UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 2000
[] Transition Report pursuant to 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
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Commission File Number 33-55254-03
DYNAMIC ASSOCIATES, INC.
(Exact name of Small Business Issuer as specified in its charter)
Nevada 87-0473323
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(State or other jurisdiction of (IRS Employer
incorporation ) Identification No.)
6617 North Scottsdale Road, Suite 103
Scottsdale, Arizona 85253
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(Address of principal executive offices (Zip Code)
Issuer's telephone number, including area code (480) 315-8600
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding as of
Class September 30, 2000
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$.001 par value Class A Common Stock 18,386,429 shares
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BASIS OF PRESENTATION
General
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Form 10-QSB and, therefore, do not include all
information and footnotes necessary for a complete presentation of financial
position, results of operations, cash flows, and stockholders' deficit in
conformity with generally accepted accounting principles. In the opinion of
management, all adjustments considered necessary for a fair presentation of the
results of operations and financial position have been included and all such
adjustments are of a normal recurring nature. Operating results for the three
months ended September 30, 2000 are not necessarily indicative of the results
that can be expected for the year ending December 31, 2000.
The 2000 financial statements present the activities of the Company and
Perspectives. The 1999 financial statements present the activities of the
Company and Genesis & GCCA which became Perspectives.
2
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DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
(Unaudited) (Audited)
----------------- --------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 579,775 $ 181,826
Accounts receivable (less allowance for doubtful accounts of
$1,157,472 in 2000 and $933,909 in 1999) 2,242,949 2,065,028
Other receivables 0 70,589
Prepaid expense and other current assets 18,755 1,600
----------------- ------------------
TOTAL CURRENT ASSETS 2,841,479 2,319,043
PROPERTY, PLANT & EQUIPMENT 83,408 89,016
OTHER ASSETS
Deferred debt issue costs (less amortization of $399,388 in 2000
and $316,432 in 1999) 477,809 560,765
Goodwill 1,590,000 1,590,000
----------------- ------------------
2,067,809 2,150,765
------------------ ------------------
$ 4,992,696 $ 4,558,824
================== ==================
LIABILITIES & (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 14,482 $ 63,363
Accrued expenses 725,241 636,179
Current portion of long-term debt 13,098 4,349
Accrued interest payable 846,449 366,305
----------------- ------------------
TOTAL CURRENT LIABILITIES 1,599,270 1,070,196
Long-term debt 9,095 5,857
Convertible notes 8,676,500 8,676,500
----------------- ------------------
8,685,595 8,682,357
----------------- ------------------
TOTAL LIABILITIES 10,284,865 9,752,553
STOCKHOLDERS' (DEFICIT)
Common Stock $.001 par value:
Authorized - 25,000,000 shares
Issued and outstanding 18,386,429 shares 18,386 18,386
Additional paid-in capital 19,146,474 19,146,474
Retained deficit (24,457,029) (24,358,589)
----------------- ------------------
TOTAL STOCKHOLDERS' (DEFICIT) (5,292,169) (5,193,729)
----------------- ------------------
$ 4,992,696 $ 4,558,824
================= ==================
</TABLE>
See Notes to Financial Statements.
3
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DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
2000 1999 2000 1999
------------------ ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Management fees $ 1,472,353 $ 2,055,890 $ 4,834,805 $ 6,569,302
------------------ ----------------- ----------------- ------------------
1,472,353 2,055,890 4,834,805 6,569,302
General & administrative expenses 1,443,565 1,682,322 4,368,662 5,104,844
Depreciation 9,768 9,347 19,233 39,401
Amortization of goodwill 0 636,320 0 1,908,960
Bad debts (101,435) 844,103 46,565 2,018,180
------------------ ----------------- ----------------- ------------------
1,351,898 3,172,092 4,434,460 9,071,385
------------------ ----------------- ----------------- ------------------
NET OPERATING INCOME (LOSS) 120,455 (1,116,202) 400,345 (2,502,083)
OTHER INCOME (EXPENSE)
Interest income 59 2,242 59 2,893
Interest expense (166,128) (193,837) (498,844) (677,661)
Unrealized (decrease) in investment 0 0 0 (13,000)
------------------ ----------------- ----------------- ------------------
(166,069) (191,595) (498,785) (687,768)
------------------ ----------------- ----------------- ------------------
NET (LOSS) BEFORE INCOME TAXES (45,614) (1,307,797) (98,440) (3,189,851)
INCOME TAX EXPENSE (BENEFIT) 0 (1,800) 0 300,000
------------------ ----------------- ----------------- ------------------
NET (LOSS) BEFORE
EXTRAORDINARY ITEM (45,614) (1,305,997) (98,440) (3,489,851)
Extraordinary item - Gain on restructuring of debt
(no applicable income taxes) 0 0 0 7,955,831
------------------ ----------------- ----------------- ------------------
NET INCOME (LOSS) $ (45,614) $ (1,305,997) $ (98,440) $ 4,465,980
================== ================= ================= ==================
BASIC AND DILUTED (LOSS) PER SHARE
Net income (loss) per weighted average share:
Operations $ (.00) $ (.07) $ (.01) $ (.20)
Extraordinary item .00 .00 .00 .46
------------------ ----------------- ----------------- ------------------
NET INCOME (LOSS) $ (.00) $ (.07) $ (.01) $ .26
================== ================= ================= ==================
Weighted average number of common shares
used to compute net income (loss) per weighted
average share 18,386,429 18,386,429 18,386,429 17,461,429
================== ================= ================= ==================
</TABLE>
See Notes to Financial Statements.
4
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DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
2000 1999
------------------ -----------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ (98,440) $ 4,465,980
Adjustments to reconcile net income (loss) to cash used by
operating activities:
Depreciation and amortization 102,189 2,047,508
Non-cash debt restructuring 0 (7,955,831)
Book value of disposed assets 0 72,041
Bad debts 46,565 2,018,180
Unrealized change in investment 0 13,000
Deferred taxes 0 300,000
Changes in assets and liabilities:
Accounts receivable (153,897) (1,523,549)
Prepaid expenses and other (17,155) 87,721
Accounts payable and accrued expenses 520,325 111,333
------------------ -----------------
NET CASH USED BY OPERATING ACTIVITIES 399,587 (363,617)
INVESTING ACTIVITIES
Loan - other 4,067 0
Deposits 0 410
------------------ -----------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 4,067 410
FINANCING ACTIVITIES
Cash from (to) subsidiaries (5,705) 0
Principal payments on debt 0 (3,290)
------------------ -----------------
NET CASH (USED) BY
FINANCING ACTIVITIES (5,705) (3,290)
------------------ -----------------
DECREASE IN CASH AND CASH EQUIVALENTS 397,949 (366,497)
Cash and cash equivalents at beginning of period 181,826 478,418
------------------ -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 579,775 $ 111,921
================== =================
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 18,700 $ 292,976
Cash paid for income taxes 0 23,931
</TABLE>
During 2000, the Company purchased equipment in the amount of $13,625 on a
contract. During 1999, the Company issued 4,162,500 shares of its restricted
common stock and 8,325,000 warrants to purchase stock at $1.50 per share until
December 31, 2000 to retire debt of $8,325,000 and accrued interest of $912,881.
See Notes to Financial Statements.
5
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DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Basis of Presentation
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles ("GAAP") for interim
financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted auditing
principles for complete financial statements. The unaudited financial
statements should, therefore, be read in conjunction with the financial
statements and notes thereto in the Report on Form 10KSB for the year
ended December 31, 1999. In the opinion of management, all adjustments
(consisting of normal and recurring adjustments) considered necessary
for a fair presentation, have been included. The results of operations
for the three and nine-month periods ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the
entire fiscal year.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company is engaged in managing the operation of psychiatric/geriatric units
for various hospitals through Perspectives Health Management Corp.
("Perspectives"), a wholly owned subsidiary.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, the Company had $579,775 in cash and cash equivalents.
The Company incurred an ordinary loss of $.01 per share.
Perspectives, a Nevada corporation, is a 100% owned subsidiary of the Company.
It provides elderly healthcare and gero-psychology services to small healthcare
facilities unable to provide these services in house. The Perspectives treatment
program conforms to the guidelines of the JCAHO Accreditation Manual for
Hospitals and Medical Standards. The program is reimbursed at cost by Medicare
when established as a distinct part unit of a hospital which qualifies for an
exemption from the Medicare Prospective Payment System("PPS"). The PPS exemption
provides for a cost plus reimbursement system for the unit, which allows the
hospital to receive full reimbursement of the direct operating expenses, plus an
allocation to the unit of a substantial portion of the hospital's overall
overhead and capital costs.
RESULTS OF OPERATIONS
During the three months ended September 30, 2000, no management fees were paid
or accrued compared to $0 for the same period in 1999. The officers have agreed
to waive compensation due to the Company's lack of cash.
Net ordinary loss for the three months ended September 30, 2000 was $(45,614)
compared to a loss of $(1,305,997) for the same period in 1999. The net loss is
$.00 per share for the quarter. Net loss for the period is largely due to
interest accrued on convertible notes.
Management fee income was $1,472,353 for the three months ended September 30,
2000 compared to $2,055,890 for the same period in 1999. This is an 18% decrease
from 1999. The main reasons for the decline are 4 fewer contracts than in 1999
and a reduction in fees required because the hospitals have been unable to pay
some of the higher contracted amounts due to Medicare reductions in the amounts
the hospitals receive.
General and administrative expenses for the three months ended September 30,
2000 were $1,443,565 compared to $1,682,322 for the same period in 1999.
Depreciation and amortization expenses for the three months ended September 30,
2000 were $9,768 and $0 respectively compared to $9,347 and $636,320 for the
same period in 1999. In 1999, the Company adjusted the carrying value of
goodwill to the amount it expects to receive from the sale of Perspectives and
is no longer amortizing goodwill on a quarterly basis.
Interest expense for the three months ended September 30, 2000 was $166,128
compared to $193,837 for the same period in 1999. Interest expense is incurred
to the Convertible Note Holders of the Company. The Company is delinquent on
most of its interest payments due in 2000 (about $846,000).
During the nine months ended September 30, 2000, no management fees were paid or
accrued compared to $75,769 for the same period in 1999. The officers have
agreed to waive compensation due to the Company's lack of cash.
Net ordinary loss for the nine months ended September 30, 2000 was $(98,440)
compared to a gain of $4,465,980 for the same period in 1999. The net loss is
$.01 per share for the quarter. Net loss for the period is largely due to
interest on convertible notes.
Management fee income was $4,834,805 for the nine months ended September 30,
2000 compared to $6,569,302 for the same period in 1999. This is a 26% decrease
from 1999. The main reasons for the decline are 4 fewer contracts than in 1999
and a reduction in fees required because the hospitals have been unable to pay
some of the higher contracted amounts due to Medicare reductions in the amounts
the hospitals receive.
General and administrative expenses for the nine months ended September 30, 2000
were $4,368,662 compared to $5,104,844 for the same period in 1999.
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Depreciation and amortization expenses for the nine months ended September 30,
2000 were $19,233 and $0 respectively compared to $39,401 and $1,908,960 for the
same period in 1999. In 1999, the Company adjusted the carrying value of
goodwill to the amount it expects to receive from the sale of Perspectives and
is no longer amortizing goodwill on a quarterly basis.
Interest expense for the nine months ended September 30, 2000 was $498,844
compared to $677,661 for the same period in 1999. Interest expense is incurred
to the Convertible Note Holders of the Company. The Company is delinquent on
most of its interest payments due in 2000 (about $846,000).
Even though the Company is in default, it has made arrangements with the
majority of its noteholders to convert the debt at the rate of $.15 per share
into the Company's common stock. The promissory note described in Item 5 will
also be assigned to the noteholders.
Pre-consolidation net income (loss) is as follows:
Dynamic $ (573,501)
Perspectives 475,061
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$ (98,440)
===============
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 did not experience any Y2K problems and does not expect
problems in the future.
Forward Looking Statements
The information contained in this section and elsewhere may at times represent
management's best estimates of the Company's future financial and technological
performance, based upon assumptions believed to be reasonable. Management makes
no representation or warranty, however, as to the accuracy or completeness of
any of these assumptions, and nothing contained in this document should be
relied upon as a promise or representation as to any future performance or
events. The Company's ability to accomplish these objectives, and whether or not
it will be financially successful is dependent upon numerous factors, each of
which could have a material effect on the results obtained. Some of these
factors are within the discretion and control of management and others are
beyond management's control. Management considers the assumptions and hypothesis
used in preparing any forward-looking assessments of profitability contained in
this document to be reasonable; however, we cannot assure investors that any
projections or assessments contained in this document, or otherwise made by
management, will be realized or achieved at any level.
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
8
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PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The Company is in the final stages of entering into an agreement
for the sale of all the assets of its wholly owned subsidiary,
Perspectives Health Management LLC ("Perspectives"), to a
Delaware limited liability company named New Perspectives Health
Management Corp. (The "Purchaser"). As this is the only active
business operation within the Company and represents the
transfer of all of the combined assets of the Company and it
subsidiaries, this sale will leave the Company without any
active business or assets.
Under this agreement, Perspectives will sell all of its assets
to the Purchaser in exchange for:
1. Twenty thousand dollars and no cents ($20,000) U.S. as the
first installment of ninety (60) equal monthly payments in
accordance with the Promissory Note described in paragraph
(2) below.
2. A promissory note in the stated principal amount of
$1,737,657.80 payable in 60 monthly installments of
$20,000 each together with interest accrued thereon at the
simple interest rate of eight percent (8%) per annum. This
promissory note will be secured by a security interest in
the Assets.
3. The Purchaser's agreement to assume and discharge in a
timely manner the obligations of Perspectives under all
contracts, accounts payable, and agreements transferred by
Perspectives to the Purchaser.
4. In addition, Purchaser has agreed that in the event of a
Major Transaction, it shall pay the entire amount of the
principle and interest then owing under the promissory
note, plus:
a. 50% of the net proceeds of such Major
Transaction, if the Major Transaction is
entered into or closes on or before
September 1, 2002; and
b. 25% of the net proceeds of such Major
Transaction, if the Major Transaction is
entered into or closes after September 1,
2002, but on or before September 1, 2003.
A Major Transaction occurs if:
a. urchaser merges or consolidates with another entity;
b. Purchaser sells or otherwise transfers all or
substantially all of its assets; or
c. More that 50% of the voting membership interest of
Purchaser is transferred in a single transaction or a
series of related transactions, other than transfers
to certain permitted transferees of the members of
Purchaser.
Net proceeds with respect to a Major Transaction
equals all of the net consideration to be received
by Purchaser or its members in such Major
Transaction, less any principal and interest paid.
The obligation of the Parties to consummate this sale is subject
to each of the following conditions:
a. All representations and warranties of Perspectives,
Dynamic and the Purchaser are true and correct in all
material respects on the closing date;
b. There have been no material adverse changes to the
business between the date of the agreement and the
closing date;
c. No action or proceeding before the Governmental
Authority has been instituted or threatened to
restrain or prohibit the transactions contemplated by
the agreement.
9
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d. The note holders of Dynamic have each approved: (a)
the agreement and the sale, and (b) the exchange of
the existing notes for a pro rata share of the
promissory note and other consideration.
e. Each note holder has executed a representation letter
consenting to the sale of the assets and assignment
fo the note.
The sale must be consummated within thirty (30) days following
the latest of the date(s) of approval of the transaction by the
shareholders of Dynamic and the note holders and the
satisfaction of each other condition to closing, but no later
than the 1st day of September, 2000, unless both parties agree
in writing on a later closing date.
At the Closing, the Purchaser shall take all actions necessary
to ensure that any and all liabilities of Perspectives are
satisfied or paid current so that Perspectives is not in default
under any such obligations.
Subsequent to September 30, 2000, management has determined that
there is substantial doubt that this agreement will be
consumated.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
99-1 Financial Statements as of September 30, 2000
27 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
DYNAMIC ASSOCIATES, INC.
DATED: November 20, 2000 By:/s/ Grace Sim
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Grace Sim, Secretary/Treasurer
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