SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
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[] 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
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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)
6617 North Scottsdale Road, Suite 103
Scottsdale, ARIZONA 85253
- ----------------------------------------------------- -------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (480) 315-8600
---------------
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-KSB
or any amendment to this Form 10-KSB. []
Issuer's revenues for 1999 were $7,982,208.
As of March 30, 2000, the approximate market value of the voting stock held by
non-affiliates of the registrant was $1,488,045 based on an average bid price of
$.09 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 December 31, 1999
- ------------------------------------ -------------------------------------
$.001 PAR VALUE CLASS A COMMON STOCK 18,386,429 SHARES
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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 entered into several agreements with ACS2, Inc.
("ACS") and Advanced Clinical Systems, Inc. ("Advanced") under which the Company
contributed its operating subsidiaries, Genesis and 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").
This merger plan was subsequently cancelled and the LLC was dissolved. (See
section on Merger).
In the fourth quarter of 1999, the Company formed a new wholly owned
subsidiary in Nevada named Perspectives Health Care Management Corporation
("Perspectives") and qualified Perspectives to do business in Texas. The Company
is currently taking steps to consolidate Genesis and GCCA into the Perspectives'
entity and to operate these companies as one. There is also currently
negotiations between the Company and the management of Perspectives to sell
these businesses to the Perspectives management and to distribute any proceeds
to existing note holders as partial satisfaction of the Company's current debt.
In such an arrangement, the note holders, or some portion of them, are also
expected to convert their existing notes into common stock of the Company at a
price of 15 cents per share. The consummation of this process is subject to
shareholder approval and final agreement among all the parties which has not as
yet been reached.
The Company's executive offices are located at 6617 North Scottsdale Road,
Suite 103 Scottsdale, Arizona 85253 telephone number at this location is (480)
315-8600 and the telefax number is (480) 443-1235. Jan Wallace is the current
President and a Director, and Grace Sim is the Secretary/Treasurer and Director.
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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 17 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 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, 1999, GCCA had three
(3) 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
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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 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 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
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(D) the agreement of the Company to provide initial funding in the amount
of $200,000.
As of March 31, 2000, Dynamic has paid only the first $50,000 of the
$200,000 of this promissory note and is currently in default on this obligation.
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.
Merger
On March 30, 1999, Dynamic entered into a Capital Contribution Agreement
with ACS and Advanced under which the Company contributed its operating
subsidiaries, Genesis 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 set 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 set 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.
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.
The Merger was subsequently cancelled and the LLC was dissolved by
agreement of both parties without further obligation on either.
Creation of Perspectives and Consolidation of the Company's Subsidiaries
In the fourth quarter of 1999, the Company formed a new wholly owned
subsidiary in Nevada named Perspectives Health Care Management Corporation
("Perspectives") and qualified Perspectives to do business in Texas. The Company
is currently taking steps to consolidate Genesis and GCCA into the Perspectives'
entity and to operate these companies as one.
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Negotiations for Sale of Subsidiaries and Conversion of Debt
The Company is currently negotiating with the management of Perspectives
(Genesis and GCCA) to sell the entire health care business to an Limited
Liability Company owned and operated by the Perspectives' management. The final
terms of the sale have not been finalized, but are expected to include the
payment of the purchase price through a long term note with payments going
directly to the Company's existing note holders as partial satisfaction of the
Company's current debt obligation to them. In such an arrangement, the note
holders, or some portion of them, are also expected to convert their existing
notes into common stock of the Company at a price of 15 cents per share. The
consummation of this process is subject to shareholder approval and final
agreement among all the parties. This approval and agreement has not, as yet,
been reached.
ITEM 2. Properties
Dynamic Associates
Dynamic is headquartered in the premises located at 6617 North Scottsdale
Road, Scottsdale, 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 (now operating as Perspectives Health
Management Corp.) is located at 2121 West Spring Creek Parkway, Suite 109,
Plano, Texas 75023. The Genesis head office is approximately 1,300 square feet
and is leased for a period of one year. 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 (now operating as Perspectives Health Management
Corp.) is located within the offices of Genesis at 2121 West Spring Creek
Parkway, Suite 109, Plano, Texas 75023. 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, was not held in 1999, but is expected to
be held in July of 2000.
No matter was submitted to the Company's security holders for a vote during
the fiscal year ending December 31, 1999.
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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
1999 First Quarter $ .2812 $ .1875
Second Quarter .2344 .1094
Third Quarter .1875 .0938
Fourth Quarter .2031 .0781
1998 First Quarter .875 .7187
Second Quarter .875 .3437
Third Quarter 1.0625 .1875
Fourth Quarter .42 .16
The quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
As of December 31, 1999 there were 442 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.
The Company did not sell any shares of its stock during 1999.
ITEM 6. Management's Discussion and Analysis or Plan of Operation.
This discussion covers the years 1996 through 1999, 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 were 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 issued 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");
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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.
This offer was accepted by $16,650,000 in 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 1999 include the accounts of the
Company; its wholly owned subsidiaries; Perspectives, Genesis and GCCA. All
significant intercompany balances and transactions have been eliminated in the
consolidation.
Management fees for 1999 decreased to $7,982,208 from $12,498,922. The
36.1% decrease resulted from cancelled contracts and adjustments to billings
made necessary by Medicare reductions.
General and administrative expenses were $6,683,691 for 1999, down from
$9,845,647 in 1998. The Company was able to eliminate or reduce some of its
expenses in 1999 to achieve the decline.
Medicare reductions and other problems also caused the Company to record
bad debt expense for Genesis & GCCA of $3,072,296 for 1999, a significant
increase over the $2,193,300 for 1998.
Working capital at December 31, 1999 is $1,248,847, a decrease of
$1,852,201 from the $3,101,048 at December 31, 1998. The decrease is mainly due
to the decline in cash and receivables.
The Company has been feeling the harsh negative effects of the change in
the Medicare rules and has had to adjust its operating contracts and reduce its
expenses to continue operations. Based on its current financial situation and
future prospects, management does not expect that it can continue to operate and
support its outstanding debt obligations. As a consequence, management is
negotiating for the sale of the business and is attempting to arrange for the
conversion of its existing debt to equity. If management is successful in
implementing a sale of the business and getting creditors to convert their debt
to equity, it will seek to acquire or merge with an operating entity to continue
operations.
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 were expected to fail or create erroneous results. The Company did
not experience any adverse affect as a result of the Year 2000 Problem.
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
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subsidiary and on whom the principal accountant expressed reliance in its
report, has resigned or was dismissed. The Company has not changed accountants
nor has it had any disagreements with any accountants.
PART III
ITEM 9. Directors and Executive Officers of the Registrant.
The following table shows the positions held by the Company's officers and
directors. The directors were appointed and will serve until the next annual
meeting of the Company's stockholders, and until their successors have been
elected and have qualified. The officers were appointed to their positions, and
continue in such positions at the discretion of the directors.
Name Age Position
---------------------- --------- -------------
Jan Wallace 43 President, Director
Grace Sim 39 Secretary-Treasurer, 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. Ms. Wallace is also the
President and a Director of MW Medical, Inc., a publicly held company.
Grace Sim is the Secretary/Treasurer and a director of the Company . She is
also currently the Secretary/Treasurer and a director of MW Medical, Inc., a
publicly company. Ms. Sim joined Dynamic in January 1997. Before joining
Dynamic, Ms. Sim owned Sim Accounting, an accounting consulting company in
Ottawa, Ontario, Canada. Between 1993 and 1994, she worked as the controller
with Fulline, an office equipment company and with Mailhouse Plus Ltd. between
1990 and 1992. Ms. Sim received her Bachelor of Mathematics with honors from the
University of Waterloo in Waterloo, Ontario.
Mr. Elliot Smith and Mr. William Means resigned from the Board of Directors
in 1999. Mr. Clay Deardorff was appointed to the board in 1999, but then
resigned in the first quarter of 2000.
Terms of Office
The Company's directors are appointed for one year terms to hold office
until the next annual general meeting of the stockholders or until removed from
office in accordance with our by-laws. Officers are appointed by the board of
directors and hold office until removed by the board.
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Significant Employees
The Company does not have any other employees who are not already an
executive officer that are expected to make a significant contribution to the
business.
Section 16(a) Beneficial Ownership Reporting Compliance
The following persons have failed to file, on a timely basis, the
identified reports required by section 16(a) of the Exchange Act during the most
recent fiscal year.
<TABLE>
<CAPTION>
Known Failures
Number of Transactions not to File a
Name and Principal Position Late Reports Timely Reports Required Form
- ---------------------------------- ------------------ ----------------- ----------------
<S> <C> <C> <C>
Jan Wallace, President, CEO,
and Director 2 0 None
Grace Sim, Secretary/Treasurer,
and Director 2 0 None
</TABLE>
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 1999 $108,958 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
President, CEO,
Director
Grace Sim 1999 $64,000 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Secretary/Treasurer
</TABLE>
There can be no assurance that the amounts of compensation actually paid,
or the persons to whom it is paid for 2000, will not differ materially from the
above 1999 amounts.
*Options
In 1998, the stock option plan was canceled by the Board of Directors and
no options have been issued.
ITEM 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of December 31, 1999, 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 Arab Bank (Switzerland) Geneva 1,182,591 6.43%
1 Qual Du Mont-Blanc
PO Box 1096
CH-1211 Switzerland
Class A Common Jan Wallace 550,000 2.99%
(President & Director)
6929 East Cheney
Paradise Valley, AZ 85253
</TABLE>
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<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 Grace Sim 20,000 0.11%
(Secretary/Treasurer & Director)
7373 North Scottsdale Road,
Suite B169
Scottsdale, AZ 85253
Class A Common All officers and directors 570,000 3.10%
as a group (2 persons)
</TABLE>
ITEM 12. Certain Relationships and Related Transactions.
Except as disclosed below, none of the following parties since the date of
Dynamic's incorporation has had any material interest, direct or indirect, in
any transaction with Dynamic or in any presently proposed transaction that, in
either case, has or will materially affect Dynamic.
o Director or officer of Dynamic
o Proposed nominee for election as a director of Dynamic
o Person who beneficially owns, directly or indirectly, shares carrying
more than 10% of the voting rights attached to all outstanding shares
of Dynamic
o Promoter of Dynamic
o Relative or spouse of any of the foregoing persons
During 1999 $108,958 was paid or accrued to the Company's Chief Operating
Officer, and $64,000 was paid or accrued to the current Secretary/Treasurer.
The Company moved out of its previously leased location and now shares
office expenses with another company in the same premises.
For 2000, 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 2000.
Genesis leases equipment under operating leases. In 2000, the obligations
for these leases total $4,349 with $4,754 in 2001 and $1,103 in 2002.
Genesis leases its facility at $1,600 per month through September 23, 2000.
Genesis also pays a share of the operating expenses.
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, 1999 and 1998
F-3 Consolidated Statements of Operations - Years Ended December 31, 1999,
1998 and 1997.
F-4 Consolidated Statements of Changes in Stockholders' Equity - Years
Ended December 31, 1999, 1998 and 1997.
F-5 Consolidated Statements of Cash Flows - Years Ended December 31, 1999,
1998 and 1997.
F-6 Notes to Financial Statements
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(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter of 1999.
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: April 14, 2000 By:
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: April 14, 2000 By:
Jan Wallace, President and Director
Date: April 14, 2000 By:
Grace Sim, Secretary/Treasurer and Director
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Smith
&
Company
A Professional Corporation of Certified Public Accountants
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, 1999 and 1998, and the
related consolidated statements of operations, changes in stockholders' equity
(deficit), and cash flows for the years ended December 31, 1999, 1998, and 1997.
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, 1999 and 1998, and the results of their
operations, changes in stockholders' equity (deficit), and their cash flows for
the years ended December 31, 1999, 1998, and 1997, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the consolidated
financial statements, the Company has an accumulated deficit of $24,358,589 at
December 31, 1999. As discussed in Note 4, the Company is in the process of
selling its subsidiaries which will leave it with no operations or revenue. The
Company has suffered losses from operations and has a substantial need for
working capital. This raises substantial doubt about its ability to continue as
a going concern. The accompanying consolidated financial statements do not
include any adjustments that may result from the outcome of this uncertainty.
Smith & Company
CERTIFIED PUBLIC ACCOUNTANTS
Salt Lake City, Utah
March 30, 2000
10 West 100 South, Suite 700o Salt Lake City, Utah 84101-1554
Telephone: (801) 575-8297o Facsimile: (801) 575-8306
E-mail: [email protected]
Members: American Institute of Certified Public Accountants
o Utah Association of Certified Public Accountants
F - 1
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1999 1998
------------------ ------------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 181,826 $ 478,418
Accounts receivable (less allowance for doubtful accounts of
$933,909 in 1999 and $2,552,100 in 1998) 2,065,028 3,741,260
Loans receivable - related parties (Note 6) 0 52,500
Other receivables 70,589 86,662
Prepaid expense and other current assets 1,600 109,950
Deferred tax benefit (Note 10) 0 300,000
------------------ ------------------
TOTAL CURRENT ASSETS 2,319,043 4,768,790
PROPERTY, PLANT & EQUIPMENT (Note 5) 89,016 228,733
OTHER ASSETS
Deferred debt issue costs (less amortization of $316,432) (Note 2) 560,765 1,331,307
Investment - restricted stock 0 17,000
Goodwill (less amortization of $24,857,775) (Note 2) 1,590,000 19,594,775
Deposits 0 410
------------------ ------------------
2,150,765 20,943,492
------------------ ------------------
$ 4,558,824 $ 25,941,015
================== ==================
LIABILITIES & EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 63,363 $ 596,812
Accrued expenses 636,179 275,101
Current portion of long-term debt (Note 8) 4,349 3,978
Accrued interest payable 366,305 791,851
------------------ ------------------
TOTAL CURRENT LIABILITIES 1,070,196 1,667,742
Long-term debt (Note 8) 5,857 10,206
Convertible notes (Note 9) 8,676,500 17,001,500
------------------ ------------------
8,682,357 17,011,706
------------------ ------------------
TOTAL LIABILITIES 9,752,553 18,679,448
Commitments and contingencies (Note 12) 0 0
STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock $.001 par value:
Authorized - 25,000,000 shares
Issued and outstanding 18,386,429 shares (14,223,929 in 1998) 18,386 14,224
Additional paid-in capital 19,146,474 18,512,330
Retained deficit (24,358,589) (11,264,987)
------------------ ------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (5,193,729) 7,261,567
------------------ ------------------
$ 4,558,824 $ 25,941,015
================== ==================
</TABLE>
See Notes to Consolidated Financial Statements.
F - 2
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998 1997
----------------- ------------------ ------------------
<S> <C> <C> <C>
Management fees $ 7,982,208 $ 12,498,922 $ 14,619,951
----------------- ------------------ ------------------
7,982,208 12,498,922 14,619,951
General & administrative expenses 6,683,691 9,845,647 10,609,090
Depreciation and amortization 2,572,207 2,603,039 2,594,651
Goodwill impairment (Notes 2 and 4) 15,459,495 0 0
Bad debts 3,124,796 2,193,300 590,125
----------------- ------------------ ------------------
27,840,189 14,641,986 13,793,866
----------------- ------------------ ------------------
NET OPERATING INCOME (LOSS) (19,857,981) (2,143,064) 826,085
OTHER INCOME (EXPENSE)
Interest income 3,825 18,006 60,957
Interest expense (872,255) (1,946,558) (1,983,591)
Miscellaneous income 0 0 1,328
Bad debts - former subsidiaries (Note 16) 0 (2,169,806) 0
Disposition of subsidiaries 0 256,493 0
Loss on disposal of equipment (109,022) (16,996) (23,986)
Unrealized decline in investment (17,000) (12,800) (383,247)
----------------- ------------------ ------------------
(994,452) (3,871,661) (2,328,539)
----------------- ------------------ ------------------
NET (LOSS) BEFORE INCOME TAXES (20,852,433) (6,014,725) (1,502,454)
INCOME TAX EXPENSE (Note 10) 197,000 127,128 790,913
----------------- ------------------ ------------------
(LOSS) FROM
CONTINUING OPERATIONS (21,049,433) (6,141,853) (2,293,367)
EXTRAORDINARY ITEM
Gain on restructuring of debt (no applicable income tax)(Note 17) 7,955,831 0 0
----------------- ------------------ ------------------
(LOSS) BEFORE DISCONTINUED OPERATIONS (13,093,602) (6,141,853) (2,293,367)
DISCONTINUED OPERATIONS, NET OF INCOME TAXES
P&H operations 0 0 (124,804)
MMC operations 0 0 (1,127,675)
----------------- ------------------ ------------------
0 0 (1,252,479)
----------------- ------------------ ------------------
NET (LOSS) $ (13,093,602) $ (6,141,853) $ (3,545,846)
================= ================== ==================
Net (loss) per weighted average share - continuing operations $ (1.19) $ (.43) $ (.18)
Net income per weighted average share - extraordinary item .45 .00 .00
Net (loss) per weighted average share - discontinued operations .00 .00 (.09)
----------------- ------------------ ------------------
$ (.74) $ (.43)$ (.27)
================= ================== ===================
Weighted average number of common shares used to compute
net income (loss) per weighted average share 17,747,799 14,185,573 13,057,008
================= ================== ===================
</TABLE>
See Notes to Consolidated Financial Statements.
F - 3
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock Additional
Par Value $.001 Paid-in Retained
Shares Amount Capital Deficit
------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
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)
Issuance of common stock to
restructure debt 4,162,500 4,162 634,144
Net loss for year (13,093,602)
------------- --------------- --------------- ---------------
Balances at 12/31/99 18,386,429 $ 18,386 $ 19,146,474 $ (24,358,589)
============= =============== =============== ===============
</TABLE>
See Notes to Consolidated Financial Statements.
F - 4
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998 1997
-------------- ------------ ------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net (loss) $ (13,093,602) $ (6,141,853) $ (3,545,846)
Adjustments to reconcile net (loss) to cash used by
perating activities:
Depreciation and amortization 18,158,501 2,802,731 2,921,571
Book value of assets sold/disposed 112,790 53,017 120,346
Book value of spun-off subsidiaries 0 1,743,312 0
Bad debts 3,124,796 2,193,300 590,125
Non-cash debt restructuring (7,955,831) 0 0
Investment received as interest income 0 0 (15,000)
Unrealized decline in investment 17,000 12,800 383,247
Deferred taxes 300,000 0 500,500
Changes in assets and liabilities:
Accounts receivable (1,396,064) (2,302,493) (2,519,886)
Inventories 0 0 (92,150)
Prepaid expenses and other 124,423 (70,522) 67,853
Accounts payable and accrued expenses (172,372) 62,253 (549,923)
Income taxes payable 0 (253,328) 163,468
Accrued interest payable 487,335 0 604,355
-------------- ------------ ------------
NET CASH USED BY OPERATING ACTIVITIES (293,024) (1,900,783) (1,371,340)
INVESTING ACTIVITIES
Loans to related party and accrued interest 0 0 90,246
Loan - other 0 (34,861) 91,953
Purchase of equipment 0 (14,951) (892,674)
Deposits 410 (11,496) 12,418
Goodwill 0 0 (500,000)
Organization costs 0 0 (27,800)
-------------- ------------ ------------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES 410 (61,308) (1,225,857)
FINANCING ACTIVITIES
Deferred debt issue costs 0 0 (340,356)
Cash from (to) subsidiaries 0 (387,982) 41,518
Principal payments on debt (3,978) (37,683) (3,297,713)
Proceeds from sale of common stock 0 250,000 1,022,600
Loan proceeds 0 0 347,303
Loans - related parties 0 150,000 0
Repayments - related parties 0 (150,000) 0
Capital raising costs 0 0 (3,000)
Convertible note proceeds 0 0 3,996,000
-------------- ------------ ------------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES (3,978) (175,665) 1,766,352
-------------- ------------ ------------
(DECREASE) IN
CASH AND CASH EQUIVALENTS (296,592) (2,137,756) (830,845)
Cash and cash equivalents at beginning of year 478,418 2,616,174 3,447,019
-------------- ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 181,826 $ 478,418 $ 2,616,174
============== ============ ============
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 257,939 $ 1,747,044 $ 1,204,709
Cash paid for income taxes 0 271,595 157,753
</TABLE>
During 1999, the Company issued 4,162,500 shares of its restricted common stock
and 8,325,000 warrants to purchase stock at $1.50 per share until December 31,
2000 to retire debt of $8,325,000 and accrued interest of $912,881.
During 1998, the Company purchased a vehicle in the amount of $16,943 by
incurring a loan in the same amount.
See Notes to Consolidated Financial Statements.
F - 5
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
December 31, 1999, 1998, and 1997
NOTE 1: BUSINESS ACTIVITY
The Company was incorporated under the laws of the state of Nevada on
July 20, 1989 and had been in the development stage through 1995. The
Company is now engaged 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").
Genesis has contracts with hospitals in the states of Louisiana,
Arkansas, Mississippi, and Tennessee. The contracts range from one to
five years. At December 31, 1999, Genesis had seventeen active
contracts with monthly billings of $517,026. GCCA has contracts with
hospitals in Tennessee. At December 31, 1999, GCCA had three active
contracts with average monthly billings of $69,000. The contracts
range from three to five years.
In November, 1999, Genesis and GCCA merged and are now operating as
Perspectives Health Management Corp. ("Perspectives"). For
consistency with prior years, the words Genesis and GCCA may continue
to be used in the footnotes.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Principals of Consolidation
The consolidated financial statements for 1999 and 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. MMC and P&H were spun-off
in early 1998.
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.
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.
F - 6
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998, and 1997
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
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.
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. The carrying value of goodwill is reviewed
periodically based on the un-discounted cash flows of the entities
acquired over the remaining amortization period. Should this review
indicate that goodwill is impaired, the Company's carrying value of
the goodwill is reduced by the estimated shortfall of un-discounted
cash flows.
In late 1999, the Company made the decision to reduce goodwill to
$1,590,000 which is the approximate amount it expects to realize from
the sale of Perspectives in 2000. See Note 4 for more details.
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, 1999
and 1998 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, 1999, 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.
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 1999, the Company issued 4,162,500 shares of its restricted
common stock and 8,325,000 warrants to purchase stock at $1.50 per
share until December 31, 2000 to retire debt of $8,325,000 and
accrued interest of $912,881.
During 1998, the Company 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. At the time of the GCCA transaction, the free- trading
price of the Company's stock was $3.875 per share. However, due to
the fact the stock given
F - 7
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998, and 1997
NOTE 3: CAPITALIZATION (continued)
was restricted, and given the value of the business being acquired,
the Company believes $2.00 per share is a reasonable value. At the
time of the P&H transaction, the free-trading price of the Company's
stock was $3.50 per share.
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. At the time of
the Genesis transaction, the free-trading price of the Company's
stock was $3.6875 per share. The Company feels the $3.33 per share
value assigned is reasonable based on the stock being restricted and
based on the overall value of the business being acquired.
NOTE 4: EXPECTED SALE OF SUBSIDIARIES
In late 1999, the Company began negotiations to sell Perspectives.
The Company merged Perspectives with Genesis and GCCA with
Perspectives being the surviving entity. The Company is finalizing
negotiations whereby it will sell Perspectives under a contract
bearing interest at 8% per year. The contract calls for sixty monthly
payments of $20,000 and then a balloon payment of $900,000. The
contract has a present value of about $1,590,000. The Company is also
finalizing an agreement with shareholders who are owed $8,325,000 in
convertible notes. The shareholders have tentatively agreed to accept
the assignment of the above contract to reduce the $8,325,000 owed to
them and then to convert the remaining debt of $6,225,000 into the
Company's common stock at the rate of $.15 per share. This would
result in 41,500,000 new shares of the Company's common stock being
issued, and the shareholders as a group would have voting control of
the Company.
NOTE 5: PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment as of December 31, 1999 and 1998 are
summarized as follows:
<TABLE>
<CAPTION>
Accumulated Net Book Value
Cost Depreciation 1999 1998
---------- ------------- --------- ---------
<S> <C> <C> <C> <C>
Transportation Equipment $ 164,536 $ 79,708 $ 84,828 $ 147,638
Machinery & Equipment 0 0 0 70,963
Furniture & Fixtures 19,654 15,466 4,188 0
Leasehold Improvements 0 0 0 10,132
---------- ------------- --------- ---------
$ 184,190 $ 95,174 $ 89,016 $ 228,733
========== ============= ========= =========
</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, 1999 amounted to $26,927, ($57,759 in 1998).
NOTE 6: LOANS RECEIVABLE - RELATED PARTIES
<TABLE>
<CAPTION>
1999 1998
Due From Amount Amount Interest Rate Due Date
----------------- --------- -------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Officer of MMC(1) $ 0 $ 52,500 0% December 31, 1997
</TABLE>
(1) The $52,500 is due from a former officer/employee of MMC.
The Company charged the amount to bad debts in 1999.
NOTE 7: RELATED PARTY TRANSACTIONS
During 1999, $108,958 was paid or accrued to the Company's Chief
Operating Officer and $64,000 was paid or accrued to the Company's
Secretary/Treasurer for services rendered to the Company. Accrued
amounts to the two individuals are $78,958 and $40,000 respectively.
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
for services rendered to the Company.
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 for
services rendered to the Company.
F - 8
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998, and 1997
NOTE 8: LONG-TERM DEBT
<TABLE>
<CAPTION>
1999 1998
----------------- -----------------
<S> <C> <C>
Genesis finances certain equipment for various items:
8.95% Note payable to bank in monthly installments of
$424, including interest through February 12, 2002. $ 10,206 $ 14,184
----------------- -----------------
10,206 14,184
Less current portion 4,349 3,978
----------------- -----------------
$ 5,857 $ 10,206
================= =================
Scheduled maturities of these obligations are as follows:
Year ending December 31,
2000 $ 4,349
2001 4,754
2002 1,103
---------
$ 10,206
=========
</TABLE>
NOTE 9: CONVERTIBLE NOTES
At December 31, 1998, the Company owed $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.
At December 31, 1999, the $351,500 remaining of the original
$17,001,500 of notes could have been converted into 127,818 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:
F - 9
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998, and 1997
NOTE 9: CONVERTIBLE NOTES (continued)
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).
"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, 1999, 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 received
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 were issued to complete the transaction.
F - 10
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998, and 1997
NOTE 9: CONVERTIBLE NOTES (continued)
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 10: INCOME TAXES
Components of income tax (benefit) are as follows:
1999 1998
------------- ------------
Current
Federal $ 0 $ 0
State (103,000) 127,128
------------- ------------
(103,000) 127,128
------------- ------------
Deferred
Federal 300,000 0
State 0 0
------------- ------------
300,000 0
------------- ------------
Income tax $ 197,000 $ 127,128
============= ============
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:
1999 1998
---------------- -----------
Income tax computed at federal
statutory tax rate $ (4,384,800) $ 2,045,007)
Change in valuation allowance for
deferred federal, state, & local
income tax assets 4,684,800 2,054,208
State taxes (net of federal benefit) (103,000) 117,927
-------------- -----------
$ 197,000 $ 127,128
============== ===========
Significant components of the Company's deferred tax liabilities and
assets for income taxes consist of the following:
1999 1998
------------ -----------
Current deferred tax assets
Net operating loss $ 0 $ 300,000
------------ -----------
Net deferred current tax assets $ 0 $ 300,000
============ ===========
The 1998 deferred tax asset related to Genesis. The Company expected
Genesis to realize a tax benefit in future years when Genesis again
becomes profitable. The Company itself has no operations to offset
its own losses and no deferred tax asset has been recorded for the
Company itself.
The net change in the valuation allowance for the year ended December
31, 1999 was $300,000 ($1,028,374 in 1998).
F - 11
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998, and 1997
NOTE 10: INCOME TAXES (continued)
The Company most likely will have no net operating loss carryover as
a result of having debt cancellation income while insolvent that will
eliminate prior loss carryfowards.
NOTE 11: 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
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.
All 2,000,000 options discussed above were granted at $1.00 per share
which was above market price.
The Company has adopted only the disclosure provisions of FASB No.
123, "Accounting for Stock- Based Compensation"(FAS123). It applies
APB Opinion No. 25 "Accounting for Stock Issued to Employees," and
related Interpretation in accounting for its plans and does not
recognize compensation expense for its stock-based compensation plans
other than for restricted stock. If the Company had elected to
recognize compensation expense based upon the fair value at the grant
date for awards under these plans consistent with the methodology
prescribed by FAS 123, the Company's net income and earnings per
share would be reduced to the pro forma amounts indicated below:
Year Ended December 31,
1999 1998
-------------- -------------
Net loss
As reported $ (13,093,602) $ (6,141,853)
Pro forma (13,093,602) (6,141,853)
Loss per common share
As reported $ (.74) $ (.43)
Pro forma (.74) (.43)
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.
F - 12
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998, and 1997
NOTE 12: COMMITMENTS AND CONTINGENCIES
During 1999, the Company paid no rent. In 1998, the Company was
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. 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 2000, it is projected that the Company's President will receive
$15,000 monthly and the Secretary will receive $8,000 monthly. The
Company feels this is reasonable compensation.
The President of Perspectives is expected to receive $120,000 in
2000.
Future scheduled payments under these employment related commitments
are as follows:
Year Ending
December 31, 1999 $ 396,000
=================
Perspectives leases equipment under operating leases expiring through
2000.
Future minimum lease payments are as follows:
Year Ending
--------------------
December 31, 2000 $ 4,859
December 31, 2001 4,859
December 31, 2002 3,645
-------------------
$ 13,363
===================
Perspectives leases its facility at $1,600 per month through
September, 2000. Perspectives also pays part of the operating
expenses.
Future minimum lease payments are as follows:
Year Ending
December 31, 2000 $ 14,400
=====================
Perspectives expects to pay about $1.8 million in consulting fees in
2000.
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.
The lease was with Blue Angel Aviation, an entity controlled by
William H. Means, Jr., one of the Company's directors. For 1998,
terms of the lease were a monthly fee of approximately $25,000 per
month. The Company terminated the lease effective December 1, 1998
and found alternative methods to travel to distant client locations.
Rental expense for the year ended December 31, 1999 was $37,600 (
$69,395 in 1998 and $253,868 in 1997) which includes $7,298 paid by
MMC to P & H in 1997.
NOTE 13: 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, 1999 was:
Note at 8.95% $ 8,411
Convertible notes at 10.0% 199,848
Convertible notes at 7.5% 4,932,751
-----------------
$ 5,141,010
=================
F - 13
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998, and 1997
NOTE 14: INDUSTRY SEGMENTS
In 1999, 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, 1999 is as follows:
<TABLE>
<CAPTION>
1999 Management
Fees Other(1) Consolidated
<S> <C> <C> <C>
Management fees $ 7,982,208 $ 0 $ 7,982,208
Operating profit (loss) $ (1,348,929) $ (18,509,052) (19,857,981)
================== =============== =============
Identifiable assets at
December 31, 1999 $ 2,226,503 $ 0 $ 2,226,503
Corporate assets 149,646 2,182,675 2,332,321
------------------ --------------- --------------
Total assets at
December 31, 1999 $ 2,376,149 $ 2,182,675 $ 4,558,824
================== =============== ==============
1998 Management
Fees Other (2) Consolidated
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 year ended December 31, 1997 is as follows:
<TABLE>
<CAPTION>
1997 Management
Fees Sales Other (3) 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>
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
$18,004,775 is also included.
(2)Reflects general and administrative expenses of the Company
which reduce operating profit of the segments to an operating loss
on a consolidated basis. Amortization of goodwill in the amount of
$2,545,280 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
$2,515,530 is also included.
F - 14
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998, and 1997
NOTE 14: INDUSTRY SEGMENTS (continued)
Pre-consolidation net income (loss) is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- ------------------
<S> <C> <C> <C>
Dynamic $ (10,980,650) $ (5,320,553) $ (5,531,798)
MMC/GmBH 0 0 (1,127,675)
P & H 0 0 (51,804)
Genesis (2,093,190) (981,840) 2,845,514
GCCA (19,762) 160,540 542,452
----------------- ----------------- ------------------
(13,093,602) (6,141,853) (3,323,311)
(Tax) benefit adjustment 0 0 (222,535)
----------------- ----------------- ------------------
Adjusted Net Loss $ (13,093,602) $ (6,141,853) $ (3,545,846)
================= ================= ==================
</TABLE>
For 1999, revenue from the following clients exceeded 5% of total
management fees: Aberdeen 5.81%, Franklin 6.34%, Bradley 5.75%,
Franklin County 6.69%, Tyler Holmes 7.18%, Montfort Jones 6.31%,
Sharkey 6.01%, Simpson 7.44%, Lackey 5.26%, and Perry 6.77%.
For 1998, revenue from the following clients exceeded 5% of total
management fees: Bradley 6.2%, Franklin County 7.2%, Holly Springs
5.7%, Lackey 5.7%, Morehouse 6.2%, Richardson 5.9%, Tyler Holmes
6.1%, Senatobia 6.2%, North Sunflower 5.5%, Sharkey 5.9% , Aberdeen
5.9%, Montfort Jones 6.0%, Cumberland 6.2%, and Dardanelle 6.0%.
For 1997, revenue from the following clients exceeded 5% of total
management fees: Bradley 5.3%, Franklin County 6.2%, Morehouse 5.3%,
Richardson 5.0%, Tyler Holmes 5.2%, Senatobia 5.3%, Sharkey 5.0%,
Aberdeen 5.0%, Montfort Jones 5.1%, Cumberland 5.3%, and Dardanelle
5.1%.
NOTE 15: ACQUISITION OF SUBSIDIARIES
During 1996, $1,000,000 cash was paid to acquire 50% of the
outstanding common stock of P & H in a purchase transaction. The
results of operations of P & H for all of 1996 are included in the
consolidated statements of operations.
During 1997, the remaining 50% of P&H was acquired in exchange for
214,287 shares of stock with an agreed value of $750,000.
In December 1996, the Company purchased 100% of the outstanding stock
of Genesis for $25,373,000. $15,050,000 was paid in cash or notes and
accounts payable. $10,323,000 was paid by issuing 3,100,000 shares of
restricted common stock at a value of $3.33 per share. $24,262,775 of
the purchase price has been allocated to goodwill which is being
amortized over ten years.
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 16: 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. The
spin-off was accounted for as a gain on disposition of subsidiaries
in the amount of $256,493 which was a result of recapture of negative
basis of the investment in subsidiaries. Each subsidiary maintained
its own accounting records. There was no allocation of assets or
liabilities when the entities were spun-off.
F - 15
<PAGE>
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998, and 1997
NOTE 17: EXTRAORDINARY ITEM
As discussed in Note 9, the Company in early 1999 was able to reduce
its long-term convertible debt by almost half.
The Company recorded extraordinary item income of $7,955,831. The
gain was determined based on the amount of debt forgiven less the
value of the common stock given to effect the transaction.
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.
F - 16
<PAGE>
EXHIBIT 11
DYNAMIC ASSOCIATES, INC.
CALCULATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Weighted
Common Months Average
Shares Outstanding Shares
----------------- ---------------- ------------------
<S> <C> <C> <C>
Year Ended December 31, 1999
Balance at December 1998 14,223,929 12 14,223,929
Issuance to retire debt 4,162,500 10.16 3,523,870
----------------- ------------------
Balance at December 31, 1999 18,386,429 17,747,799
Loss for year ended December 31, 1999 $ (13,093,602)
Loss per share $ (.74)
Year Ended December 31, 1998
Balance at December 31, 1997 13,973,929 12 13,973,929
Sale of stock 250,000 10.16 211,644
----------------- ------------------
Balance at December 31, 1998 14,223,929 14,185,573
Loss for year ended December 31, 1998 $ (6,141,853)
Loss per share $ (.43)
Year Ended December 31, 1997
Balance at December 31, 1996 12,158,900 12 12,158,900
Sale of stock 1,022,600 6.6 564,304
Issuance to acquire Geriatric 150,000 11.0 137,500
Issuance to retire debt 428,142 3.5 124,875
Issuance to acquire 50% of P&H 214,287 4.0 71,429
----------------- ------------------
Balance at December 31, 1997 13,973,929 13,057,008
Loss for year ended December 31, 1997 $ (3,545,846)
Loss per share $ (.27)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Dynamic Associates, Inc. December 31, 1999 financial statements and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000878146
<NAME> Dynamic Associates, Inc.
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1.00
<CASH> 181,826
<SECURITIES> 0
<RECEIVABLES> 3,069,526
<ALLOWANCES> 933,909
<INVENTORY> 0
<CURRENT-ASSETS> 2,319,043
<PP&E> 184,190
<DEPRECIATION> 95,174
<TOTAL-ASSETS> 4,558,824
<CURRENT-LIABILITIES> 1,070,196
<BONDS> 8,682,357
0
0
<COMMON> 18,386
<OTHER-SE> (5,212,115)
<TOTAL-LIABILITY-AND-EQUITY> 4,558,824
<SALES> 7,982,208
<TOTAL-REVENUES> 7,982,208
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 27,840,189
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 872,255
<INCOME-PRETAX> (20,852,433)
<INCOME-TAX> 197,000
<INCOME-CONTINUING> (21,049,433)
<DISCONTINUED> 0
<EXTRAORDINARY> 7,955,831
<CHANGES> 0
<NET-INCOME> (13,093,602)
<EPS-BASIC> (.74)
<EPS-DILUTED> (.74)
</TABLE>
