,300 212,000
Other receivables 115,374 0
Accrued interest (Note 7) 22,002 4,202
Inventories (Note 2) 717,827 0
Prepaid expense and other current assets 125,110 0
Deferred tax benefit (Note 12) 407,000 0
Option (Note 5) 0 30,000
----------------- ------------------
TOTAL CURRENT ASSETS 7,462,806 1,027,178
PROPERTY, PLANT & EQUIPMENT (Note 6) 425,200 7,050
OTHER ASSETS
Deferred debt issue costs (Note 2) 1,523,712 0
Investment - restricted stock 8,600 0
Deferred tax benefit (Note 12) 450,000 0
Goodwill (Note 2) 24,060,585 0
Deposits 23,037 0
Organization Costs (Note 2) 880 1,120
----------------- ------------------
26,066,814 1,120
----------------- ------------------
$ 33,954,820 $ 1,035,348
================= ==================
</TABLE>
F-2
See Notes to Financial Statements.
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1996 1995
----------------- ------------------
LIABILITIES & EQUITY
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 1,259,481 $ 115,993
Accrued expenses 448,024 0
Current portion of long-term debt (Note 10) 73,955 0
Bridge loans (Note 8) 3,150,000 220,000
Income taxes payable (Note 12) 76,860 1,600
Accrued interest payable 187,496 1,222
----------------- ------------------
TOTAL CURRENT LIABILITIES 5,195,816 338,815
Long-term debt (Note 10) 158,395 0
Convertible notes (Note 11) 14,504,000 0
Deferred income tax (Notes 2 and 12) 56,500 0
----------------- ------------------
14,718,895 0
----------------- ------------------
TOTAL LIABILITIES 19,914,711 338,815
Minority interest in subsidiary (Note 4) 840,000 0
Commitments and contingencies (Note 14) 0 0
STOCKHOLDERS' EQUITY Common Stock $.001 par value:
Authorized - 25,000,000 shares
Issued and outstanding 12,158,900 shares 12,159 7,000
Additional paid-in capital 14,765,238 1,310,000
Retained deficit (1,577,288) (620,467)
----------------- ------------------
TOTAL STOCKHOLDERS' EQUITY 13,200,109 696,533
----------------- ------------------
$ 33,954,820 $ 1,035,348
================= ==================
</TABLE>
F-3
See Notes to Financial Statements.
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------------
1996 1995 1994
----------------- ----------------- ------------------
<S> <C> <C> <C>
Net sales $ 3,395,098 $ 0 $ 0
Management fees 1,122,500 0 0
Cost of sales 2,496,997 0 0
----------------- ----------------- ------------------
GROSS PROFIT 2,020,601 0 0
Selling and General & administrative expenses 2,785,635 562,273 0
Research and development (Note 2) 605,599 0 0
Bad debts 2,300 58,380 0
----------------- ----------------- ------------------
3,393,534 620,653 0
----------------- ----------------- ------------------
NET OPERATING INCOME (LOSS) (1,372,933) (620,653) 0
OTHER INCOME (EXPENSE)
Interest income 97,903 4,233 0
Interest expense (269,403) (1,447) 0
Miscellaneous income 8,162 0 0
Unrealized decline in investment (41,400) 0 0
----------------- ----------------- ------------------
(204,738) 2,786 0
----------------- ----------------- ------------------
NET INCOME (LOSS) BEFORE INCOME
TAXES AND MINORITY INTEREST (1,577,671) (617,867) 0
INCOME TAX EXPENSE (BENEFIT) (Note 12) (685,055) 1,600 0
----------------- ----------------- ------------------
NET INCOME (LOSS) BEFORE
MINORITY INTEREST (892,616) (619,467) 0
MINORITY INTEREST 64,205 0 0
----------------- ----------------- ------------------
NET INCOME (LOSS) $ (956,821) $ (619,467) $ 0
================= ================= ==================
Net income (loss) per weighted average share $ (.11) $ (.29) $ .00
================= ================= ==================
Weighted average number of common shares used to
compute net income (loss) per weighted
average share 8,377,442 2,141,213 1,000,000
================= ================= ==================
</TABLE>
F-4
See Notes to Financial Statements.
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
Par Value $.001 Paid-in Retained
Shares Amount Capital Deficit
------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Balances at 12/31/94 1,000,000 $ 1,000 $ 0 $ (1,000)
Issuance of common stock (restricted) for services
at $.001 per share at 9/30/95 3,500,000 3,500
Sale of common stock (restricted) at $.05 per
share at 9/30/95 505,000 505 24,745
Sale of common stock (restricted) at $1.00 per
share at 9/30/95 511,000 511 510,489
Sale of common stock (restricted) at $.05 per
share at 12/27/95 745,000 745 36,505
Sale of common stock (restricted) at $1.00 per
share at 12/29/95 739,000 739 738,261
Net loss for year (619,467)
------------- --------------- --------------- ---------------
Balances at 12/31/95 7,000,000 7,000 1,310,000 (620,467)
Sale of common stock (Regulation S) at $2.00
per share 12,500 13 24,987
Sale of common stock (Regulation S) at $1.75
per share 1,822,400 1,822 3,187,377
Sale of common stock (S-8) at $1.00 per share 184,000 184 183,816
Issuance of common stock (restricted) at $1.00
per share for expense 40,000 40 39,960
Acquisition of subsidiary (P & H) (225,026)
Issuance of common stock (restricted)
related to Genesis acquisition 3,100,000 3,100 10,319,900
Expenses related to capital raising (75,776)
Net loss for year (956,821)
------------- --------------- --------------- ---------------
Balances at 12/31/96 12,158,900 $ 12,159 $ 14,765,238 $ (1,577,288)
============= =============== =============== ===============
</TABLE>
F-5
See Notes to Financial Statements.
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------------
1996 1995 1994
----------------- ----------------- ------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net (loss) $ (956,821) $ (619,467) $ 0
Adjustments to reconcile net (loss) to cash used by operating activities:
Depreciation and amortization 311,178 251 0
Bad debt 0 56,080 0
Minority interest 64,205 0 0
Stock issued for expense 40,000 3,500 0
Investment received as interest income (50,000) 0 0
Unrealized decline in investment 41,400 0 0
Deferred taxes (801,500) 0 0
Fee added to loan 0 20,000 0
Changes in assets and liabilities:
Accounts receivable 86,117 0 0
Inventories (129,024) 0 0
Prepaid expenses and other (120,587) 0 0
Accounts payable and accrued expenses 931,268 115,993 0
Income taxes payable (52,945) 1,600 0
Accrued interest payable 186,274 1,222 0
----------------- ----------------- ------------------
NET CASH USED BY OPERATING ACTIVITIES (450,435) (420,821) 0
INVESTING ACTIVITIES
Loans to related party and accrued interest (246,480) (216,202) 0
Loan - other (91,953) (56,080) 0
Purchase of equipment (155,821) (7,221) 0
Purchase of option 0 (30,000) 0
Refund of option 30,000 0 0
Deposits (1,312) 0 0
Purchase of subsidiaries (12,102,233) 0 0
Goodwill (3,947,775) 0 0
Deferred debt issue costs (1,566,721) 0 0
Organization costs 0 (1,200) 0
----------------- ----------------- ------------------
NET CASH USED BY INVESTING ACTIVITIES (18,082,295) (310,703) 0
FINANCING ACTIVITIES
Cash from subsidiaries 674,440 0 0
Principal payments on debt (301,571) 0 0
Principal payments on capital lease obligation (519) 0 0
Proceeds from sale of common stock 3,322,423 1,312,500 0
Loan proceeds 3,000,000 200,000 0
Convertible note proceeds 14,504,000 0 0
----------------- ----------------- ------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 21,198,773 1,512,500 0
----------------- ----------------- ------------------
INCREASE IN CASH AND CASH EQUIVALENTS 2,666,043 780,976 0
Cash and cash equivalents at beginning of year 780,976 0 0
----------------- ----------------- ------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,447,019 $ 780,976 $ 0
================= ================= ==================
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 70,391 $ 1,447 $ 0
Cash paid for income taxes 169,390 0 0
</TABLE>
F-6
See Notes to Financial Statements.
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 1: BUSINESS ACTIVITY
The Company was incorporated under the laws of the state of Nevada on July
20, 1989 and had been in the development stage through 1995. The Company is
now engaged in the acquisition of microwave technologies for medical
purposes through Microwave Medical Corp. ("Micro"), in the business of
managing the operation of geriatric/psychiatric units for various hospitals
through Genesis Health Management Corporation ("Genesis") and the
manufacturing of highly technologically advanced components and subsystems
for the communications and aerospace industries through P & H Laboratories
("P & H").
Genesis has contracts with hospitals in the states of Louisiana, Arkansas,
Mississippi, and Tennessee. The contracts range from three to five years.
At December 31, 1996, Genesis had nineteen active contracts with monthly
billings of $1,122,500. In January of 1997, another contract was added to
increase monthly billings to $1,151,000. Nine of the contracts began in
1996, nine began in 1995 and one began in 1994.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Principals of Consolidation
The consolidated financial statements for 1996 include the accounts of the
Company; its wholly owned subsidiaries, Micro (which was incorporated
September 15, 1995 under the laws of the State of California) and Genesis
(which was incorporated on October 15, 1996 in Louisiana as Genesis
Acquisition Corporation, merged with Genesis Health Management Corporation
on December 2, 1996 and changed its name to Genesis Health Management
Corporation on December 5, 1996); and a 50% owned subsidiary, P & H. The
Company acquired 50% of P & H on May 6, 1996 pursuant to an option
agreement dated December 12, 1995.
All significant intercompany balances and transactions have been eliminated
in consolidation. The Statement of Operations for 1996 includes the
operation of P & H for all of 1996 (unaudited net income for the quarter
ended March 31, 1996 (prior to being acquired by Dynamic) was $38,860) and
the operations of Genesis for the month of December, 1996.
Accounting Methods
The Company recognizes income and expenses based on the accrual method of
accounting.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market. At December 31, 1996, inventories were comprised of the following:
Raw materials $ 271,669
Work in progress 446,158
-------------
$ 717,827
=============
Research and Development Costs
Research and development costs were $605,599 for 1996 and were all incurred
by Micro.
Warranty Costs
The Company provides, by a current charge to income, an amount it estimates
will be needed to cover future warranty obligations for products sold
during the year. The accrued liability for warranty costs is included in
accrued expenses in the accompanying balance sheet.
Dividend Policy
The Company has not yet adopted any policy regarding payment of dividends.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amount of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
Allowance for Uncollectible Accounts
The Company provides an allowance for uncollectible accounts based upon
prior experience and management's assessment of the collectibility of
existing specific accounts.
F-7
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (continued) Concentration
of Credit Risk Financial instruments, which potentially subject the Company
to concentration of risk, consist of cash and investments. The Company
places its investments in highly rated commercial paper obligations which
limits the amount of credit exposure. Historically, the Company has not
experienced any losses related to investments.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost and is being depreciated
over a useful life of five to eight years using the straight-line and
accelerated methods.
Cash and Cash Equivalents
For financial statement purposes, the Company considers all highly liquid
investments with an original maturity of three months or less when
purchased to be cash equivalents.
Organization Costs
Organization costs of Micro are being amortized over sixty months.
Goodwill
Goodwill relating to the acquisition of Genesis is being amortized over ten
years.
Deferred Debt Issue Costs
These costs are associated with raising money by issuing convertible notes.
The costs are being amortized over the life of the notes (ten years). In
the event the notes are converted to common stock, the remaining
unamortized costs will be charged to additional paid-in capital.
Income Taxes
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences, and operating
loss carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion of all
of the deferred tax assets will not be realized. The valuation allowance at
December 31, 1996 was zero. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment. As of December 31, 1996, temporary differences arose primarily
from differences in the timing of recognizing expenses for financial
reporting and income tax purposes. Such differences include depreciation,
bad debt allowance, and various accrued operating expenses.
Loss per Share
Loss per common share is computed by dividing net loss by the weighted
average shares outstanding during each period. The convertible notes which
are convertible to common stock have not been considered in the calculation
as their inclusion would be antidilutive.
NOTE 3: CAPITALIZATION
The Company's authorized stock includes 25,000,000 shares of Class "A"
common stock at $.001 par value. Shareholders approved 100,000,000
authorized shares but the appropriate document has yet to be filed with the
State of Nevada.
During 1996, the Company issued 40,000 shares of its common stock for
interest expense, at $1.00 per share, sold 12,500 shares of Regulation S
stock at $2.00 per share, sold 1,822,400 of Regulation S stock at $1.75 per
share, sold 184,000 shares of S-8 stock at $1.00 per share, and issued
3,100,000 shares of restricted stock at $3.33 per share in connection with
the Genesis acquisition.
During 1995, the Company issued 3,500,000 shares of its restricted common
stock to various parties for management services. The stock was recorded at
$.001 per share due to the fact there was no market for the stock at the
time. Also, during 1995, the Company sold 1,250,000 shares of its
restricted common stock at $.05 per share and 1,250,000 restricted common
shares at $1.00 per share.
NOTE 4: MINORITY INTEREST
At December 31, 1996, 50% of P & H is owned by other parties.
F-8
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996
NOTE 5: OPTION
During 1995, the Company paid $30,000 for an option to purchase 50% of the
outstanding common stock of P & H Laboratories, Inc. ("P & H") for a total
price of $1,000,000. The $30,000 was refunded when the option was exercised
in May, 1996. The Company has an option to purchase the remaining 50% of P
& H stock for $1,000,000. This option expires April 23, 1998.
NOTE 6: PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment as of December 31, 1996 are summarized as
follows:
Accumulated Net Book
Cost Depreciation Value
------------ ------------- -----------
Transportation Equipment $ 95,135 $ 25,166 $ 69,969
Machinery & Equipment 1,527,988 1,340,624 187,364
Furniture & Fixtures 327,345 171,473 155,872
Leasehold Improvements 16,493 4,498 11,995
------------ ------------- -----------
$ 1,966,961 $ 1,541,761 $ 425,200
============ ============= ===========
Depreciation expense is calculated under straight-line and accelerated
methods based on the estimated service lives of depreciable assets.
Depreciation expense for the year ended December 31, 1996 amounted to
$65,739.
Included in machinery and equipment is $59,315 of equipment under a capital
lease at December 31, 1996. The related accumulated depreciation at
December 31, 1996 is $48,758.
NOTE 7: LOANS RECEIVABLE - RELATED PARTIES
Due From Amount Interest Rate Due Date
- ----------------------------- ----------- ------------- -----------------
Officer of P & H $ 30,300 0% June, 1997
Officers of Micro 105,000 0% December 31, 1997
Claire Technologies, Inc. (1) 375,000 10% November 1, 1997
-----------
$ 510,300
===========
(1)also convertible to Claire stock at $.20 per share. Claire will
also issue 100,000 shares of its restricted common stock. Beginning
February 28, 1997 and every three months thereafter, Claire will issue
an additional 100,000 shares if the loan is still outstanding. The
loan is payable November 1, 1997 and if not paid by that date Claire
will pay an additional 500,000 common (restricted) shares. Claire will
have 30 days grace to remedy the payment, and the loan will be payable
on demand thereafter. Claire has some of the same Officers and
Directors as the Company.
Accrued interest at December 31, 1996 is $22,002.
NOTE 8: BRIDGE LOANS
At December 31, 1996, the Company owes $3,000,000 under one bridge loan and
$150,000 under the other. The $3,000,000 loan has an interest rate of 10%,
payable monthly beginning January 2, 1997. All outstanding principal and
interest is due September 2, 1997. The loan is due to the former owners of
Genesis who now own 24.7% of the Company's common stock. The loan is
collateralized by 51% of the common stock of Genesis which is owned 100% by
the Company. During 1997, the loan was paid in full with the final payment
being made on March 3, 1997.
The other $150,000 is due to a bank, has an interest rate of 9% and is
payable January 5, 1997. The loan was repaid in January, 1997. The loan was
guaranteed by two principals of Genesis.
NOTE 9: RELATED PARTY TRANSACTIONS
During the year $120,000 was paid to the Company's President, $120,000 was
paid to the Company's Secretary/Treasurer, and $120,000 was paid to a
consultant and director. See also Note 14.
F-9
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996
NOTE 10: LONG-TERM DEBT
Notes payable - S.B.A. Payable in monthly
installments of $892, including
interest at 4% through June 2003.
Debt is guaranteed by the President
of P & H. This note is subordinated to the bank
note below. $ 59,992
Note payable - Bank. Payable in monthly
installments of $3,317 plus
interest at prime plus 1% per
annum and secured by accounts
receivable, other rights to payment,
general intangibles, inventory,
and equipment of P & H. Debt matures
in December, 1999. 112,758
Genesis finances certain equipment for various items:
9.25% Note payable to bank in monthly
installments of $661, plus interest
through February 21, 2000. 21,514
9.40% Note payable to a lending institution
payable in monthly installments of
$927, plus interest through November
29, 1999. 28,288
11.50% Note payable to a lending institution
payable in monthly installments of $1,032,
plus interest through November 6, 1997 9,798
-----------------
232,350
Less current portion (73,955)
-----------------
$ 158,395
=================
Scheduled maturities of these obligations are as follows:
Year ending December 31,
1997 $ 73,955
1998 65,096
1999 59,347
2000 9,756
2001 9,900
Thereafter 14,296
-----------------
$ 232,350
=================
NOTE 11: CONVERTIBLE NOTES
At December 31, 1996, the Company owes $14,504,000 to various entities in
the form of convertible notes. The notes bear interest at 10% per annum and
the interest is payable on January 16 and July 16 of each year, beginning
January 16, 1997. The notes are part of an overall maximum $18,500,000
indenture.
F-10
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996
NOTE 11: CONVERTIBLE NOTES - continued
Conversion
The holder of any Note will have the right anytime prior to maturity, to
convert the principal thereof (or any portion thereof that is an integral
multiple of $1,000) into shares of Common Stock at the conversion price of
US $3.50 (the "Conversion Price"), except that if a Note is called for
redemption, the conversion right will terminate at the close of business on
the business day immediately preceding the date fixed for redemption. Upon
conversion, no adjustment will be made for interest or dividends, but if
any holder surrenders a Note for conversion between the record date for the
payment of an installment of interest and the next interest payment date,
then, notwithstanding such conversion, the interest payment on such
interest payment date will be paid to the registered holder of such Note on
such record date. In such event, such Note which surrendered for
conversion, must be accompanied by payment of an amount equal to the
interest payable on such interest payment date on the portion so converted.
No fractional shares will be issued upon conversion but a cash adjustment
will be made for any fractional interest.
At December 31, 1996 the notes could have been converted into 4,144,000
shares of the Company's common stock.
Optional Redemption
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time and from time to time, on and after September 15, 1997,
on not less than 15 nor more that 60 days' notice by first class mail, at
the following redemption prices (expressed as percentages of the principal
amount) if redeemed during the twelve-month period beginning September 15
of the year indicated below, in each case, together with accrued interest
thereon to the redemption date:
Year Percentage
------------------ --------------
1997 110.00%
1998 108.75%
1999 107.50%
2000 106.25%
2001 105.00%
2002 103.75%
2003 102.50%
2004 101.25%
2005 100.00%
If less than all the Notes are to be redeemed, the Trustee will select
Notes for redemption in any manner the Trustee deems fair and appropriate.
If any Note is to be redeemed in part only, a new Note or Notes in
principal amount equal to the unredeemed principal portion thereof will be
issued.
<PAGE>
Subordination of Notes
The Notes will be subordinate in right of payment to the extent set forth
in the Indenture to all existing and future Senior Indebtedness (as defined
in the Indenture) of the Company, whether outstanding on the date of the
Indenture or thereafter created, incurred, assumed, or guaranteed. Upon any
distribution of assets of the Company in any dissolution, winding up,
liquidation, or reorganization of the Company (whether in an insolvency or
bankruptcy proceeding or otherwise), payment in full must be made on such
Senior Indebtedness before any payment is made on or in respect of the
Notes. Upon the happening and during the continuance of a default in
payment of interest on or principal of Senior Indebtedness, or any other
default with respect to such Senior Indebtedness permitting the holder
thereof to accelerate the maturity thereof, no payment may be made by the
Company on or in respect of the Notes. No such subordination will prevent
the occurrence of any Event of Default (as defined in the Indenture).
"Senior Indebtedness" includes (i) all indebtedness of the Company (a) for
borrowed money, (b) which is evidenced by a note, debenture or similar
instrument (including a purchase money mortgage) given in connection with
the acquisition of any property or assets (other than inventory or similar
property acquired in the ordinary course of business), including
securities, or (c) for the payment of money relating to a Capitalized Lease
Obligation (as defined in the Indenture); (ii) any liability of others
described in the preceding clause which the Company has guaranteed or which
is otherwise its legal liability; and (iii) any amendment, renewal,
extension, or refunding of any such liability; provided, however, that
Senior Indebtedness will not include any indebtedness of the Company to a
subsidiary or any indebtedness or guarantee of the Company which, by its
terms or the terms of the instrument creating or evidencing it, is not
superior in right of payment to the Notes.
F-11
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996
NOTE 11: CONVERTIBLE NOTES - continued
Subordination of Notes - continued
The Indenture will not limit the amount of additional indebtedness,
including Senior Indebtedness, which the Company can create, incur, assume,
or guarantee, nor will the Indenture limit the amount of indebtedness which
any subsidiary can incur. As a result of these subordination provisions, in
the event of insolvency, holders of the Notes may recover less ratably than
general creditors of the Company.
NOTE 12: INCOME TAXES
Components of income tax (benefit) are as follows:
Current
Federal $ 63,500
State 52,945
----------------------
116,445
Deferred
Federal (799,000)
State (2,500)
(801,500)
----------------------
Income tax (benefit) $ (685,055)
======================
A reconciliation of the provision for income tax expense with the expected
income tax computed by applying the federal statutory income tax rate to
income before provision for income taxes is as follows:
December 31, 1996
Income tax computed at federal
statutory tax rate $ (671,100)
State taxes (net of federal benefit) (13,955)
----------------------
$ (685,055)
======================
The Company is not able to file a consolidated tax return with P & H
because it only owns 50% of P & H. P & H has a federal tax liability of
approximately $31,000 at 12-31-96 and a state liability of approximately
$13,000. Genesis has a state tax liability of approximately $31,000.
Significant components of the Company's deferred tax liabilities and assets
for income taxes consist of the following:
Current deferred tax assets
Net operating loss $ 340,000
Allowance for doubtful accounts 9,000
Capitalized inventory cost for tax 21,000
Vacation accrual 22,000
State income tax 9,000
Other accruals 6,000
----------------------
Net deferred current tax assets $ 407,000
======================
Long-term deferred tax asset
Net operating loss $ 450,000
======================
Long-term deferred tax liabilities
Difference in fixed assets $ 56,500
======================
There was no net change in the valuation allowance for the years ended
December 31, 1996 and December 31, 1995.
The Company anticipates being able to use the entire Federal Net Operating
Loss of $2.3 million during 1997 and 1998.
At December 31, 1996, the Company has a federal net operating loss
carryover of approximately $2,324,000. The Federal loss will expire as
follows:
December 31, 2010 $ 556,000
December 31, 2011 1,768,000
----------------------
$ 2,324,000
======================
F-12
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996
NOTE 12: INCOME TAXES (continued)
The California net operating loss carryover of approximately $341,500
expires as follows:
December 31, 2003 $ 15,500
December 31, 2004 326,000
----------------------
$ 341,500
======================
NOTE 13: INCENTIVE STOCK OPTION PLAN
During 1995, the Company established an incentive stock option plan for
employees and directors of the Company. The maximum number of shares to be
issued under the plan is 2,000,000. At December 31, 1996, all 2,000,000
options have been granted. The Company also can grant non-qualified stock
options. The aggregate fair market value (determined at the grant date) of
the shares to which options become exercisable for the first time by an
optionee during any calendar year shall not exceed $100,000 for qualified
options and $1,000,000 for non-qualified options. For 10% shareholders, the
option price shall not be less than 100% of the fair market value of the
shares on the grant date and the exercise period shall not exceed 5 years
from the grant date. In the case of non-qualified stock options, the option
price shall not be less than $1.00 per share, or at a price exceeding $1.00
per share at the discretion of the Committee. During 1996 the following
options were granted:
150,000 shares to the President
405,000 shares to the Secretary
200,000 shares to a Director
100,000 shares to a Director
200,000 shares to the Vice President of Corporate Communications
945,000 shares to others
The exercise price is $1.00 per share. The Vice President of Corporate
Communications exercised 55,000 options.
During 1996, 184,000 shares were sold pursuant to the plan including the
55,000 mentioned above. The options were non- qualified.
NOTE 14: COMMITMENTS AND CONTINGENCIES
The Company is provided with office space and other management services on
a month-to-month basis by Amteck Management, Inc., an entity controlled by
the Company's Secretary. $92,000 was paid to Amteck during 1996. $600 per
month was paid to Amteck as rent beginning in March, 1996. Other fees to
Amteck will be based on services received. Officers currently are receiving
no salary but are being paid management fees when services are provided.
Various other individuals are paid as services are performed.
For 1997, it is projected that the Company's President will receive $10,000
monthly, the Secretary will receive $10,000 monthly, and a consultant will
receive $10,000 per month, pursuant to two year contracts which are
effective January 1, 1997. The agreements are renewable for successive one
year periods at $12,000 per month.
Micro has the following commitments:
Two officers will each receive $10,417 per month from January 1, 1997
through August 31, 1998. (1)
(1) Dynamic has not approved the full term of this contract,
considering it to terminate December 31, 1997, not August 31, 1998.
This would reduce future minimum payments by $166,672.
<PAGE>
Genesis has the following commitments:
The President will receive $101,000 for 1997 and $102,667 through
November, 1998.
The Financial Reimbursement Specialist will receive $70,700 for
1997 and $71,867 through November, 1998.
The Senior Vice President for Operations will receive $181,800
for 1997 and $184,800 through November, 1998.
A Consultant will receive $30,000 per month through November,
1998.
F-13
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996
NOTE 14: COMMITMENTS AND CONTINGENCIES (continued)
Future scheduled payments under these employment related commitments are as
follows:
Year Ending
December 31, 1997 $ 1,323,508
December 31, 1998 1,216,006
----------------------
$ 2,539,514
======================
P & H leases its facility from its President under an operating lease that
requires minimum monthly payments of $15,164. The lease expires February
28, 1998 and requires P & H to pay real property taxes, insurance, and
utility bills.
Future minimum lease payments are as follows:
Year Ending
December 31, 1997 $ 182,000
December 31, 1998 30,000
----------------------
$ 212,000
======================
The attorney for Genesis receives a monthly fee of $10,000.
Genesis leases equipment under operating leases expiring through 1998.
Future minimum lease payments are as follows:
Year Ending
December 31, 1997 $ 126,475
December 31, 1998 68,035
----------------------
$ 194,510
======================
Genesis leases its facility at $2,800 per month through September 30, 1998
and also leases an apartment for out of town business at $500 per month
through October 31, 1997. Genesis also pays the taxes and utilities.
Future minimum lease payments are as follows:
Year Ending
December 31, 1997 $ 38,600
December 31, 1998 25,200
----------------------
$ 63,800
======================
Genesis leases an aircraft from a related party on a monthly basis, but the
payment is not determined until the end of each month. Future minimum
payments are not determinable.
Rental expense for the year ended December 31, 1996 was $203,299 ($4,947 in
1995) which includes $7,120 paid by Micro to P & H.
NOTE 15: FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, loans, and interest
receivable, accounts payable, accrued expenses and interest payable
approximate fair value due to the short maturity periods of these
instruments. The fair value of the Company's long-term debt, based on the
present value of the debt, assuming interest rates as follows at December
31, 1996 was:
Notes at 4% $ 44,465
Notes at various % (1) 121,696
Notes at 11.5% 8,819
Convertible notes at 10.0% 5,601,398
----------------------
$ 5,776,378
======================
(1) includes notes with actual interest rates ranging from 9.25
to 9.40%.
F-14
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996
NOTE 16: INDUSTRY SEGMENTS
The Company receives its revenue from two sources: management fees earned
by Genesis and sales of components and subsystems made by P & H.
Information about those segments for the year ended December 31, 1996 is as
follows:
Management
Fees Sales Other (1) Consolidated
------------ ------------- ------------ ------------
Sales and
Management fees $ 1,122,500 $ 3,395,098 $ 0 $ 4,517,598
Operating profit (loss) $ 440,487 $ 171,969 (1,985,389) $ (1,372,933)
============ ============= ============ ============
Identifiable assets at
December 31, 1996 $ 1,451,361 $ 1,415,795 $ 79,322 $ 2,946,478
Corporate assets 329,033 782,854 29,896,455 31,008,342
------------ ------------- ------------ ------------
Total assets at
December 31, 1996 $ 1,780,394 $ 2,198,649 $ 29,975,777 $ 33,954,820
============ ============= ============ ============
Operating profit is total revenue less cost of goods sold, selling, general
and administrative expenses, research and development and bad debts.
Identifiable assets are those used by each segment of the Company's
operations. Corporate assets are primarily cash, commercial paper, deferred
costs and intangibles.
(1) Reflects general and administrative expenses, research and
development and bad debts of the Company and Micro which reduce
operating profit of the segments to an operating loss on a
consolidated basis. Amortization of goodwill in the amount of $202,190
is also included.
Pre-consolidation net income (loss) is as follows:
Dynamic $ (1,624,870)
Micro (595,318)
P & H 128,409
Genesis 258,829
------------------
(1,832,950)
Tax benefit adjustment 940,334
Minority interest (64,205)
------------------
Adjusted Net Loss $ (956,821)
==================
NOTE 17: ACQUISITION OF SUBSIDIARIES
During 1996, $1,000,000 cash was paid to acquire 50% of the outstanding
common stock of P & H in a purchase transaction. The results of operations
of P & H for all of 1996 are included in the consolidated statements of
operations.
In December 1996, the Company purchased 100% of the outstanding stock of
Genesis for $25,373,000. $15,050,000 was paid in cash or notes and accounts
payable. $10,323,000 was paid by issuing 3,100,000 shares of restricted
common stock at a value of $3.33 per share. $24,262,775 of the purchase
price has been allocated to goodwill which is being amortized over ten
years. The results of operations for Genesis for December 31, 1996 are
included in the consolidated statements of operations.
NOTE 18: PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
See the following pages for unaudited condensed consolidated financial
statements which assume the entities were together as of the beginning of
each period presented.
F-15
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
(A Development Stage Company)
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
BALANCE SHEET
December 31, 1995
<TABLE>
<CAPTION>
Pro Forma Consolidated
Dynamic Genesis Adjustments Pro Forma
--------------- --------------- --------------- --------------
ASSETS
CURRENT ASSETS
<S> <C> <C> <C> <C> <C> <C>
Cash $ 959,843 $ 178,945 (1) $ (500,000) $ 638,788
Short-term commercial paper 329,157 0 329,157
Accounts receivable 810,825 589,500 1,400,325
Loans receivable - related parties 272,300 0 272,300
Loans receivable 0 7,494 7,494
Accrued interest 4,202 0 4,202
Inventory 588,803 0 588,803
Prepaid expense 4,523 16,639 21,162
Deferred tax benefit 53,000 0 53,000
--------------- ------------ --------------- --------------
TOTAL CURRENT ASSETS 3,022,653 792,578 (500,000) 3,315,231
PROPERTY, PLANT AND
EQUIPMENT 177,757 247,822 425,579
OTHER ASSETS
Goodwill 0 0 (1) 12,000,000 25,257,080
(2) 3,000,000
(3) 10,323,000
(4) 50,000
(5) (115,920)
Deposits 21,315 200 21,515
Organization costs 1,120 0 1,120
--------------- ------------ --------------- --------------
22,435 200 25,257,080 25,279,715
--------------- ------------ --------------- --------------
$ 3,222,845 $ 1,040,600 $ 24,757,080 $ 29,020,525
=============== ============ =============== ==============
</TABLE>
F-16
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
(A Development Stage Company)
UNAUDITED CONSOLIDATED CONDENSED
BALANCE SHEET (Continued)
December 31, 1995
<TABLE>
<CAPTION>
Pro Forma Consolidated
Dynamic Genesis Adjustments Pro Forma
--------------- --------------- --------------- --------------
LIABILITIES & EQUITY
CURRENT LIABILITIES
<S> <C> <C> <C> <C> <C>
Accounts payable and accrued
expenses $ 320,254 $ 309,466 (4) $ 50,000 $ 679,720
Bridge loan 220,000 0 (2) 3,000,000 3,220,000
Current portion of long-term debt 77,823 0 77,823
Income taxes payable 129,805 46,544 176,349
--------------- ------------ --------------- --------------
TOTAL CURRENT LIABILITIES 747,882 356,010 3,050,000 4,153,892
Long-term debt 173,652 542,575 (1) 11,500,000 12,216,227
Loan from shareholders 0 26,095 26,095
Deferred income taxes 54,000 0 54,000
--------------- ------------ --------------- --------------
TOTAL LIABILITIES 975,534 924,680 14,550,000 16,450,214
Minority interest in subsidiary 775,389 0 775,389
STOCKHOLDERS' EQUITY
Common stock $.001 par value:
Authorized - 25,000,000 shares
Issued and outstanding 7,000,000
shares 7,000 1,000 (3) 3,100 10,100
(6) (1,000)
Additional paid-in capital 1,335,000 0 (3) 10,319,900 11,539,980
(5) (115,920)
(6) 1,000
Earnings (deficit) accumulated
during the development stage 129,922 114,920 244,842
--------------- ------------ --------------- --------------
TOTAL STOCKHOLDERS' EQUITY 1,471,922 115,920 10,207,080 11,794,922
--------------- ------------ --------------- --------------
$ 3,222,845 $ 1,040,600 $ 24,757,080 $ 29,020,525
=============== ============ =============== ==============
</TABLE>
F-17
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
(A Development Stage Company)
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
STATEMENT OF OPERATIONS
Year ended December 31, 1996
<TABLE>
<CAPTION>
Pro Forma Consolidated
Dynamic Genesis* Adjustments Pro Forma
--------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Net Sales $ 3,395,098 $ 0 $ $ 3,395,098
Management fee income 0 9,678,360 9,678,360
Cost of sales 2,496,997 0 2,496,997
--------------- --------------- ---------------- ---------------
GROSS PROFIT 898,101 9,678,360 10,576,461
Selling and general and administrative
expenses 2,105,922 6,778,433 8,884,355
Research and development 605,599 0 605,599
--------------- --------------- ---------------- ---------------
2,711,521 6,778,433 9,489,954
--------------- --------------- ---------------- ---------------
NET OPERATING INCOME (LOSS) (1,813,420) 2,899,927 1,086,507
OTHER INCOME (EXPENSE)
Interest income 97,903 426 98,329
Interest expense (268,725) (16,239) (284,964)
Miscellaneous income 8,162 0 8,162
Unrealized decline in investment (41,400) 0 (41,400)
--------------- --------------- ---------------- ---------------
(204,060) (15,813) (219,873)
--------------- --------------- ---------------- ---------------
NET INCOME (LOSS)
BEFORE INCOME TAXES AND
MINORITY INTEREST (2,017,480) 2,884,114 866,634
INCOME TAX EXPENSE (BENEFIT) 73,500 180,980 (7) (939,535) (685,055)
--------------- --------------- ---------------- ---------------
NET INCOME (LOSS)
BEFORE MINORITY INTEREST (2,090,980) 2,703,134 939,535 1,551,689
MINORITY INTEREST 64,205 0 64,205
--------------- --------------- ---------------- ---------------
NET INCOME (LOSS) $ (2,155,185) $ 2,703,134 $ 939,535 $ 1,487,484
=============== =============== ================ ===============
Net income (loss) per weighted
average share $ (.26) $ 29.22 $ .18
=============== =============== ===============
Weighted average number of common
shares used to compute net income
(loss) per weighted average share 8,377,442 92,500 8,377,442
=============== =============== ===============
</TABLE>
* Includes the month of December, 1996 which is also included in the
audited Statements of Operations shown at Page F-4.
F-18
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
(A Development Stage Company)
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
STATEMENT OF OPERATIONS
Year ended December 31, 1995
<TABLE>
<CAPTION>
Pro Forma Consolidated
Dynamic Genesis Adjustments Pro Forma
--------------- --------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Net Sales $ 3,723,013 $ 0 $ $ 3,723,013
Management fee income 0 3,832,188 3,832,188
Cost of sales 2,370,168 0 2,370,168
--------------- --------------- ------------------ ---------------
GROSS PROFIT 1,352,845 3,832,188 5,185,033
Selling and general and administrative
expenses 1,407,527 3,543,293 4,950,820
Bad debts 58,380 47,425 105,805
--------------- --------------- ------------------ ---------------
1,465,907 3,590,718 5,056,625
--------------- --------------- ------------------ ---------------
NET OPERATING INCOME (LOSS) (113,062) 241,470 128,408
OTHER INCOME (EXPENSE)
Interest income 28,543 24 28,567
Interest expense (24,579) (17,077) (41,656)
--------------- --------------- ------------------ ---------------
3,964 (17,053) (13,089)
--------------- --------------- ------------------ ---------------
NET INCOME (LOSS)
BEFORE INCOME TAXES AND
MINORITY INTEREST (109,098) 224,417 115,319
INCOME TAX EXPENSE 202,600 59,308 261,908
--------------- --------------- ------------------ ---------------
NET INCOME (LOSS)
BEFORE MINORITY INTEREST (311,698) 165,109 (146,589)
MINORITY INTEREST (153,885) 0 (153,885)
--------------- --------------- ------------------ ---------------
NET INCOME (LOSS) $ (465,583) $ 165,109 $ 0 $ (300,474)
=============== =============== ================== ===============
Net income (loss) per weighted
average share $ (.18) $ 16.51 $ (.05)
=============== =============== ===============
Weighted average number of common
shares used to compute net income
(loss) per weighted average share 2,641,213 10,000 5,741,213
=============== =============== ===============
</TABLE>
F-19
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
The preceding pro forma consolidated condensed balance sheet has been derived
from the balance sheets of the Company and Genesis Health Management Corporation
("Genesis") at December 31, 1995. The balance sheet assumes that the Company
acquired 100% of the outstanding stock of Genesis on January 1, 1995. The
Balance Sheet column for December 31, 1995 labeled Dynamic also assumes the
Company had acquired 50% of the outstanding stock of P & H Laboratories on
January 1, 1995.
(1) Reflects $12,000,000 cash paid to acquire 100% of the outstanding
stock of Genesis and cash acquired by issuance of convertible notes.
(2) Reflects issuance of $3,000,000 note payable for the balance of the
purchase price.
(3) Reflects the issuance of 3,000,000 restricted common shares as part of
purchase price at $3.33 per share and 100,000 restricted common shares
for a finder's fee at $3.33 per share.
(4) Reflects a commission due on the transaction.
(5) Reflects the reduction of goodwill by the net assets purchased at book
value.
(6) Eliminates common stock of subsidiary.
(7) Reflects income tax benefit adjustment due to being able to file a
consolidated tax return with Genesis and expected future tax savings
produced by offsetting income from Genesis with the net operating loss
carryover of the Company.
The preceding pro forma consolidated condensed statements of operations have
been derived from the statements of operations of the Company and Genesis as of
December 31, 1996 and December 31, 1995, and assumes the companies were
consolidated as of the beginning of each period presented. The Statement of
Operations column labeled Dynamic for 1995 assumes that Dynamic had acquired 50%
of the outstanding stock of P & H Laboratories on January 1, 1995.
F-20
<PAGE>
Exhibit (4)(ii) - SAMPLE CONVERTIBLE NOTE
UNITED STATES OF AMERICA
STATE OF NEVADA CERT NO: 12
DYNAMIC ASSOCIATES, INC.
A NEVADA CORPORATION
10% CONVERTIBLE NOTE
Dynamic Associates, Inc. a Nevada Corporation, hereinafter called the
Corporation, is indebted and, for value received, hereby promises to pay to
the registered holder hereof, as hereinafter provided at the office of the
Corporation, 7373 North Scottsdale Road, Suite B-150, Scottsdale, Arizona 85253,
upon presentation of the Convertible Note, (Note) the principal sum of
with interest at the rate of 10% due September 15, 2006.
Payment shall be in any coin or currency of the United States of America
which at the time of payment is legal tender for public and private debts ans
shall be made at the principal officer of the Corporation.
The Notes will be issued under an indenture (the "Indenture"), to be dated
as of September 16, 1996, between Dynamic Associates, Inc. and Josepthal, Lyon &
Ross, GMBH as trustee ("Trustee"). The terms of the Notes will include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939, as in effect on the date of the Indenture (the
"Trust Indenture Act"). The Notes will be subject to all such terms, and
prospective investors are referred to the Indenture and the Trust Indenture Act
for a statement of such terms.
The statements under this caption relating to the Notes and the Indenture
are summaries and do not purport to be complete. Such summaries make use of
certain terms defined in the Indenture and are qualified in their entirety by
express reference to the Indenture. As used under this caption, the term
"Company" refers only to Dynamic Associates, Inc. and not to its subsidiaries.
Redemption
This Note shall be redeemable upon presentation by the registered owner to
the Treasurer of the Corporation if written notice of not less than 15 nor more
than 60 days' notice by first class mail, has been received and the Corporation,
at its option, agrees to the redemption. All redemption shall be handled on a
first come, first served basis according to the Note register kept by the
Corporation. All Notes shall rank equally and rateably without priority. The
details regarding this redemption are provided in the Note accompanying this
Certificate.
Conversion
The holder of any Note will have the right, exercisable at any time prior
to maturity, to convert the principal thereof (or any portion thereof that is an
integral multiple of $1,000) into shares of Common Stock at the conversion price
of US$3.50 (the "Conversion Price"), except that if a Note is called for
redemption, the conversion right will terminate at the close of business on the
business day immediately preceding the date fixed for redemption. The details
regarding conversion, registration and other redemption rights are outlined in
the Note which accompanies this Certificate.
Subordination of Notes
The Notes will be subordinate in right of payment to the extent set forth
in the Indenture to all existing and future Senior Indebtedness (as defined in
the Indenture) of the Company, whether outstanding on the date of the Indenture
or thereafter created, incurred, assumed or guaranteed. The details regarding
Subordination of Notes are outlined in the Note which accompanies this
Certificate.
IN WITNESS WHEREOF, the Corporation has signed and sealed this Convertible Note
on the _______th day of ___________________________, 19______.
DYNAMIC ASSOCIATES, INC.
ATTEST:
___________________________________ By_______________________________________
Secretary Jan Wallace, President
17
<PAGE>
NOTICE: No writing on this Convertible Note or entry to be made except by an
officer of the Corporation.
DATE OF REGISTRY NAME AND ADDRESS OF REGISTERED HOLDER AUTHORIZED OFFICER
For Value Received, __________________hereby sell, assign and transfer unto
all right, title and interest in the foregoing Convertible Note and do hereby
irrevocably constitute and appoint_____________________________________________
- -------------------------------------------------------------------------------
_______________________________________________________Attorney to transfer said
Convertible Note on the books of the within named Corporation with full power of
substitution in the premises.
Dated, , 19
In presence of:
THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE
(COLLECTIVELY THE "SECURITIES") HAVE NOT BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") OR THE SECURITIES COMMISSION (THE "COMMISSION") OF ANY STATE
UNDER ANY STATE SECURITIES LAW. THEY ARE BEING OFFERED PURSUANT TO A SAFE HARBOR
FROM REGISTRATION UNDER REGULATION S ("REGULATION S") PROMULGATED UNDER THE ACT.
THE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE UNITED
STATES OR TO U.S. PERSONS (AS SUCH TERM IS DEFINED IN REGULATION S) UNLESS THE
SECURITIES ARE REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, OR
SUCH OFFERS, SALES AND TRANSFERS ARE MADE PURSUANT TO AN AVAILABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
18
<PAGE>
Exhibit (4)(iii)
TRUST AGREEMENT
DATE: September 16, 1996.
PARTIES: Josepthal, Lyon & Ross, GmbH, a German Limited Liability Company,
acting as pay in agent (the "Trustee") and Dynamic Associates,
Inc., Scottsdale, Arizona a Nevada Corporation (the "Company").
RECITALS: PURPOSE OF THE AGREEMENT
The Company desires to establish an Agreement with the Trustee in which the
funds received from each subscriber (a "Subscriber"), to the Offering of the
Company of 1000 units consisting of a 10% note convertible to shares of common
stock of the Company as provided under a Private Placement Memorandum dated
September 16, 1996, (the "Offering"), and any interest or earnings on such
funds, (collectively the "Proceeds") will be held, and the Trustee desires to
act as the Trustee for this purpose.
AGREEMENTS: Therefore, in consideration of the mutual convenants herein
contained, the Trustee and the Company agree as follows:
1. Trust Account and Duration of Agreement. The Trustee will act as Trustee
in connection with the Offering. As Trustee, the Trustee will by this sealed
agreement establish a separate specific limited term trust account, (the "Trust
Account"), will deposit all the Proceeds into such account in the name of
Josepthal, Lyon & Ross, GMBH at ABN-AMRO Bank Deutschland, AG, Frankfurt,
Account Number 16.25.969/023. This agreement shall terminate on December 15,
1996. (i.e. 90 day initial term) and all obligations of the Trustee shall
terminate. This may be extended by mutual agreement until January 14, 1997 with
written agreement of the Parties. The Trustee, at its sole option, may elect to
continue as Trustee beyond the above agreed dates.
2. Subscriptions. Until a disbursement has been made under Section 4
hereof, the Company will cause Subscribers to pay for their subscriptions with a
check made payable to the "Trust Account". Upon receipt of a check from a
Subscriber, the Company shall promptly forward it to the Trustee or the Trustee
is authorized to directly receive checks from the Subscriber, subject to
approval by the Company. The Trustee will promptly forward for collection each
check received from a Subscriber and upon collection of the proceeds of such
check, deposit the same in accordance with Section 3 hereof. The Trustee shall
provide the Company on request with a list of the Subscribers and whether and in
what amounts collected funds have been received on such Subscribers' accounts.
In addition, when the Company delivers a Subscriber's check to the Trustee, they
shall provide the Trustee with such Subscriber's name and mailing address.
3. Manner of Holding. The Trustee shall hold each Subscriber's funds,
distribute commissions and certificates as appropriate and transfer remaining
funds to the Company. The funds so held will not be invested in any money market
instruments or any similar short-term investments and will be made available to
the Company immediately. The Trustee shall exercise the reasonable
19
<PAGE>
care of a fiduciary in this circumstance and shall provide for the safekeeping
of the funds and the certificates.
4. Disbursement of Proceeds.
4.1 To the Company. Proceeds from accepted subscriptions may be
disbursed to the Company when all of the following conditions have been
met:
(a) the Trustee has received a certificate or certificates from
the Company certifying which subscriptions have been accepted by the
Company and the dollar amounts in which such subscriptions have been
accepted.
(b) the Trustee shall not have received notification from the
Company that the Offering has been withdrawn; and
(c) commissions shall have been paid out of the gross proceeds;
and
(d) the Company has not commenced a bankruptcy, or
re-organization.
4.2 Timing of Disbursement.
(a) Provided that the conditions set forth in Section 4.1 hereof
have been met, collected Proceeds shall be disbursed to the Company at
it's request, or (ii) December 15, 1996, which date may be extended at
the discretion of the Company until January 14, 1997.
4.3 To the Subscribers. The collected Proceeds shall be delivered to
the Subscribers on the occurence of any of the following events:
(a) The Trustee receives written notice from the Company that the
Offering has been withdrawn.
(b) The Trustee does not receive a certificate or certificates
form the Company by December 15, 1996, which date may be extended, at
the discretion of the Company until January 14, 1997.
(c) The Trustee shall distribute to the Subscriber the share
certificates upon completion of all requirements and conditions of 4.2
and the nonoccurrence of the envents of 4.3.
5. Withdrawal of the Offering. The Company may withdraw the Offering for
any reason and at any time prior to the disbursement of the Proceeds. If the
Offering is withdrawn, the Company shall so notify the Trustee. In the absence
of any such notification, the Trustee shall assume that the Offering has not
been withdrawn. Subscribers may not withdraw their subscription or Proceeds form
any person other than the Company.
6. Rejection of Subscriptions. The Company may reject any subscription in
whole or in part at any time and for any reason, and shall promptly notify the
Trustee of any such rejection. If the Company rejects any subscription or
portion thereof for which the Trustee has collected the funds, the Trustee shall
promptly remit the rejected amount together with any interest earned or
otherwise due thereon, to the rejected Subscriber.
7. Maintenance of Records. The Trustee shall maintain accurate records of
all transactions hereunder. Promptly after the termination of the agreement, the
Trustee shall provide the Company with a complete and accurate account of all
such transactions. The Company shall also have access to such books and records
relating to the Account at all reasonable times during normal business hours
upon reasonable notice to the Trustee.
20
<PAGE>
8. Dispute. If any dispute or difference arrises between the Company and
any third person (including any Subscriber) and if any conflicting demand shall
be made upon the Trustee, the Trustee shall not be required to determine the
same or take any action relating thereto. The Trustee may await settlement of
the controversy by final appropriate legal proceedings or otherwise as it may
require, or the Trustee may file suit in interpleader in the courts of the State
of Arizona, for the purpose of having the respective rights of the parties
adjudicated, and any deposit with the court any or all monies held hereunder.
Upon institution of such interpleader suit or other action, depositing such
money with the court and giving notice of such action to the parties involved
either by personal service, or in accordance with the order of the court, the
Trustee shall be fully released and discharged form all further obligations
hereunder with respect to the monies so deposited. The Company agrees to pay to
the Trustee any and all costs and reasonable attorney's fees incurred by the
Trustee in connection with such interpleader or other action and to indemnify
and hold and save the Trustee harmless from any and all loss, cost, damage or
liability hereunder not arising from the gross negligence or intentional
misconduct of the Trustee. Upon making any such payment, the Company will be
subrogated to the Trustee's right to judgment for such costs, damages, etc.,
against third persons to the extent permitted by law.
9. Compensation of Trustee. For all services rendered by the Trustee
hereunder, the Trustee shall be entitled to receive from the Company a fee of
$100,000.00 USD for the term of the agreement to December 15, 1996, and the
extension period, if matually extended, to January 14, 1997. In addition, the
Company shall reimburse the Trustee for any and all costs directly related to
the offering.
10. Resignation. The Trustee may resign at any time and be discharged from
its duties as Trustee hereunder by giving the other parties hereto at least
fifteen (15) days notice hereof. As soon as practicable after its resignation,
the Trustee shall turn over to the Company hereto all monies and property held
hereunder (less such amount as the Trustee is entitled to retain).
11. Consent to Service of Process. Each of the parties hereto irrevocably
consent to the jurisdiction of the courts of the State of Arizona and of any
federal court located in such state in connection with any action, suit or other
proceeding arising out of or relating to this agreement or any action taken or
omitted hereunder.
21
<PAGE>
12. Notices. All notices, requests, demands and other communication
provided for herein shall be in writing, shall be delivered by hand or by first
class mail, shall be deemed given when received and shall be addressed to the
parties hereto or the Subscribers at their respective addresses listed below or
to such other persons or addresses as the relevant party shall designate from
time to time in writing delivered in like manner:
If to the Company: If to the Trustee:
Dynamic Associates, Inc. Josepthal, Lyon & Ross, GMBH
7373 North Scottsdale Road, Suite B-150 Kaiserstabe 47
Scottsdale, Arizona 85253 609329 Frankfurt am Main
Germany
13. Miscellaneous.
13.1 Assignment: Binding Effect. This Agreement and the rights and
obligations of the parties hereunder may not be assigned without the
express written consent of the Trustee. This Agreement shall be binding
upon and insure to the benefit of each party's respective successors and
permitted assigns. No other person shall acquire or have any right under,
or by virtue of, this agreement. This Agreement may not be modified,
amended or supplemented without an express written agreement execute by the
Trustee and the other parties hereto.
13.2 Governing Law. This Agreement shall be governed by and construed
in acccordance with the laws of the State of Arizona.
13.3 Headings. The headings in the Agreement are for the purposed of
reference only and shall not limit or otherwise affect any of the terms
hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
DYNAMIC ASSOCIATES, INC. JOSEPTHAL, LYON & ROSS, GMBH
Company Trustee
Corporate Seal: Corporate Seal:
By: /s/ Jan Wallace By: /s/ Ed Henschel
Title: President Title: Geschattsfuhrer (President)
22
<PAGE>
Exhibit (21)
Subsidiaries of the Registrant
P & H Laboratories is a 50% owned subsidiary. It is a California
corporation and does business under the name of P & H Laboratories.
Microwave Medical Corp. is a 100% owned subsidiary. It is a California
corporation and does business under the name of Microwave Medical Corp.
Genesis Health Management Corporation is a 100% owned subsidiary. It is a
Louisiana corporation and does business under the name of Genesis Health
Management Corporation.
23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Dynamic
Associates, Inc. and Subsidiaries December 31, 1996 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,447,019
<SECURITIES> 8,600
<RECEIVABLES> 3,525,775
<ALLOWANCES> (759,925)
<INVENTORY> 717,827
<CURRENT-ASSETS> 7,462,806
<PP&E> 1,966,961
<DEPRECIATION> (1,541,761)
<TOTAL-ASSETS> 33,954,820
<CURRENT-LIABILITIES> 5,195,816
<BONDS> 14,504,000
0
0
<COMMON> 12,159
<OTHER-SE> 13,187,950
<TOTAL-LIABILITY-AND-EQUITY> 33,954,820
<SALES> 3,395,098
<TOTAL-REVENUES> 4,517,598
<CGS> 2,496,997
<TOTAL-COSTS> 5,890,531
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 269,403
<INCOME-PRETAX> (1,577,671)
<INCOME-TAX> (685,055)
<INCOME-CONTINUING> (1,372,933)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (956,821)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
