SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
[ ] 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.
(Exact name of Registrant as specified in its charter)
NEVADA 87-0473323
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6955 E. Caballo Dr.
PARADISE VALLEY, ARIZONA 85253
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (602) 483-8700
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act: NONE
Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
Issuer's revenues for 1998 were $12,498,922.
As of April 14, 1999, the approximate market value of the voting stock held by
non-affiliates of the registrant was $116,797 based on an average bid price of
$.1797 per share.
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 April 7,1999
$.001 PAR VALUE CLASS A COMMON STOCK 18,386,429 SHARES
<PAGE>
PART I
ITEM 1. Business.
Overview
Dynamic Associates, Inc., a Nevada corporation (the "Company" or "Dynamic")
was incorporated on July 20, 1989 for the purpose of developing venture
businesses. Dynamic was previously a development stage company through 1995.
Through acquisitions, Dynamic has become a holding company for a variety of
entities as detailed below. The Company operates two health care management
businesses 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 formerly owned two microwave technologies subsidiaries, P&H
Laboratories, Inc. ("P&H"), a microwave research and production company, and
Microwave Medical Corp.("MMC"), which develops microwave technology for various
medical treatments. As of March 11, 1998, the Company has spun off MMC and P&H
to a newly incorporated Nevada Corporation, MW Medical, Inc. ("MW" or "MW
Medical"). The spin-off was completed by the distribution of MW shares to all
Dynamic shareholders on record (the "Record Date") as of the close of business
on February 25, 1998. Each such holder received one share of MW Common Stock for
every one share of Dynamic common stock held on the Record Date. (See Section on
Spin Off)
On March 30, 1999, Dynamic Associates, Inc. (the "Company") entered into
several agreements with ACS2, Inc. ("ACS") and Advanced Clinical Systems, Inc.
("Advanced") under which the Company contributed its operating subsidiaries,
Genesis Health Management Company ("Genesis") and Geriatric Care Centers of
America, Inc. ("GCCA"), and ACS contributed its subsidiary, Advanced, and the
operating subsidiaries of Advanced to a newly formed Nevada Limited Liability
Company known as Advanced-Dynamic, LLC ("LLC"). (See section on Merger)
The Company's executive offices are located at 6955 E. Caballo Dr.Paradise
Valley, Arizona 85253 telephone number at this location is (602) 483-8700 and
the telefax number is (602) 443-1235. Jan Wallace is the current President and a
Director, Grace Sim is the Secretary/Treasurer, William H. Means, Jr., and
Elliot Smith are Directors.
Genesis Health Management Corporation
The Company entered into an Acquisition Agreement on August 1, 1996 to
acquire 100% of Genesis Health Management Corporation, ("Genesis"), of Bossier
City Louisiana, for $15,000,000.00, 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 both
in-patient and out-patient geriatric and psychiatric units in various hospitals.
Genesis manages and operates 23 geriatric and psychiatric units in various
hospitals on both an in-patient and out-patient basis.
Geriatric Care Centers of America, Inc. (GCCA)
On March 13, 1997, Geriatric Care Centers of America ("Geriatric"), a
corporation organized pursuant to the laws of the state of Tennessee, merged
with Geriatric Care Centers Acquisition
<PAGE>
Corporation, for $500,000 in cash and 150,000 shares of Common Stock of the
Company. The surviving corporation is Geriatric Care Centers of America, Inc.
("GCCA"), with its registered office at 1613 Jimmie Davis Highway, Bossier City,
Louisiana, 71112. The Company owns 100% of GCCA. GCCA is also in the business of
managing and operating psychiatric/geriatric units in hospitals. At December 31,
1998, GCCA had two (2) operating units.
Narrative Description of Business
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's Senior Care Program provides comprehensive care for elderly
patients experiencing acute psychiatric disorders, cognitive impairment and
age-related psychological difficulties while concurrently encouraging resolution
of medical problems contributing to or inhibiting the resolution of acute care
emotional or psychiatric problems. This program targets higher-functioning
patients with acute emotional problems, allowing the therapeutic milieu to be
effective, as opposed to focusing on lower-functioning patients (who only
require medication management). This method achieves maximum therapeutic results
after 10-18 days of treatment. Senior Care Units are allowed to treat patients
with higher medical acuity than regular geriatric-psychiatric programs, thus
producing higher ancillary costs while providing a higher standard of care for
the patients.
The Genesis treatment program conforms to the guidelines of the JCAHO
Accreditation Manual for Hospitals and Medicare Standards. The program is
reimbursed at cost by Medicare when established as a distinct 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.
Spin Off
The Company has completed the spin-off of MW Medical, Inc. effective March
11, 1998. MW Medical is the owner of P&H and MMC, each of which was a subsidiary
of the Company until
<PAGE>
completion of the spin-off. MW Medical is a Nevada corporation incorporated on
December 4, 1997. The businesses of P&H and MMC are summarized as follows:
(A) P&H Laboratories
P&H is engaged in the business of manufacturing various types of
devices utilizing microwave technology. The devices include
isolators, circulators, power monitor devices, filters, diplexers,
switching diplexers, multi-junction circulators, microwave
sub-systems and integrated packages and subsystems. P&H also
provides special engineering services to customers with specific
microwave technology requirements.
(B) Microwave Medical Corp.
MMC is in the business of developing proprietary technology
relating to the use of microwave energy for medical applications.
MMC has a patent pending entitled, "Method and Apparatus for
Treating Subcutaneous Histological Features" which focuses on the
application of microwave energy to the treatment of spider veins
and for use in hair removal. MMC has no revenues and has not
completed development of its technology.
MW Medical acquired each of P&H and MMC pursuant to a Contribution
Agreement, Plan and Agreement of Reorganization and Distribution between Dynamic
and MW Medical, dated as of March 11, 1998 ("Contribution Agreement"). Under the
terms of the Contribution Agreement, the Company transferred to MW Medical the
following assets in consideration for the issue by MW Medical of 14,223,929
common shares of MW Medical:
(A) all of the shares of P&H;
(B) all of the shares of MMC;
(C) all shareholders loans of P&H and MMC to the Company; and
(D) the agreement of the Company to provide initial funding in the
amount of $200,000.
As of March 21, 1999, Dynamic has paid the first $50,000 of the $200,000 of
this promissory note.
The spin-off was completed by the distribution by the Company to the
shareholders of the Company of one common share of MW Medical for each common
share of the Company held by the shareholder. The distribution was completed on
March 11, 1998 to shareholders of the Company of record on February 25, 1998. No
consideration was paid by Dynamic shareholders for shares of MW Common Stock.
MW Medical, Inc. has been approved by NASD to trade its shares on the Over
The Counter, Bulletin Board (OTC BB) under the symbol MWMD. MW intends to call
the market when it has informed all shareholders of record, has updated its web
site and determined that an effective market making system is in place.
<PAGE>
Merger
On March 30, 1999, Dynamic Associates, Inc. (the "Company") entered into a
Capital Contribution Agreement with ACS2, Inc. ("ACS") and Advanced Clinical
Systems, Inc. ("Advanced") under which the Company contributed its operating
subsidiaries, Genesis Health Management Company ("Genesis") and Geriatric Care
Centers of America, Inc. ("GCCA"), and ACS contributed its subsidiary, Advanced,
and the operating subsidiaries of Advanced to a newly formed Nevada Limited
Liability Company known as Advanced-Dynamic, LLC ("LLC"). In consideration of
which, each of the Company and ACS received a fifty percent (50%) equity
interest in the LLC. Genesis and GCCA are referred to together as the "Dynamic
Subsidiaries" and Advanced and all of the subsidiaries of Advanced are referred
to together as the "Advanced Subsidiaries". The Capital Contribution Agreement
and the contributions to the LLC were completed contemporaneously on March 30,
1999 with the parties agreement to the LLC's Operating Agreement. The LLC's
Operating Agreement sets forth the agreement of the Company and ACS with respect
to the ownership and management of the LLC, the Dynamic Subsidiaries and the
Advanced Subsidiaries pending consummation of a proposed merger of ACS into
Dynamic Acquisition Corporation ("DAC"), a newly formed, wholly owned subsidiary
of Dynamic (the "Merger"). The LLC's Operating Agreement also sets forth the
agreement of the Company and ACS to dissolve the LLC and return the subsidiaries
to their respective companies in the event that the Merger (more fully described
below) is not consummated by December 15, 1999. All the terms and conditions of
the Capital Contribution Agreement and the LLC Operating Agreement are attached
hereto as Exhibits 1 and 3 respectively, and incorporated by this reference.
On the same date (March 30, 1999), the Company, DAC, ACS and Advance also
entered into an agreement and plan of Merger (the "Merger Agreement"). This
Merger Agreement contemplated that upon approval by the holders of a majority of
the outstanding shares of common stock of the Company at the Annual Meeting of
shareholders to be held on June 4, 1999 (and the satisfaction or waiver of the
other conditions of the Merger and Contribution Agreements), a merger will take
place between DAC and ACS. Upon completion of the Merger, DAC will be the
surviving company and will remain a wholly-owned subsidiary of the Company. ACS
will cease to exist and the ACS shareholders will become shareholders of the
Company based on an exchange of shares that will provide existing ACS
shareholders with newly issued common stock representing approximately 55% of
the outstanding shares of the Company. Thereafter, the Company will directly or
indirectly, be the sole controlling shareholder of all the Advanced and Dynamic
Subsidiaries. All the terms and conditions upon which the Merger is to be
effected are set forth in the Merger Agreement.
The Company has also agreed to enter into a Registration Rights Agreement
with the ACS Stockholders upon closing of the Merger (the "Registration Rights
Agreement"). Under this agreement, the Company will grant registration rights to
the ACS Stockholders covering 50% of the shares of the Company's common stock to
be issued upon consummation of the Merger. These rights will require the Company
to file a registration statement pursuant to the Securities Act of 1933 to
qualify 25% of the shares issued to the ACS stockholders within 90 days of
closing of the Merger, and an additional registration statement covering an
additional 25% of the shares at the one year anniversary of the Merger.
The number of shares of the Company issued to the ACS Stockholders upon
consummation of the Merger will be subject to adjustment based on the fiscal
performance of the Advanced Subsidiaries and the Dynamic Subsidiaries for the
year ending December 31, 1999. The Company and the ACS Stockholders will
therefore also enter into an escrow agreement upon consummation of the Merger
that sets forth the terms of this adjustment (the "Escrow Agreement").
<PAGE>
The terms and conditions of the Capital Contribution Agreement, the
Operating Agreement, the Merger Agreement, the Registration Rights Agreement and
the Escrow Agreement were determined through arms-length negotiations between
the representatives of the Company and ACS.
Additional information will be in the Proxy Statement to be filed near the
end of April, 1999.
ITEM 2. Properties
Dynamic Associates
Dynamic is headquartered in the premises located at 6955 E. Caballo Dr.,
Paradise Valley, Arizona 85253. The Company is not committed to any rent but
does share expenses with another company located in the same address. The
Company owns no other property.
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. 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.
The Annual Shareholders Meeting is to be held on June 4, 1999. Proxy
statements will be mailed out to all shareholders of record effective April 9,
1999.
No other matter was submitted to the Company's security holders for a vote
during the fiscal year ending December 31, 1998.
<PAGE>
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholders Matters.
The Company's common stock is listed on the NASDAQ-OTC system, under the
trading symbol "DYAS". The common stock is also listed on the Frankfurt and
Berlin Exchanges in Germany, under the trading symbol "DYA".
The following table lists the high and low sales prices for the common
stock of the company during the two most recent fiscal years:
NASDAQ-OTC
High Sales Low Sales
Price Price
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
1998 First Quarter .875 .7187
Second Quarter .875 .3437
Third Quarter 1.0625 .1875
Fourth Quarter .42 .16
As of December 31, 1998 there were 394 record holders of the Company's
common stock.
The Company has not previously declared or paid any dividends on its common
stock and does not anticipate declaring any dividends in the foreseeable future.
ITEM 6. Management's Discussion and Analysis or Plan of Operation.
This discussion covers the years 1996 through 1998, the years in which the
Company had operations and was doing business. Prior to 1995, the Company was a
development stage company and was not engaged in any substantial business.
On December 10, 1998, in contemplation of a merger between Dynamic and
Advanced Clinical Systems, Inc. (the "Merger"), the Company presented an offer
to the 10% Note Holders, holding $17,001,500 of unsecured notes (the "Unsecured
Notes") to purchase all Unsecured Notes in consideration of the issue to the
Note Holders of a new 7.5% convertible secured notes (the "Secured Notes"). The
Secured Notes will be of a principal amount equal to one-half of the principal
amount of the Unsecured Notes. In consideration of the reduction to the
principal amount of the Unsecured Notes, the Company will issue to each
accepting Note Holder:
a) one common share of the Company for each $2.00 reduction of the principal
amount of the Unsecured Notes (the "Shares");
b) one warrant to purchase one common share of the Company at a price of $1.50
per share (the "Warrants") for each $1.00 reduction of the principal amount
of the Unsecured Notes.
<PAGE>
This offer was accepted by $16,650,000 principal value of the Secured Note
holders. In turn the Company issued 7.5% Secured Notes for $8,325,000, 4,162,500
shares of common stock of the Company and 8,325,000 warrants at $1.50 per share.
The warrants will expire on December 31, 2000.
The consolidated financial statements for 1998 include the accounts of the
Company; its wholly owned subsidiaries; Genesis and GCCA. All significant
intercompany balances and transactions have been eliminated in the
consolidation.
Management fees for 1998 decreased to $12,498,922 from $14,619,951. The
14.5% decrease resulted from cancelled contracts and adjustments to billings
made necessary by Medicare reductions.
General and administrative expenses were $9,845,647 for 1998, down from
$10,609,090 in 1997. The Company was able to eliminate or reduce some of its
expenses in 1998 to achieve the decline.
During 1998, the Company charged to bad debt expense $2,169,806 that it had
loaned to its former subsidiary MMC. This caused the net other income (expense)
of $3,871,661 to be significantly higher than the $2,328,539 expense for 1997.
Medicare reductions and other problems also caused the Company to record
bad debt expense for Genesis & GCCA of $2,193,300 for 1998, a significant
increase over the $590,125 for 1997.
Working capital at December 31, 1998 is $3,101,048, a decrease of
$2,659,700 from the $5,760,748 at December 31, 1998. The decrease is mainly due
to the decline in cash and receivables.
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 do not properly recognize a year that begins
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.
ITEM 7. Financial Statements and Supplementary Data.
See Item 13.
ITEM 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
No independent accountant previously engaged as the principal accountant to
audit the Company's financial statements, nor an independent accountant who was
previously engaged to audit a significant subsidiary and on whom the principal
accountant expressed reliance in its report, has resigned or was dismissed. The
Company has not changed accountants nor has it had any disagreements with any
accountants.
<PAGE>
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.
Name Age Position
Jan Wallace 43 President, Director
Grace Sim 38 Secretary-Treasurer
William H. Means, Jr. 43 Director
Elliot Smith 65 Director
Jan Wallace 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.
William H. Means, Jr. 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.
Elliot Smith is a Director of the Company. Mr. Smith has held a variety of
senior management- level positions in some of the world's most prestigious
financial institutions during the past 40 years. Mr. Smith began a 29 year
career with Prudential Bache in 1954 when he was hired as a Registered
Representative in its Syracuse, New York office. By 1973, Mr. Smith was elected
to the Board of Directors of Bache & Company Inc. In 1977, he was named Senior
Officer of Commodity Division and Metal Company and in 1980, was elected
President of Bach Haley Stuart Metal Company Inc. On leaving Prudential-Bache in
1983, Mr. Smith served as Executive Vice President at R. Lewis Securities, Inc.,
located in New York City and from 1983 to 1995, was President of Whale
Securities Company, L.P., in New York. Since 1995, Mr. Smith has served as
President of the Equity Division of Rickel & Associates, Inc., an investment
company. Mr. Smith has also been elected to the Boards of The Pennington School
and Jullians Corporation. He is a former Member and Director of the Chicago
Board of Options Exchange; Governor of the American Stock Exchange(AMEX);
Governor
<PAGE>
and Chairman of the AMEX Commodities Exchange; Director and Member of the
Executive Committee of the Securities Industry Automation Corp. and a past
President of the Association of Investment Brokers. Mr. Smith is currently a
Managing Director at Oscar Gruss & Son, Inc.
Grace Sim has been the Secretary/Treasurer of Dynamic Associates, Inc.
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.
ITEM 10. Executive Compensation.
<TABLE>
<CAPTION>
Annual Compensation Table
Annual Compensation Long-term Compensation
Other Restricted
Name and Annual Stock Options LTIP All other
Principal Position Year Salary Bonus ($) Compensation Awards /SARs Payout Compensation
- ------------------------- ------ ----------- ------------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jan Wallace 1998 $180,000 $ 0 $ 3,250 $ 0 $100,000(1)$ 0 $ 0
President, CEO,
Director
Grace Sim 1998 $105,067 $ 0 $ 0 $ 0 $50,000(1) $ 0 $ 0
Secretary/Treasurer
Elliot Smith 1998 $ 0 $ 0 $ 3,250 $ 0 $ 0 $ 0 $ 0
Director
William H. Means Jr.1998 $189,000 $ 0 $ 3,250 $ 0 $ 0 $ 0 $ 0
Director
</TABLE>
There can be no assurance that the amounts of compensation actually paid,
or the persons to whom it is paid for 1999, will not differ materially from the
above 1998 amounts.
(1) Exercised in 1998.
*Options
In 1998, all options were canceled by the Board of Directors.
ITEM 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of December 31, 1998, 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:
<TABLE>
<CAPTION>
Title Amount and
of Name of Nature of Percentage
Class Beneficial Owner Beneficial Ownership of Class
------------------ --------------------------- -------------------------- -----------------
<S> <C> <C> <C>
Class A Common Cede & Co. 9,947,346 69.9%
P.O. Box 222
Bowling Green Station
New York, NY 10274 - 0000
Class A Common Vickie T. Lucky 2,370,000 16.7%
1613 Jimmie Davis Hwy.
Suite #1&2
Bossier City, LA 71112
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Title Amount and
of Name of Nature of Percentage
Class Beneficial Owner Beneficial Ownership of Class
------------------ --------------------------- -------------------------- -----------------
<S> <C> <C> <C>
Class A Common Jan Wallace 550,000 3.8%
(President & Director)
6929 East Cheney
Paradise Valley, AZ 85253
Class A Common Billy Means, Jr. (Director) 30,000 0.21%
1613 Jimmie Davis Hwy.
Suite #1&2
Bossier City, LA 71112
Class A Common Grace Sim 20,000 0.1%
(Secretary/Treasurer)
7373 North Scottsdale Road,
Suite B169
Scottsdale, AZ 85253
Class A Common Elliot Smith 50,000 .3%
(Director)
7373 North Scottsdale Road,
Suite B169
Scottsdale, AZ 85253
Class A Common All officers and directors 650,000 4.5%
as a group (4 persons)
</TABLE>
ITEM 12. Certain Relationships and Related Transactions.
During 1998 $180,000 was paid to the Company's President, and $105,067 was
paid or accrued to the current Secretary/Treasurer. The former President of
Genesis, who is also a Director of the Company was paid $189,000 in 1998.
The Company moved out of its previously leased location and now shares
office expenses with another company in the same premises. In 1998, the Company
paid $69,700 in rent and other fees for office administration to Amteck
Management Inc.
For 1999, the Company's President will receive $15,000 and the Secretary
will receive $8,000 per month. The Vice President of Operations of Genesis will
receive $120,000 in 1999.
Genesis pays a management fee of $15,000 to another company on a month to
month basis for services provided to Genesis and GCCA.
Dynamic leases vehicles under operating leases expiring through 2000. The
future minimum lease payments are as follows:
Year Ending
-----------------
December 31, 1999 10,654
December 31, 2000 7,840
-----------
$ 29,148
Genesis leases equipment under operating leases. In 1999, the obligations
for these leases total $3,978.
Genesis leases its facility at $2,800 per month through September 30, 1999.
Thereafter, the lease increases to $3,000 per month through September 30, 2000.
Genesis also pays the taxes and utilities.
<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 Sheets - December 31, 1998 and 1997
F-3 Consolidated Statements of Operations - Years Ended December 31,
1998, 1997 and 1996.
F-4 Consolidated Statements of Changes in Stockholders' Equity -
Years Ended December 31, 1998, 1997 and 1996.
F-5 Consolidated Statements of Cash Flows - Years Ended December 31,
1998, 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 1998.
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:4/15/99 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:4/15/99 By: /s/ Jan Wallace
Jan Wallace, President and Director
Date:4/15/99 By:/s/ Grace Sim
Secretary/Treasurer
<PAGE>
SMITH & COMPANY
A PROFESSIONAL CORPORATION OF
CERTIFIED PUBLIC ACCOUNTANTS
MEMBERS OF: 10 WEST 100 SOUTH, SUITE 700
AMERICAN INSTITUTE OF SALT LAKE CITY, UTAH 84101
CERTIFIED PUBLIC ACCOUNTANTS TELEPHONE: (801) 575-8297
UTAH ASSOCIATION OF FACSIMILE: (801) 575-8306
CERTIFIED PUBLIC ACCOUNTANTS E-MAIL: [email protected]
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Dynamic Associates, Inc.
We have audited the accompanying consolidated balance sheets of Dynamic
Associates, Inc. and Subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for the years ended December 31, 1998, 1997, and 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Dynamic Associates,
Inc. and Subsidiaries as of December 31, 1998 and 1997, and the results of their
operations, changes in stockholders' equity, and their cash flows for the years
ended December 31, 1998, 1997, and 1996, in conformity with generally accepted
accounting principles.
Smith & Company
CERTIFIED PUBLIC ACCOUNTANTS
Salt Lake City, Utah
March 19, 1999, except for Note 20, which is dated April 14, 1999
F-1
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1998 1997
------------------ ------------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 478,418 $ 2,616,174
Accounts receivable (less allowance for doubtful accounts of
$2,552,100 in 1998 and $1,350,050 in 1997) 3,741,260 4,191,850
Loans receivable - related parties (Note 7) 52,500 52,500
Other receivables 86,662 71,625
Inventories (Note 2) 0 809,977
Prepaid expense and other current assets 109,950 57,257
Deferred tax benefit (Note 12) 300,000 300,000
------------------ ------------------
TOTAL CURRENT ASSETS 4,768,790 8,099,383
PROPERTY, PLANT & EQUIPMENT (Note 6) 228,733 1,000,898
OTHER ASSETS
Deferred debt issue costs (less amortization of $387,550) (Note 2) 1,331,307 1,530,999
Investment - restricted stock 17,000 29,800
Deferred tax benefit (Note 12) 0 0
Goodwill (less amortization of $5,263,000) (Note 2) 19,594,775 22,140,055
Deposits 410 10,619
Organization Costs (Note 2) 0 28,440
------------------ ------------------
20,943,492 23,739,913
------------------ ------------------
$ 25,941,015 $ 32,840,194
================== ==================
LIABILITIES & EQUITY
CURRENT LIABILITIES
Accounts payable $ 596,812 $ 549,854
Accrued expenses 275,101 635,060
Current portion of long-term debt (Note 10) 3,978 108,542
Bridge loans (Note 8) 0 0
Income taxes payable (Note 12) 0 253,328
Accrued interest payable 791,851 791,851
------------------ ------------------
TOTAL CURRENT LIABILITIES 1,667,742 2,338,635
Long-term debt (Note 10) 10,206 346,639
Convertible notes (Note 11) 17,001,500 17,001,500
Deferred income tax (Notes 2 and 12) 0 0
------------------ ------------------
17,011,706 17,348,139
------------------ ------------------
TOTAL LIABILITIES 18,679,448 19,686,774
Minority interest in subsidiary (Note 4) 0 0
Commitments and contingencies (Note 14) 0 0
STOCKHOLDERS' EQUITY
Common Stock $.001 par value:
Authorized - 25,000,000 shares
Issued and outstanding 14,223,929 shares (13,973,929 in 1997) 14,224 13,974
Additional paid-in capital 18,512,330 18,262,580
Retained deficit (11,264,987) (5,123,134)
------------------ ------------------
TOTAL STOCKHOLDERS' EQUITY 7,261,567 13,153,420
------------------ ------------------
$ 25,941,015 $ 32,840,194
================== ==================
</TABLE>
F-2
See Notes to Financial Statements.
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
----------------- ------------------ ------------------
<S> <C> <C> <C>
Management fees $ 12,498,922 $ 14,619,951 $ 1,122,500
----------------- ------------------ ------------------
12,498,922 14,619,951 1,122,500
General & administrative expenses 9,845,647 10,609,090 1,829,065
Depreciation and amortization 2,603,039 2,594,651 250,281
Bad debts 2,193,300 590,125 2,300
----------------- ------------------ ------------------
14,641,986 13,793,866 2,081,646
----------------- ------------------ ------------------
NET OPERATING INCOME (LOSS) (2,143,064) 826,085 (959,146)
OTHER INCOME (EXPENSE)
Interest income 18,006 60,957 67,899
Interest expense (1,946,558) (1,983,591) (252,415)
Miscellaneous income 0 1,328 0
Bad debts - former subsidiaries (Note 18) (2,169,806) 0 0
Disposition of subsidiaries 256,493 0 0
Loss on disposal of equipment (16,996) (23,986) 0
Unrealized decline in investment (12,800) (383,247) (41,400)
----------------- ------------------ ------------------
(3,871,661) (2,328,539) (225,916)
----------------- ------------------ ------------------
NET (LOSS) BEFORE INCOME
TAXES AND MINORITY INTEREST (6,014,725) (1,502,454) (1,185,062)
INCOME TAX EXPENSE (BENEFIT) (Note 12) 127,128 790,913 (759,355)
----------------- ------------------ ------------------
LOSS FROM
CONTINUING OPERATIONS (6,141,853) (2,293,367) (425,707)
DISCONTINUED OPERATIONS, NET OF INCOME TAXES
P&H operations 0 (124,804) 128,409
MMC operations 0 (1,127,675) (595,318)
----------------- ------------------ ------------------
0 (1,252,479) (466,909)
----------------- ------------------ ------------------
NET (LOSS) BEFORE
MINORITY INTEREST (6,141,853) (3,545,846) (892,616)
MINORITY INTEREST 0 0 64,205
----------------- ------------------ ------------------
NET (LOSS) $ (6,141,853) $ (3,545,846) $ (956,821)
================= ================== ==================
Net (loss) per weighted average share - continuing operations $ (.43) $ (.18) $ (.05)
Net (loss) per weighted average share - discontinued operations .00 (.09) (.06)
----------------- ------------------ ------------------
$ (.43) $ (.27) $ (.11)
================= ================== ==================
Weighted average number of common shares used to
compute net income (loss) per weighted
average share 14,185,573 13,057,008 8,377,442
================= ================== ==================
</TABLE>
F-3
See Notes to Financial Statements.
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
Par Value $.001 Paid-in Retained
Shares Amount Capital Deficit
------------- --------------- --------------- ---------------
<S> C> <C> <C> <C>
Balances at 12/31/95 7,000,000 $ 7,000 $ 1,310,000 $ (620,467)
Sale of common stock (Regulation S) at $2.00
per share 12,500 13 24,987
Sale of common stock (Regulation S) at $1.75
per share 1,822,400 1,822 3,187,377
Sale of common stock (S-8) at $1.00 per share 184,000 184 183,816
Issuance of common stock (restricted) at $1.00
per share for expense 40,000 40 39,960
Acquisition of subsidiary (P & H) (225,026)
Issuance of common stock (restricted)
related to Genesis acquisition 3,100,000 3,100 10,319,900
Expenses related to capital raising (75,776)
Net loss for year (956,821)
------------- --------------- --------------- ---------------
Balances at 12/31/96 12,158,900 12,159 14,765,238 (1,577,288)
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)
Sale of common stock (S-8) at $1.00 per share 250,000 250 249,750
Net loss for year (6,141,853)
------------- --------------- --------------- ---------------
Balances at 12/31/98 14,223,929 $ 14,224 $ 18,512,330 $ (11,264,987)
============= =============== =============== ================
</TABLE>
F-4
See Notes to Financial Statements.
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
----------------- ------------------ ------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net (loss) $ (6,141,853) $ (3,545,846) $ (956,821)
Adjustments to reconcile net (loss) to cash used by
operating activities:
Depreciation and amortization 2,802,731 2,921,571 311,178
Book value of assets sold/disposed 53,017 120,346 0
Book value of spun-off subsidiaries 1,743,312 0 0
Bad debts 2,193,300 590,125 0
Minority interest 0 0 64,205
Stock issued for expense 0 0 40,000
Investment received as interest income 0 (15,000) (50,000)
Unrealized decline in investment 12,800 383,247 41,400
Deferred taxes 0 500,500 (801,500)
Changes in assets and liabilities:
Accounts receivable (2,302,493) (2,519,886) 86,117
Inventories 0 (92,150) (129,024)
Prepaid expenses and other (70,522) 67,853 (120,587)
Accounts payable and accrued expenses 62,253 (549,923) 931,268
Income taxes payable (253,328) 163,468 (52,945)
Accrued interest payable 0 604,355 186,274
----------------- ------------------ ------------------
NET CASH USED BY OPERATING ACTIVITIES (1,900,783) (1,371,340) (450,435)
INVESTING ACTIVITIES
Loans to related party and accrued interest 0 90,246 (246,480)
Loan - other (34,861) 91,953 (91,953)
Purchase of equipment (14,951) (892,674) (155,821)
Refund of option 0 0 30,000
Deposits (11,496) 12,418 (1,312)
Purchase of subsidiaries 0 0 (12,102,233)
Goodwill 0 (500,000) (3,947,775)
Organization costs 0 (27,800) 0
----------------- ------------------ ------------------
NET CASH USED BY INVESTING ACTIVITIES (61,308) (1,225,857) (16,515,574)
FINANCING ACTIVITIES
Deferred debt issue costs 0 (340,356) (1,566,721)
Cash from (to) subsidiaries (387,982) 41,518 674,440
Principal payments on debt (37,683) (3,297,713) (301,571)
Principal payments on capital lease obligation 0 0 (519)
Proceeds from sale of common stock 250,000 1,022,600 3,322,423
Loan proceeds 0 347,303 3,000,000
Loans - related parties 150,000 0 0
Repayments - related parties (150,000) 0 0
Capital raising costs 0 (3,000) 0
Convertible note proceeds 0 3,996,000 14,504,000
----------------- ------------------ ------------------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES (175,665) 1,766,352 19,632,052
----------------- ------------------ ------------------
INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (2,137,756) (830,845) 2,666,043
Cash and cash equivalents at beginning of year 2,616,174 3,447,019 780,976
----------------- ------------------ ------------------
CASH AND CASH EQUIVA$ENTS AT END OF YEAR $ 478,418 $ 2,616,174 $ 3,447,019
================= ================== ==================
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 1,747,044 $ 1,204,709 $ 70,391
Cash paid for income taxes 271,595 157,753 169,390
</TABLE>
F-5
See Notes to Financial Statements.
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1997, and 1996
NOTE 1: BUSINESS ACTIVITY
The Company was incorporated under the laws of the state of Nevada on
July 20, 1989 and had been in the development stage through 1995. The
Company is now engaged in the acquisition of microwave technologies
for medical purposes through Microwave Medical Corp. ("MMC"), in the
business of managing 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 advanced components and
subsystems for the communications and aerospace industries through P
& H Laboratories ("P & H"). In early 1998, the Company spun-off MMC
and 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, 1998, Genesis had twenty-three active
contracts with monthly billings of $788,300. GCCA has contracts with
hospitals in Tennessee. At December 31, 1998, GCCA had two active
contracts with average monthly billings of $75,000. The contracts
range from three to five years.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Principals of Consolidation
The consolidated financial statements for 1998 include the accounts
of the Company; and its wholly owned subsidiaries Genesis and GCCA.
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.
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
eliminated 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
market. At December 31, 1998 and 1997, inventories were comprised of
the following:
1998 1997
------------- -------------
Raw materials $ 0 $ 344,909
Work in progress 0 465,068
------------- -------------
$ 0 $ 809,977
============= =============
F-6
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998, 1997, and 1996
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
Research and Development Costs Research and development costs were
$1,103,831 for 1997 and were all incurred by MMC and GmBH ($605,599 in
1996 and all incurred by MMC).
Warranty Costs
The Company provides, by a current charge to income, an amount it
estimates will be needed to cover future warranty obligations for
products sold during the year. The accrued liability for warranty
costs is included in accrued expenses in the accompanying balance
sheets.
Dividend Policy
The Company has not yet adopted any policy regarding payment of
dividends.
Stock Options
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and
related interpretations 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
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amount of
revenue and expenses during the reporting period. Actual results
could differ from those estimates.
Allowance for Uncollectible Accounts
The Company provides an allowance for uncollectible accounts based
upon prior experience and management's assessment of the
collectability of existing specific accounts.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to
concentration of risk, consist of cash and investments. The Company
places its investments in highly rated commercial paper obligations
which limits the amount of credit exposure. Historically, the Company
has not experienced any losses related to investments.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost and is being
depreciated over a useful life of seventeen months to eight years
using the straight-line and accelerated methods.
Cash and Cash Equivalents
For financial statement purposes, the Company considers all highly
liquid investments with an original maturity of three months or less
when purchased to be cash equivalents.
Organization Costs
Organization costs of MMC 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.
F-7
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998, 1997, and 1996
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
Deferred Debt Issue Costs These costs are associated with raising
money by issuing convertible notes. The costs are being amortized over
the life of the notes (ten years). In the event the notes are
converted to common stock, the remaining unamortized costs will be
charged to additional paid-in capital.
Income Taxes
Deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences, and
operating loss carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences
are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets
will not be realized. The valuation allowance at December 31, 1998
and 1997 was zero. Deferred tax assets and liabilities are adjusted
for the effects of changes in tax laws and rates on the date of
enactment. As of December 31, 1998, temporary differences arose
primarily from differences in the timing of recognizing expenses for
financial reporting and income tax purposes. Such differences include
depreciation, bad debt allowance, and various accrued operating
expenses.
Loss per Share
Loss per common share is computed by dividing net loss by the
weighted average shares outstanding during each period. The
convertible notes which are convertible to common stock have not been
considered in the calculation as their inclusion would be
antidilutive.
Reclassification of Certain Items
The operations of P&H and MMC for 1997 and 1996 have been
reclassified in the discontinued operations section of the statements
of operations.
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 1998, the Company sold 250,000 shares of S-8 stock for
$250,000 cash.
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 connection 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.
During 1996, the Company issued 40,000 shares of its common stock for
interest expense, at $1.00 per share, sold 12,500 shares of
Regulation S stock at $2.00 per share, sold 1,822,400 of Regulation S
stock at $1.75 per share, sold 184,000 shares of S-8 stock at $1.00
per share, and issued 3,100,000 shares of restricted stock at $3.33
per share in connection with the Genesis acquisition.
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.
F-8
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998, 1997, and 1996
NOTE 6: PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment as of December 31, 1998 and 1997 are
summarized as follows:
<TABLE>
<CAPTION>
Accumulated Net Book Value
Cost Depreciation 1998 1997
---------- ------------- --------------- ----------------
<S> <C> <C> <C> <C>
Transportation Equipment $ 240,307 $ 92,669 $ 147,638 $ 230,042
Machinery & Equipment 115,505 44,542 70,963 637,573
Furniture & Fixtures 0 0 0 85,200
Leasehold Improvements 16,493 6,361 10,132 48,083
---------- ------------- --------------- ----------------
$ 372,305 $ 143,572 $ 228,733 $ 1,000,898
========== ============= =============== ================
</TABLE>
Depreciation expense is calculated under straight-line and
accelerated methods based on the estimated service lives of
depreciable assets. Depreciation expense for the year ended December
31, 1998 amounted to $57,759, ($217,943 in 1997).
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>
1998 1997
Due From Amount Amount Interest Rate Due Date
<S> <C> <C> <C> <C> <C>
Officer of MMC(1) $ 52,500 $ 52,500 0% December 31, 1997
</TABLE>
(1)The $52,500 is due from a former officer/employee of MMC. The
Company expects to collect the amount in 1999, even though it is
past-due.
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 payment 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 1998, $180,000 was paid or accrued to the Company's President
and $105,067 was paid or accrued to the Company's
Secretary/Treasurer.
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.
F-9
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998, 1997, and 1996
NOTE 10: LONG-TERM DEBT
<TABLE>
<CAPTION>
1998 1997
----------- -----------------
<S> <C> <C>
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. $ 0 $ 72,954
Note payable - bank. Interest payments 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 assets 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
financial covenants. On March 2, 1998, the bank waived such events
of noncompliance as
of such date. 0 347,303
Genesis finances certain equipment for various items:
8.95% Note payable to bank in monthly installments of
$424, including interest through February 12, 2002. 14,184 0
9.40% Note payable to a lending institution payable in monthly
installments of $927, plus interest through November
29, 1999, secured by vehicle (paid off early) 0 17,890
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 (Paid off in 1998) 0 7,355
10.25% Note payable to bank in monthly installments of $432,
including interest through December 1999, secured by vehicle
(Paid off in 1998) 0 9,679
----------- -----------------
14,184 455,181
Less current portion 3,978 (108,542)
----------- -----------------
$ 10,206 $ 346,639
=========== =================
</TABLE>
Scheduled maturities of these obligations are as follows:
Year ending December 31,
1999 $ 3,978
2000 4,349
2001 4,754
2002 1,103
--------
$ 14,184
F-10
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998, 1997, and 1996
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 multiple of $1,000) into shares of Common Stock at the
conversion price of US $2.75 (the "Conversion Price"), except that if
a Note is called for redemption, the conversion right will terminate
at the close of business on the business day immediately preceding
the date fixed for redemption. Upon conversion, no adjustment will be
made for interest or dividends, but if any holder surrenders a Note
for conversion between the record date for the payment of an
installment of interest and the next interest payment date, then,
notwithstanding such conversion, the interest payment on such
interest payment date will be paid to the registered holder of such
Note on such record date. In such event, such Note which surrendered
for conversion, must be accompanied by payment of an amount equal to
the interest payable on such interest payment date on the portion so
converted. No fractional shares will be issued upon conversion but a
cash adjustment will be made for any fractional interest.
At December 31, 1998 the notes could have been converted into
6,182,364 shares of the Company's common stock.
Optional Redemption
The Notes will be redeemable at the option of the Company, in whole
or in part, at any time and from time to time, on and after September
15, 1997, on not less than 15 nor more than 60 days' notice by first
class mail, at the following redemption prices (expressed as
percentages of the principal amount) if redeemed during the
twelve-month period beginning September 15 of the year indicated
below, in each case, together with accrued interest thereon to the
redemption date:
Year Percentage
-------------- -----------
1997 110.00%
1998 108.75%
1999 107.50%
2000 106.25%
2001 105.00%
2002 103.75%
2003 102.50%
2004 101.25%
2005 100.00%
If less than all the Notes are to be redeemed, the Trustee will
select Notes for redemption in any manner the Trustee deems fair and
appropriate. If any Note is to be redeemed in part only, a new Note
or Notes in principal amount equal to the unredeemed principal
portion thereof will be issued.
Subordination of Notes
The Notes will be subordinate in right of payment to the extent set
forth in the Indenture to all existing and future Senior Indebtedness
(as defined in the Indenture) of the Company, whether outstanding on
the date of the Indenture or thereafter created, incurred, assumed,
or guaranteed. Upon any distribution of assets of the Company in any
dissolution, winding up, liquidation, or reorganization of the
Company (whether in an insolvency or bankruptcy proceeding or
otherwise), payment in full must be made on such Senior Indebtedness
before any payment is made on or in respect of the Notes. Upon the
happening and during the continuance of a default in payment of
interest on or principal of Senior Indebtedness, or any other default
with respect to such Senior Indebtedness permitting the holder
thereof to accelerate the maturity thereof, no payment may be made by
the Company on or in respect of the Notes. No such subordination will
prevent the occurrence of any Event of Default (as defined in the
Indenture).
F-11
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998, 1997, and 1996
NOTE 11: CONVERTIBLE NOTES (continued)
"Senior Indebtedness" includes (i) all indebtedness of the Company
(a) for borrowed money, (b) which is evidenced by a note, debenture
or similar instrument (including a purchase money mortgage) given in
connection with the acquisition of any property or assets (other than
inventory or similar property acquired in the ordinary course of
business), including securities, or (c) for the payment of money
relating to a Capitalized Lease Obligation (as defined in the
Indenture); (ii) any liability of others described in the preceding
clause which the Company has guaranteed or which is otherwise its
legal liability; and (iii) any amendment, renewal, extension, or
refunding of any such liability; provided, however, that Senior
Indebtedness will not include any indebtedness of the Company to a
subsidiary or any indebtedness or guarantee of the Company which, by
its terms or the terms of the instrument creating or evidencing it,
is not superior in right of payment to the Notes.
The Indenture will not limit the amount of additional indebtedness,
including Senior Indebtedness, which the Company can create, incur,
assume, or guarantee, nor will the Indenture limit the amount of
indebtedness which any subsidiary can incur. As a result of these
subordination provisions, in the event of insolvency, holders of the
Notes may recover less ratably than general creditors of the Company.
On March 17, 1998, the Company announced the restructuring of its
convertible notes. $351,500 of the original $17,001,500 debt remains
unchanged in its terms. Holders of $16,650,000 of original debt
accepted the Company's offer to convert to $8,325,000 of 7.5% secured
convertible notes due December 31, 2006. The holders also will
receive one share of Dynamic's common stock for each $2 of original
debt and one warrant to purchase Dynamic's common stock at $1.50 per
share until December 31, 2000. 4,162,500 shares of Dynamic's common
stock and 8,325,000 warrants will be issued to complete the
transaction.
Summary:
Before the transaction:
Principal Amount Interest Rate
$ 17,001,500 10.0%
After the transaction:
Principal Amount Interest Rate
$ 8,325,000 7.5%
351,500 10.0%
----------------------
$ 8,676,500
======================
The new convertible notes of $8,325,000 are secured by the accounts
receivable of Genesis and GCCA. The security interest is subordinated
to banks, financial institutions or any lender or creditors as the
Board of Directors may deem appropriate.
The holders of the new notes also waived the January, 1999 interest
payment due under the terms of the old notes.
NOTE 12: INCOME TAXES
Components of income tax (benefit) are as follows:
1998 1997
------------ -----------
Current
Federal $ 0 $ 4,666
State 127,128 315,512
------------ -----------
127,128 320,178
------------ -----------
Deferred
Federal 0 487,500
State 0 0
------------ -----------
0 487,500
------------ -----------
Income tax (benefit) $ 127,128 $ 807,678
============ ===========
F-12
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998, 1997, and 1996
NOTE 12: INCOME TAXES (continued)
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:
1998 1997
------------ ---------
Income tax computed at federal
statutory tax rate $ (2,045,007) $ 210,000
Tax associated with uncertainty
of utilizing loss 2,054,208 0
Tax associated with lost net
operating loss benefits 0 305,000
State taxes (net of federal benefit) 117,927 292,678
------------ ---------
$ 127,128 $ 807,678
============ =========
Significant components of the Company's deferred tax liabilities and
assets for income taxes consist of the following:
1998 1997
------------ ---------
Current deferred tax assets
Net operating loss $ 300,000 $ 300,000
------------ ---------
Net deferred current tax assets $ 300,000 $ 300,000
============ =========
Long-term deferred tax asset
Net operating loss $ 0 $ 0
============ =========
Long-term deferred tax liabilities
Difference in fixed assets $ 300,000 $ 0
============ =========
There was no net change in the valuation allowance for the years
ended December 31, 1998 and December 31, 1997.
At December 31, 1998, the Company has a federal net operating loss
carryover of approximately $3,145,100. The Federal loss will expire
as follows:
December 31, 2010 $ 1,100
December 31, 2011 1,061,000
December 31, 2018 2,083,000
---------------------
$ 3,145,100
=====================
NOTE 13: INCENTIVE STOCK OPTION PLAN / WARRANTS
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 options have been granted. The Company also can
grant non-qualified stock options. The aggregate fair market value
(determined at the grant date) of the shares to which options become
exercisable for the first time by an optionee during any calendar
year shall not exceed $100,000 for qualified options and $1,000,000
for non-qualified options. For 10% shareholders, the option price
shall not be less than 100% of the fair market value of the shares on
the grant date and the exercise period shall not exceed 5 years from
the grant date. In the case of non-qualified stock options, the
option price shall not be less than $1.00 per share, or at a price
exceeding $1.00 per share at the discretion of the Committee. During
1996 the following options were granted:
150,000 shares to the President 405,000 shares to the Secretary
200,000 shares to a Director 100,000 shares to a Director
200,000 shares to the Vice President of Corporate Communications
945,000 shares to others
F-13
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998, 1997, and 1996
NOTE 13: INCENTIVE STOCK OPTION PLAN / WARRANTS (continued)
The exercise price is $1.00 per share. During 1998, 250,000 shares
were sold and during 1997, 1,022,600 shares were sold pursuant to the
plan.
During 1996, 184,000 shares were sold pursuant to the plan.
543,400 options were cancelled and 0 options remain unexercised at
December 31, 1998.
There are 117,500 options at an exercise price of $2.25 per share
which expire September 30, 2002.
An entity has 250,000 warrants to purchase the Company's common stock
at $.70 per share, prior to May 19, 2003. The warrants were given for
services performed by the entity.
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. $69,700 was paid
to Amteck in 1998. $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.
For 1999, it is projected that the Company's President will receive
$15,000 monthly and the Secretary will receive $8,000 monthly.
The Vice President of Operations for Genesis will receive $120,000 in
1999.
Future scheduled payments under these employment related commitments
are as follows:
Year Ending
December 31, 1999 $ 276,000
=================
Genesis pays a management fee of $15,000 per month on a
month-to-month basis for services provided to Genesis and GCCA.
Genesis leases equipment under operating leases expiring through
1999.
Future minimum lease payments are as follows:
Year Ending
December 31, 1999 $ 3,978
=====================
Genesis leases its facility at $2,800 per month through September 30,
1999 at which time the rent increases to $3,000 per month through
September, 2000. Genesis also pays the taxes and utilities.
Future minimum lease payments are as follows:
Year Ending
December 31, 1999 $ 34,200
December 31, 2000 27,000
---------------------
$ 61,200
=====================
Genesis and GCCA together expect to pay about $2.5 million in
consulting fees in 1999.
Through November, 1998, Genesis leased an aircraft from a related
party on a monthly basis, but the payment was not determined until
the end of each month. During 1998, payments to the entity were about
$274,000. During 1997, payments to the entity were about $323,000.
F-14
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998, 1997, and 1996
NOTE 14: COMMITMENTS AND CONTINGENCIES (continued)
Rental expense for the year ended December 31, 1998 was $69,395 (
$253,868 in 1997 and $203,299 in 1996) which includes $7,298 paid by
MMC to P & H in 1997 ($7,120 in 1996).
NOTE 15: FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, loans, and interest
receivable, accounts payable, accrued expenses and interest payable
approximate fair value due to the short maturity periods of these
instruments. The fair value of the Company's long-term debt, based on
the present value of the debt, assuming interest rates as follows at
December 31, 1998 was:
Note at 8.95% $ 10,616
Convertible notes at 10.0% 8,867,925
---------------------
$ 8,878,541
=====================
NOTE 16: INDUSTRY SEGMENTS
In 1998, the Company received its revenue from one source: management
fees earned by Genesis and GCCA. Information about that segment for
the year ended December 31, 1998 is as follows:
<TABLE>
<CAPTION>
1998 Management
Fees Other (1) Consolidated
-------------- -------------- --------------
<S> <C> <C> <C>
Management fees $ 12,498,922 $ 0 $ 12,498,922
Operating profit (loss)$ 1,472,195 $ (3,615,259) $ (2,143,064)
============== ============== ==============
Identifiable assets at
December 31, 1998 $ 3,969,993 $ 0 $ 3,969,993
Corporate assets 969,343 21,001,679 21,971,022
-------------- -------------- --------------
Total assets at
December 31, 1998 $ 4,939,336 $ 21,001,679 $ 25,941,015
=============== ============== ==============
</TABLE>
Prior to 1998, the Company received its revenue from two sources:
management fees earned by Genesis and GCCA and sales of components
and subsystems made by P & H. Information about those segments for
the years ended December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 Management
Fees Sales Other (2) 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 assets 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>
F-15
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998, 1997, and 1996
NOTE 16: INDUSTRY SEGMENTS (continued)
<TABLE>
<CAPTION>
1996 Management
Fees Sales Other (2) Consolidated
-------------- -------------- -------------- --------------
<S> <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 assets at
December 31, 1996 $ 1,451,361 $ 1,415,795 $ 79,322 $ 2,946,478
Corporate assets 329,033 782,854 29,896,455 31,008,342
-------------- -------------- -------------- --------------
Total assets at
December 31, 1996 $ 1,780,394 $ 2,198,649 $ 29,975,777 $ 33,954,820
============== ============== ============== ==============
</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 of the Company
which reduce operating profit of the segment to an operating loss
on a consolidated basis. Amortization of goodwill in the amount of
$2,545,280 is also included.
(2) Reflects general and administrative expenses, research and
development and bad debts of the Company and MMC which reduce
operating profit of the segments to an operating loss on a
consolidated basis. Amortization of goodwill in the amount of
$2,515,530 is also included.
(3)Reflects general and administrative expenses, research and
development and bad debts of the Company and MMC which reduce
operating profit of the segments to an operating loss on a
consolidated basis. Amortization of goodwill in the amount of
$202,190 is also included.
Pre-consolidation net income (loss) is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- ------------------
<S> <C> <C> <C>
Dynamic $ (5,320,553) $ (5,531,798) $ (1,624,870)
MMC/GmBH 0 (1,127,675) (595,318)
P & H 0 (51,804) 128,409
Genesis (981,840) 2,845,514 258,829
GCCA 160,540 542,452 0
----------------- ----------------- ------------------
(6,141,853) (3,323,311) (1,832,950)
(Tax) benefit adjustment 0 (222,535) 940,334
Minority interest 0 0 (64,205)
----------------- ----------------- ------------------
Adjusted Net Loss $ (6,141,853) $ (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.
F-16
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998, 1997, and 1996
NOTE 17: ACQUISITION OF SUBSIDIARIES (continued)
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.
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: 1998 EVENTS
On February 25, 1998, the Company announced that it would spin-off
two of its subsidiaries, MMC (which includes GmBH) and P&H, into a
new public entity 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 MMC and P&H for the year ended December 31,
1997 was about $1.18 million.
In 1998, Dynamic recorded a $2.17 million charge to bad debts to
reflect money due to it from MMC/GmBH which was not repaid.
NOTE 19: SUBSEQUENT EVENTS
As discussed in Note 11, the Company in early 1999 was able to reduce
its long-term convertible debt by almost half. Had the restructuring
occurred prior to December 31, 1998, the following accounts would
have been affected:
Discharge of indebtedness income in the amount of $9,060,491 would
have been recorded consisting of debt reduction of $8,325,000 and
reduced interest payable of $739,653 and common stock of $4,162.
Interest payable would have been reduced by $739,653. Deferred
debt issue costs would have been reduced by $651,402 and charged
to additional paid-in-capital as a capital raising cost.
The discharge of indebtedness income will be non-taxable as the
Company is insolvent for tax purposes under Code Section 108 of
the Internal Revenue Code.
Net loss as stated $ (6,141,853)
Discharge of indebtedness income 9,060,491
-------------
Net income had event occurred in 1998 2,918,638
Convertible notes as stated 17,001,500
1999 restructuring (8,325,000)
-------------
Balance had event occurred in 1998 8,676,500
Deferred debt issue costs as stated 1,331,307
1999 restructuring (651,402)
-------------
Balance had event occurred in 1998 679,905
Accrued interest payable as stated 791,851
1999 restructuring (739,653)
-------------
Balance had event occurred in 1998 52,198
F-17
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998, 1997, and 1996
NOTE 19: SUBSEQUENT EVENTS (continued)
Common stock as stated 14,224
1999 restructuring 4,162
-------------
Balance had event occurred in 1998 18,386
Retained deficit as stated (11,264,987)
1999 restructuring 9,060,491
-------------
Balance had event occurred in 1998 (2,204,496)
Additional paid-in-capital as stated 18,512,330
1999 restructuring (651,402)
Balance had event occurred in 1998 17,860,928
NOTE 20: SUBSEQUENT EVENTS - POSSIBLE MERGER
On March 30, 1999, the Company contributed the stock of Genesis and
Geriatric to a newly formed limited liability company ("LLC").
Another entity also contributed its shares of a subsidiary to the
LLC. Later in 1999, it is the intent of the parties to effect a
merger with a newly formed subsidiary of the Company which is named
Dynamic Acquisition Corporation. The shareholders of the other entity
will end up with 55% of the outstanding stock of the Company which
will result in a change of control of the Company. The Company's
shareholders have until December 1, 1999 to approve the above
transactions.
NOTE 21: POSSIBLE LITIGATION
In December of 1998, the Company began a forensic audit to determine
whether its subsidiaries were using proper management procedures in
conducting its business operations. Upon completion of the forensic
audit, the Company will determine whether legal proceedings against
former officers and employees of Genesis and GCCA are appropriate.
NOTE 22: PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
See the following pages for unaudited condensed consolidated
financial statements which assume the entities were together as of
the beginning of each period presented.
F-18
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
(A Development Stage Company)
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
BALANCE SHEET
December 31, 1995
<TABLE>
<CAPTION>
Pro Forma Consolidated
Dynamic Genesis Adjustments Pro Forma
--------------- ------------ --------------- --------------
ASSETS
CURRENT ASSETS
<S> <C> <C> <C> <C> <C>
Cash $ 959,843 $ 178,945 (1) $ (500,000) $ 638,788
Short-term commercial paper 329,157 0 329,157
Accounts receivable 810,825 589,500 1,400,325
Loans receivable - related parties 272,300 0 272,300
Loans receivable 0 7,494 7,494
Accrued interest 4,202 0 4,202
Inventory 588,803 0 588,803
Prepaid expense 4,523 16,639 21,162
Deferred tax benefit 53,000 0 53,000
--------------- ------------ --------------- --------------
TOTAL CURRENT ASSETS 3,022,653 792,578 (500,000) 3,315,231
PROPERTY, PLANT AND
EQUIPMENT 177,757 247,822 425,579
OTHER ASSETS
Goodwill 0 0 (1) 12,000,000 25,257,080
(2) 3,000,000
(3) 10,323,000
(4) 50,000
(5) (115,920)
Deposits 21,315 200 21,515
Organization costs 1,120 0 1,120
--------------- ------------ --------------- --------------
22,435 200 25,257,080 25,279,715
--------------- ------------ --------------- --------------
$ 3,222,845 $ 1,040,600 $ 24,757,080 $ 29,020,525
=============== ============ =============== ==============
</TABLE>
F-19
<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
--------------- ------------ --------------- --------------
LIABILITIES & EQUITY
CURRENT LIABILITIES
<S> <C> <C> <C> <C> <C>
Accounts payable and accrued
expenses $ 320,254 $ 309,466 (4) $ 50,000 $ 679,720
Bridge loan 220,000 0 (2) 3,000,000 3,220,000
Current portion of long-term debt 77,823 0 77,823
Income taxes payable 129,805 46,544 176,349
--------------- ------------ --------------- --------------
TOTAL CURRENT LIABILITIES 747,882 356,010 3,050,000 4,153,892
Long-term debt 173,652 542,575 (1) 11,500,000 12,216,227
Loan from shareholders 0 26,095 26,095
Deferred income taxes 54,000 0 54,000
--------------- ------------ --------------- --------------
TOTAL LIABILITIES 975,534 924,680 14,550,000 16,450,214
Minority interest in subsidiary 775,389 0 775,389
STOCKHOLDERS' EQUITY
Common stock $.001 par value:
Authorized - 25,000,000 shares
Issued and outstanding 7,000,000
shares 7,000 1,000 (3) 3,100 10,100
(6) (1,000)
Additional paid-in capital 1,335,000 0 (3) 10,319,900 11,539,980
(5) (115,920)
(6) 1,000
Earnings (deficit) accumulated
during the development stage 129,922 114,920 244,842
--------------- ------------ --------------- --------------
TOTAL STOCKHOLDERS' EQUITY 1,471,922 115,920 10,207,080 11,794,922
--------------- ------------ --------------- --------------
$ 3,222,845 $ 1,040,600 $ 24,757,080 $ 29,020,525
=============== ============ =============== ==============
</TABLE>
F-20
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
(A Development Stage Company)
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
STATEMENT OF OPERATIONS
Year ended December 31, 1996
<TABLE>
<CAPTION>
Pro Forma Consolidated
Dynamic Genesis* Adjustments Pro Forma
--------------- ------------ --------------- --------------
<S> <C> <C> <C> <C>
Net Sales $ 3,395,098 $ 0 $ $ 3,395,098
Management fee income 0 9,678,360 9,678,360
Cost of sales 2,496,997 0 2,496,997
--------------- ------------ --------------- --------------
GROSS PROFIT 898,101 9,678,360 10,576,461
Selling and general and administrative
expenses 2,103,622 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
MINORITY INTEREST (2,017,480) 2,884,114 866,634
INCOME TAX EXPENSE (BENEFIT) 73,500 180,980(7) (939,535) (685,055)
--------------- ------------ --------------- --------------
NET INCOME (LOSS)
BEFORE MINORITY INTEREST (2,090,980) 2,703,134 939,535 1,551,689
INORITY INTEREST (64,205) 0 (64,205)
--------------- ------------ --------------- --------------
NET INCOME (LOSS) $ (2,155,185) $ 2,703,134 $ 939,535 $ 1,487,484
=============== ============ =============== ==============
Net income (loss) per weighted
average share $ (.26) $ 29.22 $ .18
=============== ============ ==============
Weighted average number of common
shares used to compute net income
(loss) per weighted average share 8,377,442 92,500 8,377,442
=============== ============ ==============
</TABLE>
* Includes the month of December, 1996 which is also included in the audited
Statements of Operations shown at Page F-3.
F-21
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
(A Development Stage Company)
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
STATEMENT OF OPERATIONS
Year ended December 31, 1995
<TABLE>
<CAPTION>
Pro Forma Consolidated
Dynamic Genesis Adjustments Pro Forma
--------------- --------------- ------------------ ---------------
<S> <C> <C> <C>
Net Sales $ 3,723,013 $ 0 $ $ 3,723,013
Management fee income 0 3,832,188 3,832,188
Cost of sales 2,370,168 0 2,370,168
--------------- --------------- ------------------ ---------------
GROSS PROFIT 1,352,845 3,832,188 5,185,033
Selling and general and administrative
expenses 1,407,527 3,543,293 4,950,820
Bad debts 58,380 47,425 105,805
--------------- --------------- ------------------ ---------------
1,465,907 3,590,718 5,056,625
--------------- --------------- ------------------ ---------------
NET OPERATING INCOME (LOSS) (113,062) 241,470 128,408
OTHER INCOME (EXPENSE)
Interest income 28,543 24 28,567
Interest expense (24,579) (17,077) (41,656)
--------------- --------------- ------------------ ---------------
3,964 (17,053) (13,089)
--------------- --------------- ------------------ ---------------
NET INCOME (LOSS)
BEFORE INCOME TAXES AND
MINORITY INTEREST (109,098) 224,417 115,319
INCOME TAX EXPENSE 202,600 59,308 261,908
--------------- --------------- ------------------ ---------------
NET INCOME (LOSS)
BEFORE MINORITY INTEREST (311,698) 165,109 (146,589)
MINORITY INTEREST (153,885) 0 (153,885)
--------------- --------------- ------------------ ---------------
NET INCOME (LOSS) $ (465,583) $ 165,109 $ 0 $ (300,474)
=============== =============== ================== ===============
Net income (loss) per weighted
average share $ (.18) $ 16.51 $ (.05)
=============== =============== ===============
Weighted average number of common
shares used to compute net income
(loss) per weighted average share 2,641,213 10,000 5,741,213
=============== =============== ===============
</TABLE>
F-22
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
The preceding pro forma consolidated condensed balance sheet has been derived
from the balance sheets of the Company and Genesis Health Management Corporation
("Genesis") at December 31, 1995. The balance sheet assumes that the Company
acquired 100% of the outstanding stock of Genesis on January 1, 1995. The
Balance Sheet column for December 31, 1995 labeled Dynamic also assumes the
Company had acquired 50% of the outstanding stock of P & H Laboratories on
January 1, 1995.
(1) Reflects $12,000,000 cash paid to acquire 100% of the outstanding stock
of Genesis and cash acquired by issuance of convertible notes.
(2) Reflects issuance of $3,000,000 note payable for the balance of the
purchase price.
(3) Reflects the issuance of 3,000,000 restricted common shares as part of
purchase price at $3.33 per share and 100,000 restricted common shares
for a finder's fee at $3.33 per share.
(4) Reflects a commission due on the transaction.
(5) Reflects the reduction of goodwill by the net assets purchased at book
value.
(6) Eliminates common stock of subsidiary.
(7) Reflects income tax benefit adjustment due to being able to file a
consolidated tax return with Genesis and expected future tax savings
produced by offsetting income from Genesis with the net operating loss
carryover of the Company.
The preceding pro forma consolidated condensed statements of operations have
been derived from the statements of operations of the Company and Genesis as of
December 31, 1996 and December 31, 1995, and assumes the companies were
consolidated as of the beginning of each period presented. The Statement of
Operations column labeled Dynamic for 1995 assumes that Dynamic had acquired 50%
of the outstanding stock of P & H Laboratories on January 1, 1995.
F-23
<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
--------------- --------------- ---------------- ---------------
<S> <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 decline in investment (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 weighted 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.
F-24
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from Dynamic Associates, Inc. December 31, 1998 financial
statements and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000878146
<NAME> Dynamic Associates, Inc.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 478,418
<SECURITIES> 0
<RECEIVABLES> 6,293,360
<ALLOWANCES> (2,552,100)
<INVENTORY> 0
<CURRENT-ASSETS> 4,768,790
<PP&E> 372,305
<DEPRECIATION> (143,572)
<TOTAL-ASSETS> 25,941,015
<CURRENT-LIABILITIES> 1,667,742
<BONDS> 0
0
0
<COMMON> 14,224
<OTHER-SE> 7,247,343
<TOTAL-LIABILITY-AND-EQUITY> 25,941,015
<SALES> 0
<TOTAL-REVENUES> 12,498,922
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,169,806
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,946,558
<INCOME-PRETAX> (6,014,725)
<INCOME-TAX> 127,128
<INCOME-CONTINUING> (6,141,853)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,141,853)
<EPS-PRIMARY> (.43)
<EPS-DILUTED> (.43)
</TABLE>
