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 June 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 June 30, 2000
- ------------------------------------ -----------------------------------
$.001 par value Class A Common Stock 18,386,429 shares
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 June 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
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2000 1999
(Unaudited) (Audited)
----------------- ------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 715,258 $ 181,826
Accounts receivable (less allowance for doubtful accounts of
$1,157,472 in 2000 and $933,909 in 1999) 1,887,880 2,065,028
Other receivables 0 70,589
Prepaid expense and other current assets 101,118 1,600
----------------- ------------------
TOTAL CURRENT ASSETS 2,704,256 2,319,043
PROPERTY, PLANT & EQUIPMENT 93,176 89,016
OTHER ASSETS
Deferred debt issue costs (less amortization of $371,736 in 2000
and $316,432 in 1999) 505,461 560,765
Goodwill 1,590,000 1,590,000
----------------- ------------------
2,095,461 2,150,765
----------------- ------------------
$ 4,892,893 $ 4,558,824
================= ==================
LIABILITIES & (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 102,882 $ 63,363
Accrued expenses 635,735 636,179
Current portion of long-term debt 30,842 4,349
Accrued interest payable 681,567 366,305
----------------- ------------------
TOTAL CURRENT LIABILITIES 1,451,026 1,070,196
Long-term debt 11,922 5,857
Convertible notes 8,676,500 8,676,500
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8,688,422 8,682,357
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TOTAL LIABILITIES 10,139,448 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 (24,411,415) (24,358,589)
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TOTAL STOCKHOLDERS' (DEFICIT) (5,246,555) (5,193,729)
----------------- ------------------
$ 4,892,893 $ 4,558,824
================= ==================
3
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
Management fees $ 1,670,253 $ 2,029,246 $ 3,362,452 $ 4,513,412
------------- ------------- ------------- -------------
1,670,253 2,029,246 3,362,452 4,513,412
General & administrative expenses 1,506,974 1,568,440 2,925,097 3,422,522
Depreciation 5,679 15,026 9,465 30,054
Amortization of goodwill 0 636,320 0 1,272,640
Bad debts 48,000 (12,560) 148,000 1,174,077
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1,560,653 2,207,226 3,082,562 5,899,293
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NET OPERATING INCOME (LOSS) 109,600 (177,980) 279,890 (1,385,881)
OTHER INCOME (EXPENSE)
Interest income 0 651 0 651
Interest expense (138,381) (192,772) (332,716) (483,824)
Unrealized (decrease) in investment 0 (4,000) 0 (13,000)
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(138,381) (196,121) (332,716) (496,173)
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NET (LOSS) BEFORE INCOME TAXES (28,781) (374,301) (52,826) (1,882,054)
INCOME TAX EXPENSE 0 (1,800) 0 301,800
------------- ------------- ------------- -------------
NET (LOSS) BEFORE
EXTRAORDINARY ITEM (28,781) (372,301) (52,826) (2,183,854)
Extraordinary item - Gain on restructuring of
debt (no applicable income taxes) 0 0 0 7,955,831
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ (28,781) $ (372,301) $ (52,826) $ 5,771,977
============= ============= ============= =============
Net income (loss) per weighted average share:
Operations $ .00 $ (.02) $ .00 $ (.13)
Extraordinary item .00 .00 .00 .47
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ .00 $ (.02) $ .00 $ .34
============= ============= ============= =============
Weighted average number of common shares
used to compute net (loss) per weighted
average share 18,386,429 18,386,429 18,386,429 16,998,929
============= ============= ============= =============
4
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30,
2000 1999
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OPERATING ACTIVITIES
Net income (loss) $ (52,826) $ 5,771,977
Adjustments to reconcile net income (loss) to cash provided
(used) by operating activities:
Depreciation and amortization 64,769 1,374,189
Non-cash debt restructuring 0 (7,955,831)
Book value of disposed assets 0 66,360
Bad debts 148,000 1,174,077
Unrealized change in investment 0 13,000
Deferred taxes 0 300,000
Changes in assets and liabilities:
Accounts receivable 99,737 (1,058,296)
Prepaid expenses and other (99,518) 66,280
Accounts payable and accrued expenses 439,069 3,019
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NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES 599,231 (245,225)
INVESTING ACTIVITIES
Deposits 0 410
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NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES 0 410
FINANCING ACTIVITIES
Principal payments on debt (65,799) (2,277)
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NET CASH (USED) BY
FINANCING ACTIVITIES (65,799) (2,277)
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DECREASE IN CASH AND CASH EQUIVALENTS 533,432 (247,092)
Cash and cash equivalents at beginning of period 181,826 478,418
------------------ -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 715,258 $ 231,326
================== =================
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 4,417 $ 274,431
Cash paid for income taxes 0 23,931
During 2000, the Company purchased a vehicle in the amount of $13,625 by
incurring a loan in the same amount.
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.
5
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 June 30, 2000, the Company had $715,258 in cash and cash equivalents. The
Company incurred an ordinary loss of $.00 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 June 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 June 30, 2000 was $(28,781)
compared to a loss of $(372,301) 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 bad
debts that were recorded related to expected necessary write-offs of some
accounts receivable.
Management fee income was $1,670,253 for the three months ended June 30, 2000
compared to $2,029,246 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 June 30, 2000
were $1,506,974 compared to $1,568,440 for the same period in 1999.
Depreciation and amortization expenses for the three months ended June 30, 2000
were $5,679 and $0 respectively compared to $15,026 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 June 30, 2000 was $138,381 compared
to $192,772 for the same period in 1999. Interest expense is incurred to the
Convertible Note Holders of the Company. During the quarter ended June 30, 1999,
the Company was able to lower the interest rate from 10.0% to 7.5% on most of
its debt. The Company is delinquent on most of its interest payments due in 2000
(about $681,000).
During the six months ended June 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 six months ended June 30, 2000 was $(52,826) compared
to a loss of $(2,183,854) 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 bad debts that
were recorded related to expected necessary write-offs of some accounts
receivable.
Management fee income was $3,362,452 for the six months ended June 30, 2000
compared to $4,513,412 for the same period in 1999. This is a 25% 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 six months ended June 30, 2000 were
$2,925,097 compared to $3,422,522 for the same period in 1999.
Depreciation and amortization expenses for the six months ended June 30, 2000
were $9,465 and $0 respectively compared to $30,054 and $1,272,640 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.
6
Interest expense for the six months ended June 30, 2000 was $332,716 compared to
$483,824 for the same period in 1999. Interest expense is incurred to the
Convertible Note Holders of the Company. During the quarter ended June 30, 1999,
the Company was able to lower the interest rate from 10.0% to 7.5% on most of
its debt. The Company is delinquent on most of its interest payments due in 2000
(about $681,000).
Even though the Company is in default, it has made arrangements with the
majority of its bondholders 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 bondholders.
Pre-consolidation net income (loss) is as follows:
Dynamic $ (396,030)
Perspectives 343,204
---------------
$ (52,826)
===============
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.
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.
7
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 sixty (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. Purchaser 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.
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.
8
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
99-1 Financial Statements as of June 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: August 18, 2000 By: /s/ Grace Sim
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Grace Sim, Secretary/Treasurer
9