UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 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 issuer was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days [U] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding as of
Class March 31, 1998
$.001 par value Class A Common Stock 14,223,929 shares
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
BASIS OF PRESENTATION
General
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Form 10-QSB and, therefore, do not include all
information and footnotes necessary for a complete presentation of financial
position, results of operations, cash flows, and stockholders' equity in
conformity with generally accepted accounting principles. In the opinion of
management, all adjustments considered necessary for a fair presentation of the
results of operations and financial position have been included and all such
adjustments are of a normal recurring nature. Operating results for the three
months ended March 31, 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 operation of
psychiatric/geriatric units for various hospitals through Genesis and GCCA,
wholly owned subsidiaries.
Management anticipates that the spin-off of P&H and MMC will provide
the Company with a healthier cash flow as it will free the Company from carrying
the financial burden of funding MMC. The Company's focus will be directed to
furthering the growth of Genesis and GCCA. This will enable the Company to be
better positioned in the healthcare market place.
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
was a subsidiary 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. The distribution was completed on March 11,
1998 to shareholders of the Company of record on 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 decline in material asset
value of the Company resulted in the conversion price being lowered from $3.50
to $2.75. The notes mature September 16, 2006.
The businesses of P&H and MMC are summarized as follows:
(A) P&H Laboratories
P&H is engaged in the business of manufacturing various types
of devices utilizing microwave technology. The devices include
isolators, circulators, power monitor devices, filters,
diplexers, switching diplexers, multi-junction circulators,
microwave sub-systems and integrated packages and subsystems.
P&H also
<PAGE>
provides special engineering services to customers with
specific microwave technology requirements.
(B) Microwave Medical Corp.
MMC is in the business of developing proprietary technology
relating to the use of microwave energy for medical
applications. MMC has a patent pending entitled, "Method and
Apparatus for Treating Subcutaneous Histological Features"
which focuses on the application of microwave energy to the
treatment of spider veins and for use in hair removal. MMC has
no revenues and has not completed development of its
technology.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the Company had $911,161 in cash and cash equivalents. The
Company incurred a loss of $.02 per share after deducting $651,294 for
amortization of goodwill and depreciation. The cost of goodwill and debt cost
amortization is approximately $.05 per share. Cash flow generated from
operations was approximately $.03 per share.
Genesis, a Louisiana corporation, is a 100% owned subsidiary of the Company. It
provides elderly healthcare and gero-psychology services to small healthcare
facilities unable to provide these services in house. The Genesis treatment
program conforms to the guidelines of the JCAHO Accreditation Manual for
Hospitals and Medical Standards. The program is reimbursed at cost by Medicare
when established as a distinct part unit of a hospital which qualifies for an
exemption from the Medicare Prospective Payment System("PPS"). The PPS exemption
provides for a cost plus reimbursement system for the unit, which allows the
hospital to receive full reimbursement of the direct operating expenses, plus an
allocation to the unit of a substantial portion of the hospital's overall
overhead and capital costs. Genesis , together with GCCA, expects to generate a
profit.
RESULTS OF OPERATIONS
The financial statements present the activities of the Company, Genesis and
GCCA. Financial information on MMC and P&H has been omitted due to the spin-off
to MW Medical.
During the three months ended March 31, 1998, management fees of $45,000 were
paid compared to $90,000 for the same period in 1997. The Company's President
received $45,000 and the Company's Secretary/Treasurer received or was accrued
the amount of $32,867.
Net loss for the three months ended March 31, 1998 was $2,727,268 compared to a
loss of $335,838 for the same period in 1997. The net loss is $.19 per share for
the quarter. A charge for amortization of goodwill and depreciation of $651,294
was incurred in the period which represents $.05 per share. The Company
generated from operations a positive cash flow of $.03 per share. Net loss for
the period is due largely to the write off of debts of our former subsidiaries;
Microwave Medical Corp., and Microwave Medical GmBH.
Management fee income was $3,722,506 for the three months ended March 31, 1998
compared to $3,453,000 for the same period in 1997. This is a 7.8% increase from
1997.
<PAGE>
Net sales for the three months ended March 31, 1998 was $0, compared to $900,233
for the same period in 1997. Cost of sales for the three months ended March 31,
1998 was $0 compared to $658,147 for the same period in 1997. Due to the spin
off of P&H Laboratories on March 11, 1998 to MW Medical, Inc., the Company
currently only earns management fee income and no sales income.
Selling and general and administrative expenses for the three months ended March
31, 1998 were $3,112,905 compared to $2,591,979 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 three
months ended March 31, 1997 these costs were $203,620.
Depreciation and amortization expenses for the three months ended March 31, 1998
were $651,294 compared to $654,521 for the same period in 1997.
Interest expense for the three months ended March 31, 1998 were $472,115
compared to $489,277 for the same period in 1997. Interest expense is incurred
to the Convertible Note Holders of the Company.
PART II - OTHER INFORMATION
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 March 31, 1998, Genesis had 22 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 March 31, 1998, GCCA had 3
operating units. The financial statements at March 31, 1997 do not include any
income or expenses for GCCA as it was acquired late in the quarter.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
99-1 Financial Statements as of March 31, 1998
27 Financial Data Schedule
(b) Reports on Form 8-K
None
THIS SPACE INTENTIONALLY LEFT BLANK
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
DYNAMIC ASSOCIATES, INC.
DATED: May 20, 1998 /S/ Grace Sim
-------- -------------
Grace Sim, Secretary/Treasurer
<PAGE>
SMITH & COMPANY
A PROFESSIONAL CORPORATION OF
CERTIFIED PUBLIC ACCOUNTANTS
MEMBERS OF: 10 WEST 100 SOUTH, SUITE 700
AMERICAN INSTITUTE OF SALT LAKE CITY, UTAH 84101
CERTIFIED PUBLIC ACCOUNTANTS TELEPHONE: (801) 575-8297
UTAH ASSOCIATION OF FACSIMILE: (801) 575-8306
CERTIFIED PUBLIC ACCOUNTANTS E-MAIL: [email protected]
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholders
Dynamic Associates, Inc.
The accompanying balance sheet of Dynamic Associates, Inc. as of March 31, 1998,
and the related statements of operations, and cash flows for the three months
ended March 31, 1998 and 1997, and statement of shareholders' equity for the
three months ended March 31, 1998 were not audited by us and, accordingly, we do
not express an opinion on them.
/S/ Smith & Company
CERTIFIED PUBLIC ACCOUNTANTS
Salt Lake City, Utah
May 13, 1998
F-1
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
March 31,
1998
----------------------
ASSETS
CURRENT ASSETS
<S> <C>
Cash $ 911,161
Accounts receivable (less allowance for doubtful accounts of $1,580,050) 4,339,764
Other receivables 113,315
Prepaid expense and other current assets 33,445
Deferred Tax Benefit 300,000
----------------------
TOTAL CURRENT ASSETS 5,697,685
PROPERTY, PLANT & EQUIPMENT 314,564
OTHER ASSETS
Deferred debt issue costs (less amortization of $237,781) 1,481,076
Investment - restricted stock 15,000
Goodwill (less amortization of $3,354,040) 21,503,735
Deposits 410
----------------------
23,000,221
----------------------
$ 29,012,470
======================
LIABILITIES & EQUITY
CURRENT LIABILITIES
Accounts payable $ 317,349
Accrued expenses 578,349
Current portion of long-term debt 22,167
Income taxes payable 45,000
Accrued interest payable 349,346
----------------------
TOTAL CURRENT LIABILITIES 1,312,211
LONG-TERM DEBT 22,607
CONVERTIBLE NOTES 17,001,500
----------------------
17,024,107
----------------------
TOTAL LIABILITIES 18,336,318
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 (7,850,402)
----------------------
TOTAL STOCKHOLDERS' EQUITY 10,676,152
----------------------
$ 29,012,470
======================
</TABLE>
F-2
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
------------------ -----------------
<S> <C> <C>
Net sales $ 0 $ 900,233
Management fees 3,722,506 3,453,000
Cost of sales 0 658,147
------------------ -----------------
GROSS PROFIT 3,722,506 3,695,086
Selling and General & administrative expenses 3,112,905 2,591,979
Depreciation and amortization 651,294 654,521
Research and development 0 203,620
Bad debts 250,000 0
------------------ -----------------
4,014,199 3,450,120
------------------ -----------------
NET OPERATING INCOME (LOSS) (291,693) 244,966
OTHER INCOME (EXPENSE)
Interest income 9,653 23,587
Interest expense (472,115) (489,277)
Miscellaneous income 0 3,072
Bad debts - former subsidiaries (2,169,806) 0
Disposition of subsidiaries 256,493 0
Unrealized increase (decrease) in investment (14,800) 31,400
------------------ -----------------
(2,390,575) (431,218)
------------------ -----------------
NET (LOSS) BEFORE INCOME
TAXES AND MINORITY INTEREST (2,682,268) (186,252)
INCOME TAX EXPENSE 45,000 137,785
------------------ -----------------
NET (LOSS) BEFORE
MINORITY INTEREST (2,727,268) (324,037)
MINORITY INTEREST 0 11,801
------------------ -----------------
NET (LOSS) $ (2,727,268) $ (335,838)
================== =================
Net (loss) per weighted average share $ (.19) $ (.03)
================== =================
Weighted average number of common shares used to compute
net (loss) per weighted average share 14,068,373 12,353,511
================== =================
</TABLE>
F-3
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
Par Value $.001 Paid-In Retained
Shares Amount Capital Deficit
----------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Balances at 12/31/97 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 quarter (2,727,268)
----------------- ------------------ ------------------ -----------------
Balances at 3/31/98 14,223,929 $ 14,224 $ 18,512,330 $ (7,850,402)
================= ================== ================== =================
</TABLE>
F-4
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
1998 1997
------------------ -----------------
OPERATING ACTIVITIES
<S> <C> <C>
Net (loss) $ (2,727,268) $ (335,838)
Adjustments to reconcile net (loss) to cash used by operating
activities:
Depreciation and amortization 701,217 702,730
Minority interest 0 11,801
Book value of spun-off subsidiaries 1,743,312 0
Adjustment for Investment received as interest income 0 5,000
Unrealized change in investment 14,800 (31,400)
Deferred taxes 0 11,500
Changes in assets and liabilities:
Accounts receivable (707,697) (481,778)
Inventories 0 (3,537)
Prepaid expenses and other 5,983 (10,443)
Accounts payable and accrued expenses (356,467) (732,324)
Income taxes payable (208,328) 63,335
------------------ -----------------
NET CASH USED BY OPERATING ACTIVITIES (1,534,448) (800,954)
INVESTING ACTIVITIES
Loans to related parties and accrued interest 0 (12,445)
Loan - other (9,014) 0
Purchase of equipment (4,980) (137,004)
Deposits (11,496) (17,429)
Goodwill 0 (500,000)
Deferred debt issue costs 0 (340,356)
------------------ -----------------
NET CASH USED BY INVESTING ACTIVITIES (25,490) (1,007,234)
FINANCING ACTIVITIES
Cash from (to) subsidiaries (387,982) 41,518
Principal payments on debt (7,093) (3,169,149)
Proceeds from sale of common stock 250,000 317,000
Capital raising costs 0 (3,000)
Convertible note proceeds 0 3,811,000
------------------ -----------------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES (145,075) 997,369
------------------ -----------------
DECREASE IN CASH AND CASH EQUIVALENTS (1,705,013) (810,819)
Cash and cash equivalents at beginning of period 2,616,174 3,447,019
------------------ -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 911,161 $ 2,636,200
================== =================
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 864,838 $ 298,420
Cash paid for income taxes 253,768 62,950
</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-5
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
STATEMENT OF OPERATIONS
Quarter ended March 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Consolidated
Dynamic (1) Geriatric (2) Adjustments Pro Forma
--------------- --------------- --------------- ---------------
<S> <C> <C> <C>
Net Sales $ 900,233 $ 0 $ $ 900,233
Management fee income 3,453,000 244,125 3,697,125
Cost of sales 658,147 0 658,147
--------------- --------------- --------------- ---------------
GROSS PROFIT 3,695,086 244,125 3,939,211
Selling and general and administrative expenses 2,591,979 26,792 2,618,771
Depreciation and amortization 654,521 0 654,521
Research and development 203,620 0 203,620
--------------- --------------- --------------- ---------------
3,450,120 26,792 3,476,912
--------------- --------------- ---------------
NET OPERATING INCOME 244,966 217,333 462,299
OTHER INCOME (EXPENSE)
Interest income 23,587 0 23,587
Interest expense (489,277) 0 (489,277)
Miscellaneous income 3,072 0 3,072
Unrealized increase in investment 31,400 0 31,400
--------------- --------------- --------------- ---------------
(431,218) 0 (431,218)
--------------- --------------- ---------------
NET INCOME (LOSS) BEFORE INCOME
TAXES AND MINORITY INTEREST (186,252) 217,333 31,081
INCOME TAX EXPENSE 137,785 13,000 150,785
--------------- --------------- --------------- ---------------
NET INCOME (LOSS) BEFORE
MINORITY INTEREST (324,037) 204,333 (119,704)
MINORITY INTEREST 11,801 0 11,801
--------------- --------------- --------------- ---------------
NET INCOME (LOSS) $ (335,838) $ 204,333 $ $ (131,505)
=============== =============== =============== ===============
Net income (loss) per weighted average share $ (.03) $ (.01)
=============== ===============
Weighted average number of common shares
used to compute net income (loss) per weighted
average share 12,353,511 12,308,900
=============== ===============
</TABLE>
(1) Includes all subsidiaries except Geriatric which was acquired on March
14, 1997.
(2) Not included on page F-3 since acquisition was made late in the quarter.
F-6
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial
information extracted from Dynamic
Associates, Inc. and Subsidiary March 31,
1998 financial statements and is qualified in
its entirety by reference to such financial
statements
</LEGEND>
<CIK> 0000878146
<NAME> Dynamic Associates, Inc.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 911,161
<SECURITIES> 0
<RECEIVABLES> 5,919,814
<ALLOWANCES> (1,580,050)
<INVENTORY> 0
<CURRENT-ASSETS> 5,697,685
<PP&E> 429,706
<DEPRECIATION> (115,142)
<TOTAL-ASSETS> 29,012,470
<CURRENT-LIABILITIES> 1,312,211
<BONDS> 17,001,500
0
0
<COMMON> 14,224
<OTHER-SE> 10,661,928
<TOTAL-LIABILITY-AND-EQUITY> 29,012,470
<SALES> 3,722,506
<TOTAL-REVENUES> 3,722,506
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,014,199
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 472,115
<INCOME-PRETAX> (2,682,268)
<INCOME-TAX> 45,000
<INCOME-CONTINUING> (291,693)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,727,268)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> (.19)
</TABLE>
