UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1999.
[ ] Transition Report pursuant to 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File Number 33-55254-03
DYNAMIC ASSOCIATES, INC.
(Exact name of Small Business Issuer as specified in its charter)
Nevada 87-0473323
(State or other jurisdiction of (IRS Employer
incorporation ) Identification No.)
6955 East Caballo Drive
Paradise Valley, Arizona 85253
(Address of principal executive offices (Zip Code)
Issuer's telephone number, including area code: (602) 483-8700
Indicate by a check mark whether the issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the issuer was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding as of
Class September 30, 1999
$.001 par value Class A Common Stock 18,386,429 shares
1
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
BASIS OF PRESENTATION
General
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Form 10-QSB and, therefore, do not include all
information and footnotes necessary for a complete presentation of financial
position, results of operations, cash flows, and stockholders' equity in
conformity with generally accepted accounting principles. In the opinion of
management, all adjustments considered necessary for a fair presentation of the
results of operations and financial position have been included and all such
adjustments are of a normal recurring nature. Operating results for the nine
months ended September 30, 1999 are not necessarily indicative of the results
that can be expected for the year ending December 31,1999.
2
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
(Unaudited) (Audited)
----------------- ------------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 111,921 $ 478,418
Accounts receivable (less allowance for doubtful accounts of
$338,807 in 1999, $2,552,100 in 1998) 3,178,465 3,741,260
Loans receivable - related parties 52,500 52,500
Other receivables 154,825 86,662
Prepaid expense and other current assets 22,229 109,950
Deferred tax benefit 0 300,000
----------------- ------------------
TOTAL CURRENT ASSETS 3,519,940 4,768,790
PROPERTY, PLANT & EQUIPMENT 117,291 228,733
OTHER ASSETS
Deferred debt issue costs (less amortization of $288,780) 588,417 1,331,307
Investment - restricted stock 4,000 17,000
Goodwill (less amortization of $7,171,960) 17,685,815 19,594,775
Deposits 0 410
----------------- ------------------
18,278,232 20,943,492
----------------- ------------------
$ 21,915,463 $ 25,941,015
================= ==================
LIABILITIES & EQUITY
CURRENT LIABILITIES
Accounts payable $ 114,786 $ 596,812
Accrued expenses 577,037 275,101
Current portion of long-term debt 10,894 3,978
Accrued interest payable 170,393 791,851
----------------- ------------------
TOTAL CURRENT LIABILITIES 873,110 1,667,742
Long-term debt 0 10,206
Convertible notes 8,676,500 17,001,500
----------------- ------------------
8,676,500 17,011,706
----------------- ------------------
TOTAL LIABILITIES 9,549,610 18,679,448
STOCKHOLDERS' EQUITY
Common Stock $.001 par value:
Authorized - 25,000,000 shares
Issued and outstanding 18,386,429 shares (14,223,929 in 1998) 18,386 14,224
Additional paid-in capital 19,146,474 18,512,330
Retained deficit (6,799,007) (11,264,987)
----------------- ------------------
TOTAL STOCKHOLDERS' EQUITY 12,365,853 7,261,567
----------------- ------------------
$ 21,915,463 $ 25,941,015
================= ==================
</TABLE>
3
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1999 1998 1999 1998
------------------ ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Management fees $ 2,055,890 $ 3,081,373 $ 6,569,302 $ 10,845,603
------------------ ----------------- ----------------- ------------------
2,055,890 3,081,373 6,569,302 10,845,603
General & administrative expenses 1,682,322 2,260,171 5,104,844 7,846,232
Depreciation 9,347 15,473 39,401 46,141
Amortization of goodwill 636,320 636,320 1,908,960 1,908,960
Bad debts 844,103 0 2,018,180 735,000
------------------ ----------------- ----------------- ------------------
3,172,092 2,911,964 9,071,385 10,536,333
------------------ ----------------- ----------------- ------------------
NET OPERATING INCOME (LOSS) (1,116,202) 169,409 (2,502,083) 309,270
OTHER INCOME (EXPENSE)
Interest income 2,242 2,882 2,893 16,877
Interest expense (193,837) (479,390) (677,661) (1,426,695)
Bad debts - former subsidiaries 0 0 0 (2,169,806)
Disposition of subsidiaries 0 0 0 256,493
Loss on disposition 0 (16,996) 0 (16,996)
Unrealized (decrease) in investment 0 (2,000) (13,000) (4,800)
------------------ ----------------- ----------------- ------------------
(191,595) (495,504) (687,768) (3,344,927)
------------------ ----------------- ----------------- ------------------
NET (LOSS) BEFORE INCOME TAXES (1,307,797) (326,095) (3,189,851) (3,035,657)
INCOME TAX EXPENSE (BENEFIT) (1,800) (12,000) 300,000 134,550
------------------ ----------------- ----------------- ------------------
NET (LOSS) BEFORE
EXTRAORDINARY ITEM (1,305,997) (314,095) (3,489,851) (3,170,207)
Extraordinary item - Gain on restructuring of debt
(no applicable income taxes) 0 0 7,955,831 0
------------------ ----------------- ----------------- ------------------
NET INCOME (LOSS) $ (1,305,997) $ (314,095) $ 4,465,980 $ (3,170,207)
================== ================= ================= ==================
Net income (loss) per weighted average share:
Operations $ (.07) $ (.02) $ (.20) $ (.22)
Extraordinary item .00 .00 .46 .00
------------------ ----------------- ----------------- ------------------
NET INCOME (LOSS) $ (.07) $ (.02) $ .26 $ (.22)
================== ================= ================= ==================
Weighted average number of common shares
used to compute net income (loss) per weighted
average share 18,386,429 14,223,929 17,461,429 14,172,647
================== ================= ================= ==================
</TABLE>
4
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
Common Stock Additional
Par Value $.001 Paid-In Retained
Shares Amount Capital Deficit
----------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Balances at 12/31/98 14,223,929 $ 14,224 $ 18,512,330 $ (11,264,987)
Issuance of common stock
to restructure debt 4,162,500 4,162 634,144
Net income for period 4,465,980
----------------- ------------------ ------------------ -----------------
Balances at 9/30/99 18,386,429 $ 18,386 $ 19,146,474 $ (6,799,007)
================= ================== ================== =================
</TABLE>
5
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
1999 1998
------------------ -----------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ 4,465,980 $ (3,170,207)
Adjustments to reconcile net income (loss) to cash used by
operating activities:
Depreciation and amortization 2,047,508 2,104,870
Non-cash debt restructuring (7,955,831) 0
Book value of spun-off subsidiaries 0 1,743,312
Book value of disposed assets 72,041 53,017
Bad debts 2,018,180 735,000
Unrealized change in investment 13,000 4,800
Deferred taxes 300,000 0
Changes in assets and liabilities:
Accounts receivable (1,523,549) (2,903,710)
Prepaid expenses and other 87,721 (9,265)
Accounts payable and accrued expenses 111,333 (424,075)
Deposits 0 (11,496)
Income taxes payable 0 (253,328)
------------------ -----------------
NET CASH USED BY OPERATING ACTIVITIES (363,617) (2,131,082)
INVESTING ACTIVITIES
Loan - other 0 (9,861)
Purchase of equipment 0 (14,951)
Deposits 410 0
------------------ -----------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 410 (24,812)
FINANCING ACTIVITIES
Cash from (to) subsidiaries 0 (387,982)
Principal payments on debt (3,290) (23,374)
Loans - related parties 0 150,000
Proceeds from sale of common stock 0 250,000
------------------ -----------------
NET CASH (USED) BY
FINANCING ACTIVITIES (3,290) (11,356)
------------------ -----------------
DECREASE IN CASH AND CASH EQUIVALENTS (366,497) (2,167,250)
Cash and cash equivalents at beginning of period 478,418 2,616,174
------------------ -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 111,921 $ 448,924
================== =================
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 292,976 $ 1,710,114
Cash paid for income taxes 23,931 256,595
</TABLE>
During 1999, the Company issued 4,162,500 shares of its restricted common stock
and 8,325,000 warrants to purchase stock at $1.50 per share until December 31,
2000 to retire debt of $8,325,000 and accrued interest of $912,881.
During 1998, the Company purchased a vehicle in the amount of $16,943 by
incurring a loan in the same amount.
6
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
SELECTED NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1: SEGMENT INFORMATION
Pre-consolidation net income (loss) is as follows:
Dynamic $ 5,478,768
Genesis (1,130,098)
GCCA 117,310
---------------
$ 4,465,980
===============
NOTE 2: SUBSEQUENT EVENTS
The Company intends to place Genesis and GCCA into a new private
corporation. Dynamic will receive 18,386,439 shares of common
stock in the new corporation. Dynamic will then distribute its
shares in the new corporation to Dynamic's shareholders. The
transaction will leave Dynamic with no operations or source of
revenue.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
In August 1999, all parties involved in the planned merger between the Company
and Advanced Clinical Systems, Inc. agreed to rescind the Merger and
Contribution Agreements. The Company's subsidiaries, Genesis and GCCA were
returned to Dynamic and all Management Agreements were cancelled with Advanced.
In September, Clay Deardorff was appointed President of Dynamic as well as
Genesis and GCCA. Mr. Deardorff had been Chief of Operations of Genesis and GCCA
since February 1999. Ms. Jan Wallace resigned as President of the Company and
its subsidiaries, but remained as Chairman of the Board of Dynamic. In addition,
at this same time, Director Elliot Smith resigned and was replaced on the board
of directors by Mr. Deardorff.
In September, the management of Genesis and GCCA also decided to move the head
office of both companies from Bossier City, Louisiana to Plano, Texas. These
companies currently lease space at 2121 West Spring Creek Blvd., Suite 109,
Plano, TX 75023. Their joint telephone number is (972) 208-1435 and their fax
number is (972) 208-2636.
The Company currently plans to consolidate these two subsidiaries into one new
Nevada corporation, Perspectives Health Management Corp. ("PHM"). PHM was
incorporated by the Company specifically for this purpose on October 12, 1999.
PHM on October 28, 1999 received permission to do business in Texas. Following
this consolidation and approval by the shareholders, the Company currently plans
to spin off this wholly-owned subsidiary by issuing out all of its shares of
stock directly to its shareholders on a one for one basis. The full details and
terms of this proposed spin off will be provided to shareholders in a proxy
statement which is currently being prepared.
Following this spin off, the Company plans to pursue business opportunities in
the field of microwave technology for use in health care applications related to
invasive medical procedures. Details of these opportunities are not yet
available as they are only in the process of investigation.
During the second quarter, the Company learned that one of its Directors, Mr.
William H. Means had entered into a Plea Agreement on January 15, 1993 in which
he pled guilty to a two-count Bill of Information in United States District
Court, Western District of Louisiana, Shreveport Division, CR. No. 93-500001-01
to soliciting, demanding and accepting payments from certain individuals in
violation of Title 18, United States Code, Section 215(a)(2). [18 U.S.C.
ss215(a)(2)]. This information will appear in the Company's amended Form 10K to
be filed shortly with the Securities and Exchange Commission.
In this quarter, the Company settled a dispute with its former management and
certain other individuals in which all of the Company's common stock held by
Mrs. Vickie T. Lucky was distributed to certain of the Company's Note Holders
who agreed to pay the cost of the Company's attorney's fees. Also received in
this settlement were all of Mrs. Lucky's shares of the Company's former
subsidiary, MW Medical, Inc., part of which shares were distributed to these
same Note Holders and part of which were returned to MW Medical.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, the Company had $111,921 in cash and cash equivalents.
The Company incurred an operating loss of $.14 per share after deducting
$1,948,361 for amortization of goodwill and depreciation. The cost of goodwill
and debt cost amortization is approximately $.11 per share. Cash flow generated
from operations was approximately $.03 per share.
RESULTS OF OPERATIONS
The financial statements present the activities of the Company, Genesis and
GCCA.
During the three months ended September 30, 1999, management fees of $23,000
were paid compared to $94,801 for the same period in 1998. The Company's
President received or was accrued the amount of $15,000 and the Company's
Secretary/Treasurer received or was accrued
8
<PAGE>
the amount of $8,000. The officers agreed to take no compensation for the
quarter ended June 30, 1999.
Net ordinary loss for the three months ended September 30, 1999 was $1,305,997
compared to a loss of $314,095 for the same period in 1998. The net loss is $.07
per share for the quarter. A charge for amortization of goodwill and
depreciation of $645,667 was incurred in the period which represents $.04 per
share. The Company generated from operations a positive cash flow of $.03 per
share. The increased loss is, to a large extent, due to a reduction in
management fee income from the hospital units.
Management fee income was $2,055,890 for the three months ended September 30,
1999 compared to $3,081,373 for the same period in 1998. The revenues of Genesis
and GCCA are derived from the Medicare programs, which are highly regulated and
subject to frequent and substantial changes. In the last 2 years, there have
been fundamental changes in the Medicare programs, including the prospective
payment system ("PPS"), which Genesis and GCCA are dependent on for the billing
of its services. This has resulted in limitations on, and reduced levels of
payment and reimbursement for the hospitals.
General and administrative expenses for the three months ended September 30,
1999 were $1,682,322 compared to $2,260,171 for the same period in 1998. The
Company was able to reduce cost by restructuring the management staff of Genesis
and GCCA. The contracts of several executive management personnel were not
renewed at the end of 1998.
Depreciation and amortization expenses for the three months ended September 30,
1999 were $9,347 and $636,320, respectively, compared with $15,473 and $636,320
in 1998.
Interest expense for the three months ended September 30, 1999 was $193,837
compared to $479,390 for the same period in 1998. Interest expense was incurred
on obligations to the Convertible Note Holders of the Company. The decline in
interest payments was largely due to the refinancing of the Company's debt to
these Note Holders at the end of 1998. This refinancing substantially reduced
the principal obligation of the Company as well as the interest rate due thereon
for most of its debt.
During the nine months ended September 30, 1999, management fees of $98,769 were
paid compared to $241,067 for the same period in 1998. The Company's President
received or was accrued the amount of $60,375 and the Company's
Secretary/Treasurer received or was accrued the amount of $38,394. The Company's
President and Secretary/Treasurer agreed to forego any fees after March 30,
1999, when the Company contributed the subsidiaries to the LLC under the
Contribution Agreement, but began taking fees again in September when the
Advanced merger was rescinded.
Net ordinary loss for the nine months ended September 30, 1999 was $3,489,851
compared to a loss of $3,170,207 for the same period in 1998. The net loss is
$.20 per share for the nine months. A charge for amortization of goodwill and
depreciation of $1,948,361 was incurred in the period which represents $.11 per
share. The Company generated a positive cash flow from operations of $.09 per
share. Net loss for the period was due largely to bad debt write offs arising
out of the Company's agreement to reduce its management fees in exchange for
early payment by the contracting units.
Management fee income was $6,569,302 for the nine months ended September 30,
1999, compared to $10,845,603 for the same period in 1998. Since the Balanced
Budget Act of 1997, Genesis and GCCA have had to reduce their management fee
contracts with their hospital units.
General and administrative expenses for the nine months ended September 30, 1999
were $5,104,844 compared to $7,846,232 for the same period in 1998. The Company
has been successful in reducing its administrative expenses to accommodate its
reduced management fee income.
Depreciation and amortization expenses for the nine months ended September 30,
1999 were $39,401 and $1,908,960 respectively compared to $46,141 and $1,908,960
for the same period in 1998.
Interest expense for the nine months ended September 30, 1999 was $677,661
compared to $1,426,695 for the same period in 1998. Interest expense was
incurred on obligations to the
9
<PAGE>
Convertible Note Holders of the Company. The decline in interest payments was
largely due to the refinancing of the Company's debt to these Note Holders at
the end of 1998. This refinancing substantially reduced the principal obligation
of the Company as well as the interest rate due thereon for most of its debt.
During the nine months ended September 30, 1999, the Company recorded an
extraordinary gain in the amount of $7,955,381 from restructuring its
convertible notes. The extraordinary gain represented income of $.46 per share.
Impact of the Year 2000 Issue
The "Year 2000 Problem" arose because many existing computer programs use only
the last two digits to refer to a year. Therefore, these computer programs will
not properly recognize a year that began with "20" instead of the familiar "19".
If not corrected, many computer applications could fail or create erroneous
results. The extent of the potential impact of the Year 2000 Problem is not yet
known, and if not timely corrected, it could affect the global economy. The
Company believes that its computer programs are Y2K compliant and does not
expect to be adversely affected by the issue, however, its revenue source is
directly related to certain hospitals and other government agencies that may
have computer systems with Year 2000 problems. The Health Care Financing
Administration (HCFA) announced in the Spring of 1998, that they would begin
preparing providers and suppliers for the requirement that they submit all
claims using 8-digit date fields. On January 13, 1999, HFCA notified Medicare
contractors that, beginning April 5, 1999, claims not submitted in the Y2K
format must be returned to providers as unprocessable. On February 1, 1999, the
Medicare contractors issued bulletins to all providers detailing this April 5,
1999, compliance deadline. Since the Company is dependent on each individual
hospital's submission of cost reports for claims, we have no assurances that
this will be done correctly or in a timely manner and in the Y2K-compliant
format so that HCFA's systems can continue to process and pay bills promptly
throughout the millennium transition.
PART II - OTHER INFORMATION
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
DYNAMIC ASSOCIATES, INC.
DATED: November 22, 1999
By:
Grace Sim, Secretary/Treasurer
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial
information extracted from Dynamic
Associates, Inc. and Subsidiaries September
30, 1999 financial statements and is
qualified in its entirety by reference to
such financial statements
</LEGEND>
<CIK> 0000878146
<NAME> Dynamic Associates, Inc.
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1.00
<CASH> 111,921
<SECURITIES> 0
<RECEIVABLES> 3,724,597
<ALLOWANCES> (338,807)
<INVENTORY> 0
<CURRENT-ASSETS> 3,519,940
<PP&E> 279,142
<DEPRECIATION> (161,851)
<TOTAL-ASSETS> 21,915,463
<CURRENT-LIABILITIES> 873,110
<BONDS> 8,676,500
0
0
<COMMON> 18,386
<OTHER-SE> 12,347,467
<TOTAL-LIABILITY-AND-EQUITY> 21,915,463
<SALES> 6,569,302
<TOTAL-REVENUES> 6,569,302
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9,071,385
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 677,661
<INCOME-PRETAX> (3,189,851)
<INCOME-TAX> 300,000
<INCOME-CONTINUING> (3,489,851)
<DISCONTINUED> 0
<EXTRAORDINARY> 7,955,831
<CHANGES> 0
<NET-INCOME> 4,465,980
<EPS-BASIC> .26
<EPS-DILUTED> .26
</TABLE>
