SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10KSB
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
[ ] 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.
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(Exact name of Registrant as specified in its charter)
NEVADA 87-0473323
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
7373 NORTH SCOTTSDALE ROAD, SUITE B169
SCOTTSDALE, ARIZONA 85253
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (602) 483-8700
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Securities registered pursuant to Section 12(b) of the Act: NONE
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Securities registered pursuant to Section 12 (g) of the Act: NONE
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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 require-
ments for the past 90 days. [ ] Yes [ X ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (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-K
or any amendment to this Form 10-K. [ ]
As of December 31, 1997, the estimated market value of the voting stock held by
non-affiliates of the registrant, based upon an estimate of the market price at
$1.50, was $20,960,893.
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 31,1997
$.001 PAR VALUE CLASS A COMMON STOCK 13,973,929 SHARES
<PAGE>
PART I
ITEM 1. 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. As of December 31, 1997, the Company has full
ownership in a microwave research and production company ("P&H") and has
another subsidiary, Microwave Medical Corp., that utilizes microwave technology
for various medical treatments. The Company also operates a health care
management company, specializing in geriatric and psychiatric care, through its
other wholly owned subsidiaries, Genesis Health Management Corporation
("Genesis") and Geriatric Care Centers of America ("GCCA").
The Company's executive offices are presently located at 7373 North
Scottsdale Road, Suite B169, Scottsdale, Arizona 85253, its telephone number at
this location is (602) 483-8700 and the telefax number is (602) 443-1235.
DYNAMIC ASSOCIATES EVOLUTION
Harry Moll, Jan Wallace and David Hunter acquired controlling interest in
Dynamic Associates, Inc. August 30, 1995 with the intent of acquiring a viable
business. Jan Wallace is the current President and a Director, Grace Sim is the
Secretary/Treasurer, Dr. Rainer Marquart, William H. Means, Jr., Florian Homm
and Elliot Smith are Directors.
MICROWAVE MEDICAL CORPORATION
Management determined that it had expertise in the medical field and during
discussions with Microthermia Technology, Inc. ("MTI"), a California
corporation, a licensing agreement was executed to provide for the development
of microwave-based medical therapies for Telangetasia, or spider veins, through
MMC. The Company will also develop other treatments for certain vascular
conditions. MMC also has a German subsidiary, Microwave Medical, GmBH, formed
in late 1997.
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 $1,000,000.00, and has an exclusive two year option to acquire the
remaining 50% for $1,000,000.00. On September 26, 1997, the remaining 50% was
purchased with restricted shares. P&H Laboratories is a modern microwave
<PAGE>
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 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 of Bossier City,
Louisiana, for $15,000,000.00, and 3,000,000 common shares of stock of the
Company. The final agreement provided that the Company pay $12,000,000.00,
issue a Promissory Note for $3,000,000.00 and issue 3,000,000 shares of common
stock of the Company. 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).
GERIATRIC CARE CENTERS OF AMERICA, INC.
On March 13, 1997, Geriatric Care Centers of America ("Geriatric"), a
Tennessee corporation, merged with Geriatric Care Centers Acquisition
Corporation in exchange 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., which has registered offices 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 hospital. At December
31, 1997, GCCA had 4 operating units.
NARRATIVE DESCRIPTION OF BUSINESS
Dynamic's wholly-owned subsidiary, Microwave Medical Corporation ("MMC"),
formerly Microthermia Acquisition Corporation, entered into a license agreement
with Microthermia Technology, Inc. (of California), whereby MMC obtained an
exclusive license to develop and manufacture medical device products related to
the treatment of spider veins (telangiectasia). The license is for an initial
period of two years with automatic one year renewals for the next eight years,
at no cost (total license period of 10 years). The license is prepaid for the
first two years; however, MMC does not intend to use this technology at the
present time. MMC is independently developing a platform of proprietary and
patentable microwave technologies for the treatment of various medical
conditions. MMC is currently testing a platform of proprietary and patentable
microwave technologies for the treatment of various medical conditions. MMC is
currently testing and evaluating microwave equipment it has developed for the
<PAGE>
permanent removal of hair and a second device to be used for the treatment of
spider veins ("telangiectasia").
MMC has also patented a microwave therapy system to treat Telangiectasia,
or, spider veins. These are thread-like red-to-purplish veins that stem from a
network of small veins just below the surface of the skin. Spider veins develop
more predominately on the legs and faces of women. These are usually caused by
the female hormone estrogen. At this time surgery, laser and injection
("sclerotherapy") are the predominant treatments for the condition. MMC is also
developing a patent-pending microwave therapy system for use in permanent hair
removal.
The objective of MMC is to develop 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.
The use of microwave for hair removal is based upon the selective heating
of hair follicles while cooling the surface of the skin to protect the
epidermis. MMC has used computer modeling and laboratory studies to optimize
the system for hair removal. Preclinical studies have shown effectiveness in
destroying follicles while maintaining the integrity of the skin surface. MMC's
microwave system for hair removal is now in Phase II clinical trials.
Laboratory studies at MMC have been shown that spider veins selectively
absorb microwave energy, and preclinical studies have verified the ability to
thrombose small veins. Clinical studies are expected to begin within a two
month time frame.
P&H has been engaged since its inception in Military Standard and
Aerospace programs for various types of devices utilizing microwave technology.
The devices include isolators, circulators, power monitor devices, filters,
diplexers, switching diplexers, multi-junction circulators, microwave subsystems
and integrated packages and subsystems. Devices of these types have been
built in both waveguide, microstrip and coaxial configurations, and operate in
frequency ranges from 50 MHZ to 110 Ghz. The primary focus of the technical
expertise at P&H is in microwave ferrite and filter components.
P&H Laboratories also provides special engineering services to customers
with specific needs. 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 includes the
thin film processing, top assembly, production testing and tuning and subsystems
integration, wire bonding environmental test and packaging.
P&H Laboratories 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
<PAGE>
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.
Using existing procedures detailed above P&H also provides special
engineering services to customers with specific needs. P&H will be able to
provide MMC 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
includes the thin film processing, top assembly, production testing and tuning
and subsystems integration, wire bonding environmental test and packaging.
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. Genesis
manages these geriatric psychiatric units through Genesis Health Management
Corporation and Geriatric Care Centers of America, Inc. Gero-psych treatment
is primarily geared to low-functioning patients requiring only medication
management and patients without medical complications. Elderly people
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. 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 treatment 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
<PAGE>
Accreditation Manual for Hospitals and Medicare 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. 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.
Geriatric Care Centers of America, Inc., is a subsidiary of Genesis which
has registered offices at 1613 Jimmie Davis Highway, Bossier City, Louisiana,
71112. GCCA is also in the business of managing and operating psychiatric/
geriatric units in hospital. At December 31, 1997, GCCA had 4 operating units.
SPIN OFF
The Company has formed a separate Nevada corporation, MW Medical, and is
contemplating a spin off arrangement whereby the assets of MMC will be spun off
to the new Nevada corporation.
An Information Statement has been furnished in connection with the
distribution to holders of common stock of Dynamic of all of the outstanding
shares of common stock, $0.001 par value per share of MW Medical, Inc. pursuant
to the terms of a Contribution Agreement, Plan and Agreement of Reorganization
and Distribution between Dynamic and the Company, to be dated as of March 11,
1998 ("Contribution Agreement"). Upon the effectiveness of the Distribution,
MW Medical will own the microwave technologies businesses currently owned by
Dynamic and separately managed as Microwave Medical Corporation and P&H
Laboratories, Inc. Shares of Company Common Stock will be distributed to
holders of Dynamic common stock of record as of the close of business on
February 25, 1998. Each such holder will receive one share of Company Common
Stock for every one share of Dynamic common stock held on the Record Date. The
Distribution is scheduled to occur at 12:01 a.m. on March 11, 1998 (the
"Distribution Date"). No consideration will be paid by Dynamic shareholders for
shares of Company Common Stock. There is no current trading market for Company
Common Stock, although a market is expected to develop subsequent to the
Distribution Date. Application will be made for listing the shares on the
National Association of Securities Dealers Automated Quotations System (NASDAQ),
as a Bulletin Board Company security. No shareholder approval is required and
non is sought.
ITEM 2. Properties
DYNAMIC ASSOCIATES
Dynamic is headquartered in leased office premises at 7373 North Scottsdale
Road, Suite B169, Scottsdale, Arizona 85253. The lease arrangement is for
three years. The Company owns no other property.
MICROWAVE MANAGEMENT COMPANY
<PAGE>
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.
P & H LABORATORIES, INC.
P&H Laboratories, Inc., ("P&H") is a fifteen year old company with forty-
eight employees in an 18,000 square foot facility in Simi Valley, California.
The Company has no ownership interest in the property of P&H and is a 100% owner
of the corporation, controlling all 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. The business is ongoing and certain
financial information is provided under Item 7.
GERIATRIC CARE CENTERS OF AMERICA
The head office for GCCA is located within the offices of Genesis at 1613
Jimmie Davis Highway, Suite No. 1, Bossier City, Louisiana, 71112. GCCA is also
in the business of managing and operating geriatric and psychiatric units,
mostly in hospitals situated in Tennessee.
ITEM 3. Legal Proceedings.
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.
At the Annual Shareholders Meeting, the following items were voted and
approved: (1) the Directors are to serve for a one year period (2) The Articles
of Incorporation were amended to provide for indemnification of the Officers,
Directors and Agents of the Company to the fullest extent under Nevada Law (3)
The 1997 Stock Option Plan, which cancelled in December 1997 (4) the appointment
of Smith & Company as the independent auditor of the Company (5) the new
Bylaws of the Company.
No other matter was submitted to the Company's security holders for a vote
during the fiscal year ending December 31, 1997.
<PAGE>
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
<TABLE>
<CAPTION>
High Sales Price Low Sales Price
<S> <C> <C>
1997 First Quarter 4.38 2.69
Second Quarter 3.93 2.06
Third Quarter 4.50 2.38
Fourth Quarter 2.63 1.00
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
</TABLE>
As of December 31, 1997 there were 409 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 of Financial Condition and
Results of Operation.
During the year the Company sold 1,022,600 shares of S-8 stock at $1.00
per share, issued 150,000 shares of restricted stock at $2.00 per share in
connection with the Geriatric Care Centers of America, Inc. acquisition, issued
428,142 shares of Regulation S stock to retire debt of $1,498,500 and issued
214,287 shares of restricted stock at $3.50 per share for the remaining 50% of
P&H.
The Company issued 784 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.
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
<PAGE>
covers the years 1995 through 1997, 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 interest payments to the investors of 10% of the total
invested semi-annually until the Notes are either converted or redeemed.
During 1997 the Company exercised the option to purchase the remaining 50%
interest in P&H. The original option to purchase the interest for $1,000,000
was modified to $750,000 and was exercised by issuing 214,287 shares of
restricted stock at an agreed value of $3.50 per share.
During 1997 the Company accepted 507,971 shares of restricted common stock
of Claire Technologies, Inc. as payment in full for $409,447 in principal and
interest due from Claire. Claire has some of the same Officers and Directors of
the Company.
During 1997 the Company fully paid a loan of $3,000,000 due to the former
owners of Genesis. The final payment was made March 3, 1997. The Company also
paid $150,000 to a bank January, 1997. Also during 1997 the Company took out an
additional bank loan with a balance as of December 1997 of $347,303. This loan
is payable monthly with interest only to be paid until May 1998. As of December
31, 1997 P& H was not in compliance under the covenants of the loan. On
March 2, 1998 the bank waived such events of noncompliance.
GENESIS HEALTH MANAGEMENT CORP.
The consolidated financial statements for 1997 include the accounts of the
Company; its wholly owned subsidiaries, MMC and MMC's Germany based subsidiary
Microwave Medical GmBH ("GmBH"), which was formed in late 1997, Genesis, GCCA,
which was acquired in March of 1997, and P & H. The statement of operations for
1997 includes the operations of GCCA for the last three quarters of 1997. The
consolidated financial statements for 1996 include the accounts of the Company;
its wholly owned subsidiaries, MMC (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. The Company acquired the remaining
50% of P & H in 1997.
All significant intercompany balances and transactions have been eliminated
in the consolidation.
<PAGE>
GHMC manages and operates 22 geriatric and psychiatric units in various
hospitals on both an in-patient and out-patient basis. The Gross Profit (sales
and management fees less cost of sales) for the year ended December 31, 1997 was
$15,342,457 resulting in an operating loss of $428,003 for the year end. As
detailed in the financial statements, additional expenses caused the net loss
before income taxes and minority interest to be $2,738,168 for the year versus a
loss of $1,577,671 for the previous year. After factoring in the income tax
expense the net loss increased to $3,545,846.
Net Sales decreased from $3,723,013 in 1995 to $3,395,098 in 1996 to
$3,382,388 in 1997. Management Fees increased from $1,122,500 to $14,619,951 in
1997. The cost of sales increased from $2,496,997 to $2,659,882. This was a
result of higher product costs incurred by P&H.
GROSS PROFIT. Gross Profit rose to $15,342,457 in 1997 from $2,020,601 in
1996. The gross profit increase was the result of the acquisition of Genesis
and GCCA.
RESEARCH AND DEVELOPMENT. For P&H, Research and development is paid for by
customers in the form of "non-recurring engineering" or "development".
Consequently, all research and development costs for P&H are expensed to "cost
of goods sold". Research and development costs for Gmbh and MMC are listed
separately in the statement of operations.
SALES, GENERAL AND ADMINISTRATION EXPENSES. The sales, general and
administrative expenses increased to $11,342,457 in 1997 from $2,474,457 in
1996. This increase is attributed to the acquisitions of Genesis and GCCA.
OTHER INCOME/EXPENSE. The Company reported net interest/expense income,
miscellaneous income, loss on disposal of equipment and unrealized decline in
investment of $2,310,165 for 1997, compared to $204,738 for 1996. This is due
primarily to the increase in the interest expense to service the convertible
note used for the acquisition of Genesis.
LIQUIDITY AND CAPITAL RESOURCES. Working capital at December 31, 1997 was
$5,760,748 compared to $2,266,990 at December 31, 1996. The increase relates
mainly to the profitability of Genesis and GCCA and additional convertible note
proceeds.
Genesis and GCCA are now the only subsidiaries in Dynamic. Genesis and
GCCA has always been able to meet cash requirements from operations. The added
bonus is that the Company will no longer carry a financial burden of funding
through Dynamic to its Microwave development subsidiary, MMC since the spin off
on February 25, 1998. MMC and P&H will be funded through the new Nevada
corporation, MW Medical, Inc.
ITEM 7. Financial Statements and Supplementary Data.
See Item 13.
<PAGE>
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 and Executive Officers of the Registrant.
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.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Jan Wallace 41 President, Director
Grace Sim 37 Secretary-Treasurer
Florian Homm 37 Director
Dr. Rainer Marquart 71 Director
William H. Means, Jr. 42 Director
Elliot Smith 64 Director
</TABLE>
Jan Wallace (age 41) is a Director, President and Chief Operating 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
Operating 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.
Grace Sim (age 37) has been Secretary-Treasurer of the Company since October 10,
1997. Ms. Sim joined Dynamic in January 1997. Prior to joining Dynamic, Ms. Sim
owned an accounting consulting company in Ottawa, Ontario, Canada. Ms. Sim
received her Bachelor of Mathematics with honors from the University of Waterloo
in Waterloo, Ontario. She is also an Officer in Claire Technologies, Inc., a
company which file annual reports pursuant to the Securities Exchange Act of
<PAGE>
1934.
William H. Means, Jr. (age 42) is Executive Vice President. 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.
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
Bar 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 public companies, has
received several investment awards and has published extensively on a wide range
of financial topics.
Dr. Rainer Marquart (age 71) is a Director of the Company and President of
Microwave Medical Corporation. Dr. Marquart was previously Member of the Board
of the second biggest PC Retail company in Europe and was responsible for $600
million in sales. Prior to that, he ran a consulting company with offices in
Munich, Zurich and Vienna. This company specialized in reorganization of
medium-sized companies and start-up management. Dr. Marquart was also a manager
with the Boston Consulting Group for 4 years. Dr. Marquart obtained a Ph.D. in
Chemical Engineering from the Technical University in Darmstadt, Germany.
Elliot Smith (age 64) is a Director of the Company. Mr. Smith began his career
with Prudential Securities in 1954 as a Registered Representative in the
Syracuse, New York, office. By 1966, Mr. Smith was appointed Resident Manager
of the firm's largest office in New York City. He was named Manager, Marketing
& Sales Division at the Home Office in New York City in 1969, and in 1970, was
elected First Vice President and National Sales Manager. In 1973, Mr. Smith was
elected to the Board of Directors of Bache & Company, Inc. In 1977, he was
<PAGE>
named Senior Officer of Commodity Division and Metal Company and in 1980, was
elected President of Bache Haley Stuart metal Company, Inc. In 1983, after
leaving Prudential, Mr. Smith served as Executive Vice President at R. Lewis
Securities, Inc., located in New York City, and from 1984 to 1995 was President
of Whale Securities Company, L.P., also located in New York City. Mr. Smith is
also on the Boards of Pennington School and Jillians Corporation. Mr. Smith is
a former Member and Director of the Chicago Board of Options Exchange; Governor
of the American Stock Exchange (AMEX); Governor and Chairman of the AMEX
Commodities Exchange; Director and Member of the Executive Committee of the
Securities Industry Automation Corp.; and Past President of the Association
of Investment Brokers.
ITEM 10. Executive Compensation.
<TABLE>
<CAPTION>
Annual Compensation Table
Annual Compensation Long Term Compensation
Other Restricted LTIP All
Annual Stock Options/* pay- Other
Name Title Year Salary Bonus Comp. Awarded SARs(#) outs($) Comp.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Jan
Wallace President, 1997 $120,000 $ 0 0 0 150,000 0 0
CEO,
Director
Grace
Sim Secretary/ 1997 $96,000 $ 0 0 0 0 0 0
Treasurer
Florian
Homm Director 1997 $ 0 $ 0 0 0 200,000 0 0
Elliot
Smith Director 1997 $ 0 $ 0 0 0 0 0 0
William
H. Means
Jr. Director 1997 $120,000 $ 0 0 0 0 0 0
Dr. Rainer
Marquart Director 1997 $0 $ 0 0 0 0 0 0
</TABLE>
All of the foregoing amounts are estimates based upon the Company's
internal forecast and budget. There can be no assurance that the amounts of
compensation actually paid, or the persons to whom it is paid, will not differ
materially from the above estimates.
*Options
The following options were granted to directors and officers of the
Company. The options
<PAGE>
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.
<TABLE>
<CAPTION>
Date Date Number Expiration Date
Granted Issued
<S> <C> <C> <C> <C>
Jan Wallace 4/9/96 4/9/96 150,000 4/9/99
Logan Anderson 4/9/96 4/9/96 150,000 4/9/99
Logan Anderson 4/9/96 10/4/96 255,000 10/4/99
Florian Homm 4/9/96 4/9/96 100,000 4/9/99
Florian Homm 4/9/96 9/16/96 100,000 9/16/99
Herb Capozzi 4/9/96 4/9/96 100,000 4/9/99
Craig Hurst 4/9/96 4/9/96 200,000 4/9/99
</TABLE>
1. The following options have been exercised by Craig Hurst, (V.P. Corporate
Communications):
<TABLE>
<CAPTION>
<S> <C>
4/15/96 10,000
5/7/96 5,000
5/30/96 5,000
8/26/96 20,000
11/8/96 10,000
12/11/96 5,000
2/6/97 11,000
Total 65,000
</TABLE>
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 by the officers and by each director and officer as a group,
consisting of:
<PAGE>
<TABLE>
<CAPTION>
Name and address Amount of Percent
Title of class of beneficial owner beneficial ownership of class
<S> <C> <C> <C>
Class A Common Cede & Co. 2,405,002 19.8%
P.O. Box 222
Bowling Green Station
New York, NY 10274 - 0000
Class A Common Vickie T. Lucky 2,370,000 19.5%
1613 Jimmie Davis Hwy.
Suite #1&2
Bossier City, LA 71112
Class A Common Brant Investments, Ltd. 1,631,480 13.4%
Global Securities Serv.
BH Level Royal Bank Plaza
200 Bay Street
Toronto, Canada M5J 255
Class A Common Harry Moll 1,500,000* 12.3%
Box 836
Georgetown,
Grand Cayman, BWI
Class A Common Jan Wallace 400,000 3.3%
(President & Director)
6929 East Cheney
Paradise Valley, AZ 85253
Class A Common Florian Homm (Director) 200,000 1.6%
Amselweg 7b
61462 Koningstein
Germany
Class A Common William H. Means, Jr.
(Director) 30,000 0.2%
1613 Jimmie Davis Hwy.
Suite #1&2
Bossier City, LA 71112
Class A Common All Officers and
Directors 630,000 5.1%
as a Group (5 persons)
</TABLE>
* Includes 300,000 shares owned by SSM, Ltd., which is controlled by Mr.
Moll.
ITEM 12. Certain Relationships and Related Transactions.
During 1997 $145,000 was paid to the Company's President, $140,000 was paid
or accrued to the Company's former Secretary/Treasurer, and $87,733 was paid or
accrued to the current Secretary/Treasurer.
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 former Secretary. $124,221 was paid to Amteck during 1997. $1,000
per month was paid to Amteck as rent in 1997. 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.
<PAGE>
For 1998, it is projected that the Company's President will receive $15,000
monthly and the Secretary will receive $8,000 monthly. In addition, one
officer will receive $15,000 per month. Genesis has the following commitments:
the President will receive $102,667 through November, 1998. The Financial
Reimbursement Specialist will receive $71,867 through November, 1998. The
Senior Vice President for Operations will receive $184,800 through November,
1998. A Consultant will receive $30,000 per month through November, 1998.
Future scheduled payments under these employment related commitments are to
provide $1,145,334 by December 31, 1998,
P & H leases its facility from one of its officers under an operating lease
that requires minimum monthly payments of $15,468. The lease expires February
28, 1999 and requires P & H to pay real property taxes, insurance, and utility
bills. Future minimum lease payments are $217,000 by the year ending December
31, 1998.
Dynamic leases vehicles under operating leases expiring through 2000. The
future minimum lease payments are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year Ending
December 31, 1998 $ 10,654
December 31, 1999 10,654
December 31, 2000 7,840
-----------
$ 29,148
===========
</TABLE>
The attorney for Genesis receives a monthly fee of $15,000, through
November 1999.
Genesis leases equipment under operating leases expiring through 1998 with
future minimum lease payments to be $68,035 for the year ending December 31,
1998.
Genesis leases its facility at $2,800 per month through September 30, 1998
and also leases an office for out of town business at $525 per month. Genesis
also pays the taxes and utilities. The future minimum lease payments are
$31,500 for the year ending December 31, 1998.
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. During 1997, payments to the entity were about $323,000.
Rental expense for the year ended December 31, 1997 was $253,868 ($203,299
in 1996 and $4,947 in 1995) which includes $7,298 paid by MMC to P & H ($7,120
in 1996).
<PAGE>
PART IV
ITEM 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following financial statements, financial statement schedules and
supplementary date are included:
F-1 Independent Auditor's Report
Financial Statements:
F-2 Consolidated Balance Sheet - December 31, 1997 and 1996
F-3 Consolidated Statement of Operations - Years Ended December 31, 1997
and 1996.
F-4 Consolidated Statement of Changes in Stockholders' Equity - Years
Ended December 31, 1997 and 1996.
F-5 Consolidated Statement of Cash Flows - Years Ended December 31, 1997
and 1996.
F-6 Notes to Financial Statements
(b) Reports on Form 8-K.
No Reports on Form 8-K were filed during the fourth quarter of 1997.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Dynamic Associates, Inc.
We have audited the accompanying consolidated balance sheets of Dynamic As-
sociates, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the re-
lated consolidated statements of operations, changes in stockholders' equity,
and cash flows for the years ended December 31, 1997, 1996, and 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consoli-
dated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing stand-
ards. 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 over-
all 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 pre-
sent fairly, in all material respects, the financial position of Dynamic As-
sociates, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
results of their operations, changes in stockholders' equity, and their cash
flows for the years ended December 31, 1997, 1996, and 1995, in conformity with
generally accepted accounting principles.
CERTIFIED PUBLIC ACCOUNTANTS
Salt Lake City, Utah
March 30, 1998
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1997 1996
_________________________
ASSETS <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,616,174 $ 3,447,019
Accounts receivable (less allowance for
doubtful accounts o $1,350,050 in 1997
and $759,925 in 1996) 4,191,850 2,118,174
Loans receivable - related parties (Note 7) 52,500 510,300
Other receivables 71,625 115,374
Accrued interest (Note 7) 0 22,002
Inventories (Note 2) 809,977 717,827
Prepaid expense and other current assets 57,257 125,110
Deferred tax benefit (Note 12) 300,000 407,000
___________ ___________
TOTAL CURRENT ASSETS 8,099,383 7,462,806
PROPERTY, PLANT & EQUIPMENT (Note 6) 1,000,898 425,200
OTHER ASSETS
Deferred debt issue costs (Note 2) 1,530,999 1,523,712
Investment - restricted stock 29,800 8,600
Deferred tax benefit (Note 12) 0 450,000
Goodwill (Note 2) 22,140,055 24,060,585
Deposits 10,619 23,037
Organization Costs (Note 2) 28,440 880
___________ ___________
23,739,913 26,066,814
___________ ___________
$32,840,194 $33,954,820
___________ ___________
LIABILITIES & EQUITY
CURRENT LIABILITIES
Accounts payable $ 549,854 $ 1,259,481
Accrued expenses 635,060 448,024
Current portion of long-term debt (Note 10) 108,542 73,955
Bridge loans (Note 8) 0 3,150,000
Income taxes payable (Note 12) 253,328 76,860
Accrued interest payable 791,851 187,496
___________ ___________
TOTAL CURRENT LIABILITIES 2,338,635 5,195,816
Long-term debt (Note 10) 346,639 158,395
Convertible notes (Note 11) 17,001,500 14,504,000
Deferred income tax (Notes 2 and 12) 0 56,500
___________ ___________
17,348,139 14,718,895
___________ ___________
TOTAL LIABILITIES 19,686,774 19,914,711
Minority interest in subsidiary (Note 4) 0 840,000
Commitments and contingencies (Note 14) 0 0
STOCKHOLDERS' EQUITY
Common Stock $.001 par value:
Authorized - 25,000,000 shares
Issued and outstanding 13,973,929 shares
(12,158,900 in 1996) 13,974 12,159
Additional paid-in capital 18,262,580 14,765,238
Retained deficit (5,123,134) (1,577,288)
___________ ___________
TOTAL STOCKHOLDERS' EQUITY 13,153,420 13,200,109
___________ ___________
$32,840,194 $33,954,820
___________ ___________
</TABLE>
<PAGE>
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995
___________ ___________ ___________
<C> <C> <C>
Net sales $ 3,382,388 $ 3,395,098 $ 0
Management fees 14,619,951 1,122,500 0
Cost of sales 2,659,882 2,496,997 0
___________ ___________ ___________
GROSS PROFIT 15,342,457 2,020,601 0
Selling and General & admini-
strative expenses 11,342,791 2,474,457 562,022
Depreciation and amortization 2,733,713 311,178 251
Research and development (Note 2) 1,103,831 605,599 0
Bad debts 590,125 2,300 58,380
___________ ___________ ___________
15,770,460 3,393,534 620,653
___________ ___________ ___________
NET OPERATING (LOSS) (428,003) (1,372,933) (620,653)
OTHER INCOME (EXPENSE)
Interest income 89,323 97,903 4,233
Interest expense (2,000,258) (269,403) (1,447)
Miscellaneous income 8,003 8,162 0
Loss on disposal of equipment (23,986) 0 0
Unrealized decline in investment (383,247) (41,400) 0
___________ ___________ ___________
(2,310,165) (204,738) 2,786
___________ ___________ ___________
NET (LOSS) BEFORE INCOME
TAXES AND MINORITY INTEREST (2,738,168) (1,577,671) (617,867)
INCOME TAX EXPENSE (BENEFIT)
(Note 12) 807,678 (685,055) 1,600
____________ ___________ ___________
NET (LOSS) BEFORE
MINORITY INTEREST (3,545,846) (892,616) (619,467)
MINORITY INTEREST 0 64,205 0
___________ ___________ ___________
NET (LOSS) $(3,545,846) $ (956,821) $ (619,467)
___________ ___________ ___________
Net (loss) per weighted average
share $ (.27) $ (.11) $ (.29)
___________ ___________ ___________
Weighted average number of common
shares used to compute net income
(loss) per weighted average share 13,057,008 8,377,442 2,141,213
___________ ___________ ___________
</TABLE>
<PAGE>
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
Par Value $.001 Paid Retained
Shares Amount Capital Deficit
_____________________ __________ __________
<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 sub-
sidiary (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)
Sale of common stock
(S-8) at $1.00 per
share 1,022,600 1,023 1,021,577
Issuance of common
stock (restricted)
at $2.00 per share
for subsidiary
(Geriatric) 150,000 150 299,850
Issuance of common
stock (Reg S) to
retire debt 428,142 428 1,352,861
Issuance of common
stock (restricted)
at $3.50 per share
for remaining 50%
of subsidiary (P & H) 214,287 214 749,786
Capital raising and
subsidiary costs (16,327)
Minority interest
adjustment 89,595
Net loss for year (3,545,846)
_____________________ __________ __________
Balances at 12/31/97 13,973,929 $13,974 $18,262,580 $(5,123,134)
</TABLE>
<PAGE>
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995
__________ __________ __________
<C> <C> <C>
OPERATING ACTIVITIES
Net (loss) $ (3,545,846) $ (956,821) $ (619,467)
Adjustments to reconcile
net (loss) to cash used
by operating activities:
Depreciation and amor-
tization 2,921,571 311,178 251
Book value of assets
sold/disposed 120,346 0 0
Bad debt 590,125 0 56,080
Minority interest 0 64,205 0
Stock issued for expense 0 40,000 3,500
Investment received as
interest income (15,000) (50,000) 0
Unrealized decline in
investment 383,247 41,400 0
Deferred taxes 500,500 (801,500) 0
Fee added to loan 0 0 20,000
Changes in assets and
liabilities:
Accounts receivable (2,519,886) 86,117 0
Inventories (92,150) (129,024) 0
Prepaid expenses and other 67,853 (120,587) 0
Accounts payable and ac-
crued expenses (549,923) 931,268 115,993
Income taxes payable 163,468 (52,945) 1,600
Accrued interest payable 604,355 186,274 1,222
__________ __________ __________
NET CASH USED BY OPERATING
ACTIVITIES (1,371,340) (450,435) (420,821)
INVESTING ACTIVITIES
Loans to related party and
accrued interest 90,246 (246,480) (216,202)
Loan - other 91,953 (91,953) (56,080)
Purchase of equipment (892,674) (155,821) (7,221)
Purchase of option 0 0 (30,000)
Refund of option 0 30,000 0
Deposits 12,418 (1,312) 0
Purchase of subsidiaries 0 (12,102,233) 0
Goodwill (500,000) (3,947,775) 0
Organization costs (27,800) 0 (1,200)
__________ __________ __________
NET CASH USED BY INVESTING
ACTIVITIES (1,225,857) (16,515,574) (310,703)
FINANCING ACTIVITIES
Deferred debt issue costs (340,356) (1,566,721) 0
Cash from subsidiaries 41,518 674,440 0
Principal payments on debt (3,297,713) (301,571) 0
Principal payments on capital
lease obligation 0 (519) 0
Proceeds from sale of common
stock 1,022,600 3,322,423 1,312,500
Loan proceeds 347,303 3,000,000 200,000
Capital raising costs (3,000) 0 0
Convertible note proceeds 3,996,000 14,504,000 0
__________ __________ __________
NET CASH PROVIDED BY FINANCING
ACTIVITIES 1,766,352 19,632,052 1,512,500
__________ __________ __________
INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (830,845) 2,666,043 780,976
Cash and cash equivalents
at beginning of year 3,447,019 780,976 0
__________ __________ __________
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 2,616,174 $ 3,447,019 $ 780,976
__________ __________ __________
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 1,204,709 $ 70,391 $ 1,447
Cash paid for income taxes 157,753 169,390 0
<PAGE>
</TABLE>
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
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 Com-
pany is now engaged in the acquisition of microwave technologies for medical
purposes through Microwave Medical Corp. ("Micro"), in the business of manag-
ing the operation of geriatric/psychiatric units for various hospitals through
Genesis Health Management Corporation ("Genesis") and Geriatric Care Centers
of America, Inc. ("GCCA") and the manufacturing of highly technologically ad-
vanced components and subsystems for the communications and aerospace indus-
tries 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, 1997, Genesis had twenty-two active contracts with monthly bil-
lings of $1,133,700. Three of the contracts began in 1997, nine began in 1996,
nine began in 1995 and one began in 1994. GCCA has contracts with hospitals in
Tennessee. At December 31, 1997, GCCA had three active contracts with average
monthly billings of $105,000. The contracts range from three to five years
and all began in 1996.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
PRINCIPALS OF CONSOLIDATION
The consolidated financial statements for 1997 include the accounts of the
Company; its wholly owned subsidiaries, Micro and Micro's Germany based subsi-
diary Microwave Medical GmBH ("GmBH"), which was formed in late 1997, Genesis,
GCCA, which was acquired in March of 1997, and P & H. The Statement of Ope-
rations for 1997 includes the operations of GCCA for the last three quarters of
1997.
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 in-
corporated on October 15, 1996 in Louisiana as Genesis Acquisition Corporation,
merged with Genesis Health Management Corporation on December 2, 1996 and chang-
ed 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. The Company acquired
the remaining 50% of P & H in 1997.
The Statement of Operations for 1996 includes the operations 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.
All significant intercompany balances and transactions have been elimina-
ted in consolidation.
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 mar-
ket. At December 31, 1997 and 1996, inventories were comprised of the follow-
ing:
<TABLE>
<CAPTION>
1997 1996
___________ ___________
<C> <C>
Raw materials $ 344,909 $ 271,669
Work in progress 465,068 446,158
___________ ___________
$ 809,977 $ 717,827
</TABLE>
RESEARCH AND DEVELOPMENT COSTS
Research and development costs were $1,103,831 for 1997 and were all in-
curred by Micro and GmBH ($605,599 in 1996 and all incurred by Micro).
WARRANTY COSTS
The Company provides, by a current charge to income, an amount it esti-
mates 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 sheets.
DIVIDEND POLICY
The Company has not yet adopted any policy regarding payment of dividends.
<PAGE>
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
STOCK OPTIONS
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued tto Employees" (APB 25) and related interpre-
tations in accounting for its employee stock options rather than adopting the
alternative fair value accounting provided for under Financial Accounting
Standards Board ("FASB") FASB Statement No. 123, Accounting for Stock Based
Compensation (SFAS 123).
ESTIMATES
The preparation of financial statements in conformity with generally ac-
cepted accounting principles requires management to make estimates and assump-
tions that affect the reported amounts of assets and liabilities and disclo-
sures of contingent assets and liabilities at the date of the financial state-
ments 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 collectability of existing
specific accounts.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to concen-
tration of risk, consist of cash and investments. The Company places its in-
vestments 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 seventeen months to eight years using the straight-line
and accelerated methods.
CASH AND CASH EQUVALENTS
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 and GmBH are being amortized over sixty months.
GOODWILL
Goodwill relating to the acquisition of Genesis is being amortized over ten
years. Goodwill relating to the acquisition of GCCA is being amortized over
five 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 as-
sets are recognized for deductible temporary differences, and operating loss
carryforwards and deferred tax liabilities are recognized for taxable tempo-
rary differences. Temporary differences are the differences between the re-
ported amounts of assets and liabilities and their tax bases. Deferred tax as-
sets 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, 1997 and 1996 was
zero. Deferred tax assets and liabilities are adjusted for the effects of chan-
ges in tax laws and rates on the date of enactment. As of December 31, 1997,
temporary differences arose primarily from differences in the timing of recog-
nizing expenses for financial reporting and income tax purposes. Such dif-
ferences 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 1997, the Company sold 1,022,600 shares of S-8 stock at $1.00 per
share, issued 150,000 shares of restricted stock at $2.00 per share in connec-
tion with the GCCA acquisition, issued 428,142 shares of Regulation S stock to
retire debt of $1,498,500 and issued 214,287 shares of restricted stock at $3.50
per share for the remaining 50% of P & H.
<PAGE>
<PAGE>
NOTE 3: CAPITALIZATION (continued)
During 1996, the Company issued 40,000 shares of its common stock for in-
terest 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 was owned by other parties.
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 had an option to purchase the remaining 50% of P & H stock
for $1,000,000. The option was modified to $750,000 and was exercised in 1997
by issuing 214,287 shares of restricted stock at an agreed value of $3.50 per
share.
NOTE 6: PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment as of December 31, 1997 and 1996 are sum-
marized as follows:
Accumulated Net Book Value
Cost Depreciation 1997 1996
Transportation Equipment $ 265,664 $ 35,622 $ 230,042 $ 69,969
Machinery & Equipment 2,153,776 1,516,203 637,573 187,364
Furniture & Fixtures 248,681 163,481 85,200 155,872
Leasehold Improvements 66,032 17,949 48,083 11,995
__________ __________ __________ _________
$2,734,153 $1,733,255 $1,000,898 $ 425,200
Depreciation expense is calculated under straight-line and accelerated
methods based on the estimated service lives of depreciable assets. Deprecia-
tion expense for the year ended December 31, 1997 amounted to $217,943,
($65,739 in 1996).
Included in machinery and equipment is $59,315 of equipment under a capital
lease at December 31, 1997. The related accumulated depreciation at December
31, 1997 is $51,397.
NOTE 7: LOANS RECEIVABLE - RELATED PARTIES
<TABLE>
<CAPTION>
1997 1996 Interest Due
Due From Amount Amount Rate Date
_________________________ _______ _______ ________ _________________
<C> <C> <C> <C> <C>
Officer of P & H $ 0 $ 30,300 0% June, 1997
Officers of Micro(2) 52,500 105,000 0% December 31, 1997
Claire Technologies, Inc.(1) 0 375,000 10% November 1, 1997
_______ _______
$ 52,500 $510,300
</TABLE>
(1)also convertible to Claire stock at $.20 per share. During 1997, the
Company accepted 507,971 shares of restricted common stock of Claire as pay-
ment in full for $409,447 in principal and interest due from Claire. Claire
has some of the same Officers and Directors as the Company.
(2)The $52,500 is due from a former officer/employee of Micro. The Com-
pany expects to collect the amount in 1998, even though it is past-due.
Accrued interest at December 31, 1996 was $22,002.
<PAGE>
<PAGE>
NOTE 8: BRIDGE LOANS
At December 31, 1996, the Company owed $3,000,000 under one bridge loan
and $150,000 under the other. The $3,000,000 loan had an interest rate of
10%, payable monthly beginning January 2, 1997. All outstanding principal
and interest was due September 2, 1997. The loan was due to the former owners
of Genesis who at December 31, 1996 owned 24.7% of the Company's common stock.
The loan was 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 pay-
ment being made on March 3, 1997.
The other $150,000 was due to a bank, had an interest rate of 9% and was
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 1997 $145,000 was paid to the Company's President, $140,000 was paid
or accrued to the Company's former Secretary/Treasurer, and $87,733 was paid or
accrued to the current Secretary/Treasurer. See also Note 14.
<TABLE>
<CAPTION>
NOTE 10: LONG-TERM DEBT
1997 1996
________ ________
<C> <C>
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. $ 0 $ 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. 72,954 112,758
Note payable - bank. Interest pay-
ments only until May, 1998 at which
time it is converted to 48 monthly
installments of $7,235 plus interest
at prime (8.5% at December 31, 1997)
plus 1% per annum and secured by as-
sets of P & H. Debt matures in May
2002. The agreement contains certain
financial and restrictive covenants.
As of December 31, 1997, P & H was
not in compliance with certain finan-
cial covenants. On March 2, 1998,
the bank waived such events of non-
compliance as of such date. 347,303 0
Genesis finances certain equipment for
various items:
9.25% Note payable to bank in monthly
installments of $661, plus interest
through February 21, 2000. 0 21,514
9.40% Note payable to a lending insti-
tution payable in monthly installments
of $927, plus interest through November
29, 1999, secured by vehicle. 17,890 28,288
11.50% Note payable to a lending insti-
tution payable in monthly installments
of $1,032, plus interest through November
6, 1997 0 9,798
</TABLE>
<PAGE>
NOTE 10: LONG-TERM DEBT (continued)
<TABLE>
<CAPTION>
1997 1996
________ ________
<S> <C> <C>
GCCA finances certain equipment
for various items:
10.25% Note payable to bank in
monthly installments of $368,
including interest through
November 1999, secured by vehicle 7,355 0
10.25% Note payable to bank in
monthly installments of $432,
including interest through December
1999, secured by vehicle 9,679 0
_________ _________
455,181 232,350
Less current portion (108,542) (73,955)
_________ _______
$346,639 $158,395
</TABLE>
Scheduled maturities of these obli-
gations are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
<C> <C>
1998 $ 108,542
1999 136,831
2000 87,000
2001 87,000
2002 35,808
Thereafter 0
_________________
$ 455,181
_________________
NOTE 11: CONVERTIBLE NOTES
At December 31, 1997, the Company owes $17,001,500 to various entities in
the form of convertible notes ($14,504,000 at December 31, 1996). 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.
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 mul-
tiple 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 con-
version, 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 ad-
justment will be made for any fractional interest.
At December 31, 1997 the notes could have been converted into 4,857,571 shares
of the Company's common stock.
<PAGE>
<PAGE>
NOTE 11: CONVERTIBLE NOTES (continued)
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:
</TABLE>
<TABLE>
<CAPTION>
Year Percentage
<S> <C>
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%
</TABLE>
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.
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, liqui-
dation, or reorganization of the Company (whether in an insolvency or bank-
ruptcy 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 ma-
turity 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 instru-
ment (including a purchase money mortgage) given in connection with the acqui-
sition of any property or assets (other than inventory or similar property ac-
quired 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.
The Indenture will not limit the amount of additional indebtedness, inclu-
ding Senior Indebtedness, which the Company can create, incur, assume, or guar-
antee, nor will the Indenture limit the amount of indebtedness which any sub-
sidiary can incur. As a result of these subordination provisions, in the event
of insolvency, holders of the Notes may recover less ratably than general credi-
tors of the Company.
<PAGE>
<PAGE>
NOTE 12: INCOME TAXES
Components of income tax (benefit) are as follows:
<TABLE>
<CAPTION>
1997 1996
<C> <C> <C>
Current
Federal $ 4,666 $ 63,500
State 315,512 52,945
____________ ____________
320,178 116,445
____________ ____________
Deferred
Federal 487,500 (799,000)
State 0 (2,500)
____________ ____________
487,500 (801,500)
____________ ____________
Income tax (benefit) $ 807,678 $ (685,055)
____________ ____________
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996
<C> <C>
Income tax computed at federal
statutory tax rate $ 210,000 $ (671,100)
Tax associated with lost net
operating loss benefits 305,000 0
State taxes (net of federal benefit) 292,678 (13,955)
___________ ___________
$ 807,678 $ (685,055)
</TABLE>
Genesis has a state tax liability of about $204,000, and GCAA has a state
tax liability of about $50,000.
Significant components of the Company's deferred tax liabilities and as-
sets for income taxes consist of the following:
[CAPTION]
<TABLE>
1997 1996
<S> <C> <C>
Current deferred tax assets
Net operating loss $ 300,000 $ 340,000
Allowance for doubtful accounts 0 9,000
Capitalized inventory cost for tax 0 21,000
Vacation accrual 0 22,000
State income tax 0 9,000
Other accruals 0 6,000
___________ ___________
Net deferred current tax assets $ 300,000 $ 407,000
Long-term deferred tax asset
Net operating loss $ 0 $ 450,000
___________ ___________
Long-term deferred tax liabilities
Difference in fixed assets $ 0 $ 56,500
___________ ___________
</TABLE>
There was no net change in the valuation allowance for the years ended
December 31, 1997 and December 31, 1996.
The Company anticipates being able to use the entire Federal Net Operating
Loss of $950,000 during 1998.
At December 31, 1997, the Company has a federal net operating loss carry-
over of approximately $950,000. The Federal loss will expire as follows:
<TABLE>
<CAPTION>
<S> <C>
December 31, 2011 $ 950,000
___________________
$ 950,000
</TABLE>
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, 1997, all 2,000,000 op-
tions have been granted. The Company also can grant non-qualified stock op-
tions. 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 discre-
tion of the Committee. During 1996 the following options were granted:
<PAGE>
<PAGE>
NOTE 13: INCENTIVE STOCK OPTION PLAN (continued)
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. During 1997, 1,022,600 shares were
sold pursuant to the plan.
During 1996, 184,000 shares were sold pursuant to the plan. 9,500 options
were cancelled and 783,900 options remain unexercised at December 31, 1997.
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 former Secretary. $124,221 was paid to Amteck during 1997. $1,000
per month was paid to Amteck as rent in 1997. 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 indivi-
duals are paid as services are performed.
For 1998, it is projected that the Company's President will receive $15,000
monthly and the Secretary will receive $8,000 monthly.
Micro has the following commitments:
One officer will receive $15,000 per month.
Genesis has the following commitments:
The President will receive $102,667 through November, 1998.
The Financial Reimbursement Specialist will receive $71,867
through November, 1998.
The Senior Vice President for Operations will receive $184,800
through November, 1998.
A Consultant will receive $30,000 per month through November,
1998.
Future scheduled payments under these employment related commitments are
as follows:
<TABLE>
<CAPTION>
Year Ending
<S> <C>
December 31, 1998 $ 1,145,340
</TABLE>
P & H leases its facility from one of its officers under an operating
lease that requires minimum monthly payments of $15,468. The lease expires
February 28, 1999 and requires P & H to pay real property taxes, insurance,
and utility bills.
Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
Year Ending
<S> <C>
December 31, 1998 $ 186,000
December 31, 1998 31,000
___________________
$ 217,000
</TABLE>
Dynamic leases vehicles under operating leases expiring through 2000.
Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
Year Ending
<S> <C>
December 31, 1998 $ 10,654
December 31, 1999 10,654
December 31, 2000 7,840
________
$ 29,148
</TABLE>
<PAGE>
<PAGE>
NOTE 14: COMMITMENTS AND CONTINGENCIES (continued)
Genesis leases equipment under operating leases expiring through 1998.
Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
Year Ending
<S> <C>
December 31, 1998 $ 68,035
</TABLE>
Genesis leases its facility at $2,800 per month through September 30,
1998 and also leases an office for out of town business at $525 per month.
Genesis also pays the taxes and utilities.
Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
Year Ending
<S> <C>
December 31, 1998 $ 31,500
</TABLE>
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. During 1997, payments to the entity were about
$323,000.
Rental expense for the year ended December 31, 1997 was $253,868 ($203,299
in 1996 and $4,947 in 1995) which includes $7,298 paid by Micro to P & H ($7,120
in 1996).
NOTE 15: FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, loans, and interest re-
ceivable, 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:
<TABLE>
<CAPTION>
<S> <C>
Note at 9.5% $ 60,375
Note at 9.5% 230,550
Notes at 10.25% 14,007
Note at 9.4% 14,951
Convertible notes at 10.0% 7,238,932
____________
$ 7,558,815
NOTE 16: INDUSTRY SEGMENTS
The Company receives its revenue from two sources: management fees earned
by Genesis and GCCA and sales of components and subsystems made by P & H. In-
formation about those segments for the years ended December 31, 1997 and 1996
is as follows:
</TABLE>
<TABLE>
<CAPTION>
1997 Management
Fees Sales Other (1) Consolidated
________________ ___________ ___________ ___________ ____________
<S> <C> <C> <C> <C>
Sales and
Management fees $14,619,951 $ 3,382,388 $ 0 $18,002,339
Operating profit
(loss) $ 4,978,571 $ (102,777) (5,303,797) $ (428,003)
___________ ___________ ___________ ___________
Identifiable as-
sets at December
31, 1997 $ 3,979,050 $ 1,911,239 $ 164,237 $ 6,054,526
Corporate assets 1,939,625 461,552 24,384,491 26,785,668
___________ ___________ ___________ ___________
Total assets at
December 31, 1997 $ 5,918,675 $ 2,372,791 $24,548,728 $32,840,194
</TABLE>
<PAGE>
<PAGE>
NOTE 16: INDUSTRY SEGMENTS (continued)
<TABLE>
<CAPTION>
1996 Management
Fees Sales Other (2) Consolidated
________________ ___________ ___________ ___________ ____________
<C> <C> <C> <C>
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 as-
sets 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
</TABLE>
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. Amor-
tization of goodwill in the amount of $2,515,530 is also included.
(2)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. Amor-
tization of goodwill in the amount of $202,190 is also included.
Pre-consolidation net income (loss) is as follows:
<TABLE>
<CAPTION>
1997 1996
<C> <C>
Dynamic $ (5,531,798) $ (1,624,870)
Micro/GmBH (1,127,675) (595,318)
P & H (51,804) 128,409
Genesis 2,845,514 258,829
GCCA 542,452 0
________________ ________________
(3,323,311) (1,832,950)
(Tax) benefit adjustment (222,535) 940,334
Minority interest 0 (64,205)
________________ ________________
Adjusted Net Loss $ (3,545,846) $ (956,821)
</TABLE>
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.
During 1997, the remaining 50% of P&H was acquired in exchange for 214,287
shares of stock with an agreed value of $750,000.
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.
<PAGE>
<PAGE>
NOTE 17: ACQUISITION OF SUBSIDIARIES (continued)
In March of 1997, the Company acquired GCCA as a wholly owned subsidiary.
Cash of $500,000 and 150,000 shares of restricted stock valued at $2.00 per
share were given for 100% of the outstanding stock of GCCA. $595,000 of the
purchase price has been allocated to goodwill which is being amortized over
five years. The results of operations for GCCA for April thru December 31,
1997 are included in the consolidated statements of operations.
NOTE 18: SUBSEQUENT EVENTS
On February 25, 1998, the Company announced that it will spin-off two of
its subsidiaries, Micro (which includes GmBH) and P&H, into a new public en-
tity to be called MW Medical, Inc. If the spin-off had occurred on December
31, 1997, the consolidated total assets would have been reduced by about $2.5
million and consolidated total liabilities would have been reduced by about
$.8 million.
The loss associated with Micro and P&H for the year ended December 31,
1997 was about $1.18 million.
In 1998, Dynamic will most likely reflect a $2.0 million charge to bad
debts to reflect money due to it from Micro/GmBH which most likely will not
be repaid.
NOTE 19: 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.
<PAGE>
<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
____________ _____________ ___________ ____________
<C> <C> <C> <C>
ASSETS
CURRENT ASSETS
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
<PAGE>
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
(A Development Stage Company)
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
BALANCE SHEET (Continued)
December 31, 1995
</TABLE>
[CAPTION]
Pro Forma Consolidated
Dynamic Genesis Adjustments Pro Forma
_________ __________ ___________ ____________
[S] [C] [C] [C] [C]
LIABILITIES & EQUITY
CURRENT LIABILITIES
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 share-
holders 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 3,100
Issued and outstand-
ing 7,000,000 shares 7,000 1,000(3) (1,000) 10,100
(6)
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]
<PAGE>
<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
____________ ____________ ____________ ____________
<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 2,103,622 6,085,933 8,189,555
Research and
development 605,599 0 605,599
Bad debts 2,300 692,500 694,800
____________ ____________ _____________ ___________
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 MINOR-
ITY 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 weigh-
ted 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.
<PAGE>
<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
____________ ____________ ____________ ____________
<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 weigh-
ted average share 2,641,213 10,000 5,741,213
___________ ___________ _____________ ___________
</TABLE>
<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 Cor-
poration ("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 pur-
chase 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 con-
solidated tax return with Genesis and expected future tax savings pro-
duced by offsetting income from Genesis with the net operating loss carry-
over 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.
<PAGE>
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
(A Development Stage Company)
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
STATEMENT OF OPERATIONS
Year ended December 31, 1997
<TABLE>
<CAPTION>
Pro Forma Consolidated
Dynamic GCCA* Adjustments Pro Forma
____________ ____________ ____________ ____________
<C> <C> <C> <C>
Net Sales $ 3,382,388 $ 0 $ $ 3,382,388
Management
fee income 14,619,951 244,125 14,864,076
Cost of sales 2,659,882 0 2,659,882
____________ ___________ _____________ ____________
GROSS PROFIT 15,342,457 244,125 15,586,582
Selling and
general and
administrative
expenses 11,342,791 26,792 11,369,583
Depreciation and
amortization 2,733,713 0 2,733,713
Research and
development 1,103,831 0 1,103,831
Bad debts 590,125 0 590,125
____________ ____________ ____________ ____________
15,770,460 26,792 15,797,252
____________ ____________ ____________ ____________
NET OPERATING
INCOME (LOSS) (428,003) 217,333 (210,670)
OTHER INCOME
(EXPENSE)
Interest income 89,323 0 89,323
Interest expense (2,000,258) 0 (2,000,258)
Miscellaneous
income 8,003 0 8,003
Loss on disposal
of equipment (23,986) 0 (23,986)
Unrealized de-
cline in invest-
ment (383,247) 0 (383,247)
____________ ____________ ____________ ____________
(2,310,165) 0 (2,310,165)
NET INCOME (LOSS)
BEFORE INCOME
TAXES AND
MINORITY INTEREST (2,738,168) 217,333 (2,520,835)
INCOME TAX EXPENSE
(BENEFIT) 807,678 13,000 (13,000) 807,678
____________ ____________ ___________ _____________
NET INCOME (LOSS)
BEFORE MINORITY
INTEREST (3,545,846) 204,333 13,000 (3,328,513)
MINORITY INTEREST 0 0 0
____________ ____________ ___________ _____________
NET INCOME (LOSS) $ (3,545,846) $ 204,333 $ 13,000 $ (3,328,513)
Net income (loss)
per weighted
average share $ (.27) $ (.25)
Weighted average
number of common
shares used to
compute net income
(loss) per weigh-
ted average share 13,057,008 13,057,008
____________ _____________ ___________ ___________
</TABLE>
*Reflects activity for first quarter of 1997 (prior to acquisition) which
is not included in the audited Statements of Operations shown at Page F-3.
<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: 4/15/98 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: 4/15/98 By: /s/ Jan Wallace
____________ ____________________________________________
Jan Wallace, President and Director
Date: 4/15/98 By: /s/ Rainer Marquart
____________ ___________________________________________
Rainer Marquart, Director
Date: 4/15/98 By: /s/ Elliot Smith
____________ ____________________________________________
Elliot Smith, Director
Date: 4/15/98 By: /s/ William H. Means
____________ ___________________________________________
William H. Means, Director
Date: 4/15/98 By: /s/ Florian Homm
____________ ___________________________________________
Florian Homm, Director
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,616,174
<SECURITIES> 0
<RECEIVABLES> 5,541,900
<ALLOWANCES> (1,350,050)
<INVENTORY> 809,977
<CURRENT-ASSETS> 8,099,383
<PP&E> 2,734,153
<DEPRECIATION> (1,733,255)
<TOTAL-ASSETS> 32,840,194
<CURRENT-LIABILITIES> 2,338,635
<BONDS> 17,001,500
0
0
<COMMON> 13,974
<OTHER-SE> 13,139,446
<TOTAL-LIABILITY-AND-EQUITY> 32,840,194
<SALES> 18,002,339
<TOTAL-REVENUES> 18,002,339
<CGS> 2,659,882
<TOTAL-COSTS> 18,430,342
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,000,258
<INCOME-PRETAX> (2,738,168)
<INCOME-TAX> 807,678
<INCOME-CONTINUING> (428,003)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,545,846)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
