UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1998
[ ] Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from to
Commission File Number 33-55254-03
DYNAMIC ASSOCIATES, INC.
(Exact name of Small Business Issuer as specified in its charter)
Nevada 87-0473323
(State or other jurisdiction of (IRS Employer
incorporation ) Identification No.)
7373 North Scottsdale Road, Suite B-169
Scottsdale, Arizona 85253
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (602) 483-8700
Indicate by a check mark whether the issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days [X] Yes [ ] No
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding as of June 30, 1998
- ------------------------------------ -------------------------------
$.001 par value Class A Common Stock 14,223,929 shares
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
BASIS OF PRESENTATION
General
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB and, therefore, do not include
all information and footnotes necessary for a complete presentation of financial
position, results of operations, cash flows, and stockholders' equity in
conformity with generally accepted accounting principles. In the opinion of
management, all adjustments considered necessary for a fair presentation of the
results of operations and financial position have been included and all such
adjustments are of a normal recurring nature. Operating results for the six
months ended June 30, 1998, are not necessarily indicative of the results that
can be expected for the year ending December 31, 1998.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The Company is engaged in managing the operations of
psychiatric/geriatric units for various hospitals through Genesis and GCCA, its
wholly owned subsidiaries.
The Company completed the spin-off of MW Medical, Inc. ("MW Medical" or
"MW") on March 11, 1998. MW Medical is the owner of P&H and MMC, each of which
were subsidiaries of the Company until completion of the spin-off. MW Medical is
a Nevada corporation incorporated on December 4, 1997. The Company distributed
to the shareholders, one common share of MW Medical for each common share of the
Company held by the shareholder as of the record date of February 25, 1998. No
consideration was paid by Dynamic shareholders for shares of MW Common Stock.
In 1997, the Company issued Convertible Notes in Reliance on Regulation
S to non U.S. persons. Each note is for $18,500.00 and bears interest at 10% per
annum and is convertible into common stock of the Company at $3.50 per share.
With the spin off of MMC and P&H March 11, 1998, the material asset value of the
Company resulted in the conversion price to be lowered from $3.50 to $2.75. The
notes mature September 16, 2006.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Company had $1,391,374 in cash and cash equivalents.
For the six months ending June 30, 1998 the Company generated a loss of $.20 per
share after deducting $1,403,154 for amortization of goodwill and debt costs and
depreciation. The Company also generated a $.10 per share profit on its income
from operations, excluding depreciation and amortization.
Genesis, a Louisiana corporation, is a 100% owned subsidiary of the Company. It
provides elderly healthcare and gero-psychology services to small healthcare
facilities unable to provide these services in house. The Genesis treatment
program conforms to the guidelines of the JCAHO Accreditation Manual for
Hospitals and Medical Standards. The program is reimbursed at cost by Medicare
when established as a distinct part unit of a hospital which qualifies for an
exemption from the Medicare Prospective Payment System("PPS"). The PPS exemption
provides for a cost plus reimbursement system for the unit, which allows the
hospital to receive full reimbursement
<PAGE>
of the direct operating expenses, plus an allocation to the unit of a
substantial portion of the hospital's overall overhead and capital costs.
Genesis , together with GCCA, expects to generate a profit.
RESULTS OF OPERATIONS
The financial statements present the combined activities of the Company, Genesis
and GCCA.
During the six months ended June 30, 1998, management fees of $171,266 were paid
compared to $190,000 for the same period in 1997. The Company's President
received $90,000 and the Company's Secretary/Treasurer received $56,266 and
$25,000 was paid in management fees to an outside firm.
Net loss for the six months ended June 30, 1998 was $686,306, before deducting
the debts owed by its former subsidiaries, compared to a loss of $767,128 for
the same period in 1997. With the spin off of its former subsidiaries, Microwave
Medical Corp. and P&H Laboratories, Inc. on March 11, 1998, the Company also
wrote- off debts of $2,169,806 incurred by these subsidiaries to the Company. A
charge for amortization of goodwill and debt cost and depreciation of $1,403,154
was incurred in the period which represents $.10 per share.
Management fee income was $7,764,230 for the six months ended June 30,
1998 compared to $7,109,400 for the same period in 1997. This is a 9.2% increase
from 1997.
Net sales for the six months ended June 30, 1998 were $0, compared to
$1,767,803 for the same period in 1997. Cost of sales for the six months ended
June 30, 1998 were $0 compared to $1,313,464 for the same period in 1997. Since
the spin off of P&H Laboratories on March 11, 1998 to MW Medical, Inc., the
Company's sole revenue is from management fee income.
Selling and general and administrative expenses for the six months
ended June 30, 1998 were $5,586,061 compared to $5,399,845 for the same period
in 1997.
Research and development expenses incurred by the former subsidiaries,
Microwave Medical Corp. and Microwave Medical GmBH are no longer included in the
financials of the Company, since the spin off of March 11, 1998. For the six
months ended June 30, 1997 these costs were $433,105.
Depreciation and amortization expenses for the six months ended June
30, 1998 were $1,303,308 compared to $1,328,576 for the same period in 1997.
Interest expense for the six months ended June 30, 1998 was $947,305
compared to $1,002,934 for the same period in 1997. Interest expense is incurred
to the Convertible Note Holders of the Company and includes $99,846 of amortized
debt issue costs.
Net loss for the three months ended June 30, 1998 was $128,844 compared to a
loss of $431,290 for the same period in 1997. The net loss is $.01 per share for
the quarter. A charge for amortization of goodwill and debt cost and
depreciation of $701,937 was incurred in the period which represents $.05 per
share.
Management fee income for the three months ended June 30, 1998 was $4,041,724
compared to $3,656,400 for the same period in 1997. This reflects a 10.5%
increase from 1997. There was no sales income nor cost of sales for 1998 due to
the spin-off.
<PAGE>
Selling and general and administrative expenses for the three months ended June
30, 1998 were $2,473,156 compared to $2,807,866 for the same period in 1997. The
decrease is due to the reduced number of subsidiaries owned in 1998.
Depreciation and amortization expenses for the three months ended June 30, 1998
were $652,014 compared to $674,055 for the same period in 1997.
Interest expense for the three months ended June 30, 1998 was $475,190 compared
with $513,657 for the same period in 1997. This decrease is due to the
conversion to stock of some of the convertible notes.
Item 5. Other Information.
Genesis Health Management Corporation (Genesis)
In December 1996, the Company purchased 100% of the outstanding common stock of
Genesis for $25,373,000. Of the purchase price, $15,050,000 was paid in cash or
notes and accounts payable and $10,323,000 was paid by issuing 3,100,000 shares
of the Common Stock of the Company at a value of $3.33 per share. The note
issued in connection with the acquisition of Genesis was paid in full on March
3, 1997. Genesis had been operating in Louisiana for 3 years prior to the
purchase by the Company. Genesis is in the business of managing and operating
psychiatric/geriatric units in various hospitals (both in-patient and
out-patient). At June 30, 1998, Genesis had 25 contracted units. Genesis has
contracts with hospitals in the states of Louisiana, Arkansas, Mississippi and
Tennessee.
Geriatric Care Centers of America, Inc. (GCCA)
On March 13, 1997, Geriatric Care Centers of America ("Geriatric"), a
corporation organized pursuant to the laws of the state of Tennessee, merged
with Geriatric Care Centers Acquisition Corporation, for $500,000 in cash and
150,000 shares of Common Stock of the Company. The surviving corporation is
Geriatric Care Centers of America, Inc. ("GCCA"), with its registered office at
1613 Jimmie Davis Highway, Bossier City, Louisiana, 71112. The Company owns 100%
of GCCA. GCCA is also in the business of managing and operating
psychiatric/geriatric units in hospitals. At June 30, 1998, GCCA had 3 operating
units.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
99-1 Financial Statements as of June 30, 1998
Financial Data Schedule
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATED: 17 August 1998 /S/Jan Wallace
Jan Wallace, President, C.E.O.
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
June 30,
1998
----------------------
ASSETS
CURRENT ASSETS
<S> <C>
Cash $ 1,391,374
Accounts receivable (less allowance for doubtful accounts of $2,065,050) 4,844,887
Other receivables 114,193
Prepaid expense and other current assets 33,802
Deferred Tax Benefit 300,000
----------------------
TOTAL CURRENT ASSETS 6,684,256
PROPERTY, PLANT & EQUIPMENT 300,656
OTHER ASSETS
Deferred debt issue costs (less amortization of $287,704) 1,431,153
Investment - restricted stock 27,000
Goodwill (less amortization of $3,990,360) 20,867,415
Deposits 410
----------------------
22,325,978
----------------------
$ 29,310,890
======================
LIABILITIES & EQUITY
CURRENT LIABILITIES
Accounts payable $ 309,495
Accrued expenses 615,635
Current portion of long-term debt 20,090
Income taxes payable 26,800
Accrued interest payable 773,361
----------------------
TOTAL CURRENT LIABILITIES 1,745,381
LONG-TERM DEBT 16,701
CONVERTIBLE NOTES 17,001,500
17,018,201
----------------------
TOTAL LIABILITIES 18,763,582
STOCKHOLDERS' EQUITY
Common stock $.001 par value:
Authorized - 25,000,000 shares
Issued and outstanding 14,223,929 shares 14,224
Additional paid-in capital 18,512,330
Retained deficit (7,979,246)
----------------------
TOTAL STOCKHOLDERS' EQUITY 10,547,308
----------------------
$ 29,310,890
======================
</TABLE>
F-1
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Sales $ 0 $ 867,570 $ 0 $ 1,767,803
Management fees 4,041,724 3,656,400 7,764,230 7,109,400
Cost of sales 0 655,317 0 1,313,464
------------- ------------- ------------- -------------
GROSS PROFIT 4,041,724 3,868,653 7,764,230 7,563,739
Selling and General administrative expenses 2,473,156 2,807,866 5,586,061 5,399,845
Depreciation and amortization 652,014 674,055 1,303,308 1,328,576
Research and development 0 229,485 0 433,105
Bad debts 485,000 0 735,000 0
------------- ------------- ------------- -------------
3,610,170 3,711,406 7,624,369 7,161,526
------------- ------------- ------------- -------------
NET OPERATING INCOME 431,554 157,247 139,861 402,213
OTHER INCOME (EXPENSE)
Interest income 4,342 51,486 13,995 75,073
Interest expense (475,190) (513,657) (947,305) (1,002,934)
Miscellaneous income 0 974 0 4,046
Bad debts - former subsidiaries 0 0 (2,169,806) 0
Disposition of subsidiaries 0 0 256,493 0
Unrealized change in investment 12,000 (49,375) (2,800) (17,975)
Loss on disposition 0 (2,138) 0 (2,138)
------------- ------------- ------------- -------------
(458,848) (512,710) (2,849,423) (943,928)
------------- ------------- ------------- -------------
NET INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST (27,294) (355,463) (2,709,562) (541,715)
INCOME TAX EXPENSE 101,550 64,001 146,550 201,786
------------- ------------- ------------- -------------
NET INCOME (LOSS) BEFORE
MINORITY INTEREST (128,844) (419,464) (2,856,112) (743,501)
MINORITY INTEREST 0 11,826 0 23,627
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ (128,844) $ (431,290) $ (2,856,112) $ (767,128)
============= ============= ============= =============
Net income (loss) per weighted
average share $ (.01) $ (.03) $ (.20) $ (.06)
============= ============= ============= =============
Weighted average number of common
shares used to compute net income
(loss) per weighted average share 14,223,929 12,747,312 14,146,581 12,551,444
============= ============= ============= =============
</TABLE>
F-2
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
Par Value $.001 Paid-In Retained
Shares Amount Capital Deficit
----------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Balances at 12/31/97 13,973,929 $ 13,974 $ 18,262,580 $ (5,123,134)
Sale of common stock (S-8)
at $1.00 per share 250,000 250 249,750
Net loss for period (2,856,112)
----------------- ------------------ ------------------ -----------------
Balances at 6/30/98 14,223,929 $ 14,224 $ 18,512,330 $ (7,979,246)
================= ================== ================== =================
</TABLE>
F-3
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
----------------- -----------------
OPERATING ACTIVITIES
<S> <C> <C>
Net (loss) $ (2,856,112) $ (767,128)
Adjustments to reconcile net (loss) to cash (used) by operating activities:
Depreciation & amortization 1,403,154 1,424,995
Net book value of assets sold` 0 2,138
Book value of spun-off subsidiaries 1,743,312 0
Bad debts 735,000 0
Adjustment for investment received as interest income 0 (35,000)
Unrealized change in investment 2,800 37,975
Minority interest 0 23,627
Deferred income tax 0 (500)
Changes in assets and liabilities:
Accounts receivable (1,947,820) (725,562)
Inventories 0 (27,345)
Prepaid expenses 5,626 (4,869)
Accounts payable and accrued expenses 96,980 (252,093)
Income taxes payable (226,528) 70,863
Deposits 0 20,000
----------------- -----------------
NET CASH (USED) BY OPERATING ACTIVITIES (1,043,588) (232,899)
INVESTING ACTIVITIES
Loans to related party and accrued interest 0 60,980
Loan - other (9,892) 0
Purchase of equipment (6,766) (236,437)
Deposits (11,496) (80,598)
Goodwill 0 (500,000)
Deferred debt issue costs 0 (340,356)
Refund of option 0 0
Purchase of subsidiary 0 0
----------------- -----------------
NET CASH (USED) BY INVESTING ACTIVITIES (28,154) (1,096,411)
FINANCING ACTIVITIES
Cash from (to) subsidiaries (387,982) 41,518
Principal payments on debt (15,076) (3,262,904)
Capital raising costs 0 (3,000)
Convertible note proceeds 0 3,996,000
Proceeds from sale of common stock 250,000 546,500
----------------- -----------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (153,058) 1,318,114
----------------- -----------------
(DECREASE) IN CASH AND CASH EQUIVALENTS (1,224,800) (11,196)
Cash and cash equivalents at beginning of year 2,616,174 3,447,019
----------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,391,374 $ 3,435,823
================= =================
SUPPLEMENTAL INFORMATION Cash paid for:
Interest $ 866,089 $ 302,735
Income taxes 253,878 131,452
</TABLE>
During 1997, the Company issued 150,000 shares of its restricted common stock as
part of the acquisition of GCCA. The transaction has been recorded at $300,000.
During 1998, the Company purchased a vehicle in the amount of $16,943 by
incurring a loan in the same amount.
F-4
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
STATEMENT OF OPERATIONS
Six months ended June 30, 1997
<TABLE>
<CAPTION>
Pro Forma Consolidated
Dynamic Geriatric (1) Adjustments Pro Forma
--------------- --------------- --------------- ---------------
<S> <C> <C> <C>
Net Sales $ 1,767,803 $ 0 $ $ 1,767,803
Management fee income 7,109,400 244,125 7,353,525
Cost of sales 1,313,464 0 1,313,464
--------------- --------------- --------------- ---------------
GROSS PROFIT 7,563,739 244,125 7,807,864
Selling and general and administrative expenses 5,399,845 26,792 5,426,637
Depreciation and amortization 1,328,576 0 1,328,576
Research and development 433,105 0 433,105
--------------- --------------- --------------- ---------------
7,161,526 26,792 7,188,318
--------------- --------------- ---------------
NET OPERATING INCOME 402,213 217,333 619,546
OTHER INCOME (EXPENSE)
Interest income 75,073 0 75,073
Interest expense (1,002,934) 0 (1,002,934)
Miscellaneous income 4,046 0 4,046
Unrealized decline in investment (17,975) 0 (17,975)
Loss on disposition (2,138) 0 (2,138)
--------------- --------------- --------------- ---------------
(943,928) 0 (943,928)
--------------- --------------- ---------------
NET INCOME (LOSS) BEFORE INCOME
TAXES AND MINORITY INTEREST (541,715) 217,333 (324,382)
INCOME TAX EXPENSE 201,786 13,000 214,786
--------------- --------------- --------------- ---------------
NET INCOME (LOSS) BEFORE
MINORITY INTEREST (743,501) 204,333 (539,168)
MINORITY INTEREST 23,627 0 23,627
--------------- --------------- --------------- ---------------
NET INCOME (LOSS) $ (767,128) $ 204,333 $ $ (562,795)
=============== =============== =============== ===============
Net income (loss) per weighted average share $ (.06) $ (.04)
=============== ===============
Weighted average number of common shares
used to compute net income (loss) per weighted
average share 12,551,444 12,551,444
=============== ===============
</TABLE>
(1) First quarter activity
F-5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Dynamic Associates, Inc. and Subsidiaries June 30, 1998 financial
statements and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000878146
<NAME> Dynamic Associates
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,391,374
<SECURITIES> 0
<RECEIVABLES> 6,909,937
<ALLOWANCES> (2,065,050)
<INVENTORY> 0
<CURRENT-ASSETS> 6,684,256
<PP&E> 431,492
<DEPRECIATION> (130,836)
<TOTAL-ASSETS> 29,310,890
<CURRENT-LIABILITIES> 1,745,381
<BONDS> 0
0
0
<COMMON> 14,224
<OTHER-SE> 10,533,084
<TOTAL-LIABILITY-AND-EQUITY> 29,310,890
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,624,369
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 947,305
<INCOME-PRETAX> (2,709,562)
<INCOME-TAX> 146,550
<INCOME-CONTINUING> 139,861
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,856,112)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
</TABLE>
