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, 1996
[ ] Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from to
Commission File Number 33-55254-03
DYNAMIC ASSOCIATES, INC.
(Exact name of Registrant as specified in its charter)
Nevada 87-0473323
(State or other jurisdiction of (IRS Employer
incorporation ) Identification No.)
7373 North Scottsdale Road, Suite B-150
Scottsdale, Arizona 85253
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (602) 483-8700
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
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 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 July 13, 1996
- ------------------------------------ ----------------------------------
$.001 par value Class A Common Stock 8,372,500 shares
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
BASIS OF PRESENTATION
General
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB and, therefore, do not include
all information and footnotes necessary for a complete presentation of financial
position, results of operations, cash flows, and stockholders' equity in
conformity with generally accepted accounting principles. In the opinion of
management, all adjustments considered necessary for a fair presentation of the
results of operations and financial position have been included and all such
adjustments are of a normal recurring nature. Operating results for the six
months ended June 30, 1996, are not necessarily indicative of the results that
can be expected for the year ending December 31, 1996.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Company had $1,022,536 in cash and cash
equivalents.
The Company through its 50% owned subsidiary, P&H Laboratories, operates in
the industry of manufacturing highly technologically advanced microwave
components and subsystems for the communications and aerospace industries. The
Company also is engaged in the acquisition and development of microwave
technologies for medical purposes through its subsidiary Microwave Medical Corp.
This subsidiary has not yet had any sales.
Item 5. Other Information.
MICROWAVE
During the six months ended June 30, 1996, the Company's wholly owned
subsidiary Microwave Medical Corp. ("MMC"), formerly Microthermia Acquisition
Corporation, entered into a license agreement with Microthermia Technology, Inc.
(of California), whereby MMC obtained an exclusive license to develop and
manufacture medical device products related to the treatment of spider veins
(telangiectasia). The license is for an initial period of two years with
automatic one year renewals for the next eight years, at no cost, (total license
period of 10 years). The license is prepaid for the first two years, and, after
January 16, 1998, MMC will pay a royalty of two percent (2%) of the Net Sales
Revenues on all licensed products sold. MMC expended $242,216 on development of
the license product during the six months ended June 30, 1996.
P & H LABORATORIES, INC. ("P & H")
The agreement (dated December 18, 1995) with P & H which provides for the
acquisition of P&H by the Company was extended to April 23, 1996. The agreement
provides for the Company to acquire up to 100% of P&H in two stages. The first
stage is the acquisition of 50% of P&H for $1,000,000. The second stage (which
is optional) provides for the Company to acquire the additional 50% for up to
two years after the first 50% is acquired. On April 23, 1996, $300,000 was paid
and a check dated May 4, 1996 in the amount of $700,000 was given to finalize
the P&H acquisition. Regulation S stock was sold to raise the money to complete
the transaction. P&H is now a 50% owned subsidiary of the Company.
MICROTHERMIA TECHNOLOGY, INC. ("MTI")
The agreement with MTI, (as previously reported), which has been approved
by the majority of MTI shareholders, requires the approval of the California
Department of Corporations which to date has not been forthcoming. Minority
shareholders of MTI have complained to the California Department of Corporations
as they do not want the transaction to proceed, and it remains uncertain as to
whether this agreement can or will be completed or not. Only $1,000 was advanced
to MTI during the period, and the Company's subsidiary entered into a license
agreement with MTI, (see above).
RESULTS OF OPERATIONS
The Company has not had operations (other than operations of P&H) that have
generated income since its inception. The only source of funds has been from the
sale of its common stock which has been used to pay expenses and make advances
to its subsidiary (MMC) for development of its technology and for the
acquisition of P&H.
The financial statements present the activities of the Company, MMC, and
P&H as if the entities had been together for all periods presented. Sales and
cost of sales for all periods relate to P&H.
During the six months ended June 30, 1996, management fees of $214,625 were
paid or accrued to various individuals ($99,000 is accrued at June 30 , 1996).
The Company's President received $60,000, and the Secretary/Treasurer received
$60,000 including accrued amounts of $39,000 and $25,000 respectively.
Also during the six months ended June 30, 1996 $33,000 was paid to an
entity controlled by the Company's Secretary for rent and other administrative
services.
Net loss for the three months ended June 30, 1996 was $359,493 compared
with net income of $42,688 for the same period in 1995. The main reason for the
decrease is due to the large amount of research and development expenses and
general and administrative expenses that were not present in 1995.
Net sales for the three months ended June 30, 1996 were $735,823 compared
to $981,894 for the same period in 1995, a decrease of 25%.
Cost of sales for the three months ended June 30, 1996 were $525,420
compared with $665,969 for the same period in 1995. The 21% reduction is
attributed to lower sales volume.
Selling and general and administrative expenses for the three months ended
June 30, 1996 were $474,111 compared with $146,399 for the same period in 1995.
The increase is mainly due to increased management fees, administrative fees,
and a large amount of travel outside of the United States looking for
prospective purchasers of the Company's products and common stock.
Research and development expenses for the three months ended June 30, 1996
were $134,678 compared with $0 for the same period in 1995. The expenses relate
to the development of microwave technologies for medical purposes.
Net loss for the six months ended June 30, 1996 was $669,859 compared with
net income of $96,830 for the same period in 1995.
Net sales for the six months ended June 30, 1996 were $1,449,651 compared
with $1,862,995 for the same period in 1995, a 22% decrease.
Cost of sales for the six months ended June 30, 1996 were $1,026,245
compared with $1,203,369 for the same period in 1995, a 15% decrease.
Selling and general and administrative expenses for the six months ended
June 30, 1996 were $850,445 compared with $342,043 for the same period in 1995,
and increase of 148%.
Research and development expenses for the six months ended June 30, 1996
were $242,216 compared with $0 for the same period in 1995.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
99-1 Financial Statements as of June 30, 1996
Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended June 30, 1996 an 8-K was filed to announce the
acquisition of P&H Laboratories, Inc. as a 50% owned subsidiary. The 8-K
was dated May 14, 1996.
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: July 26, 1996 /S/ Logan B. Anderson
---------------- ---------------------
Logan B. Anderson, Secretary/Treasurer
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30,
1996
----------------------
ASSETS
CURRENT ASSETS
Cash $ 850,881
Marketable securities 171,655
Accounts receivable 487,609
Loans receivable - related parties 137,300
Accrued interest 14,953
Inventories 841,258
Prepaid expense 21,785
Deferred tax benefit 62,000
----------------------
TOTAL CURRENT ASSETS 2,587,441
EQUIPMENT 272,013
OTHER ASSETS
Note receivable 92,953
Investment 50,000
Deposits 21,315
Organization costs 1,000
----------------------
165,268
----------------------
$ 3,024,722
======================
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Continued)
(Unaudited)
June 30,
1996
----------------------
LIABILITIES & EQUITY
CURRENT LIABILITIES
Accounts payable $ 322,684
Accrued expenses 158,660
Current portion of long-term debt 95,904
Income taxes payable -0-
----------------------
TOTAL CURRENT LIABILITIES 577,248
LONG-TERM DEBT 116,513
DEFERRED INCOME TAXES 63,000
----------------------
TOTAL LIABILITIES 756,761
Minority interest in subsidiary 803,261
STOCKHOLDERS' EQUITY Common stock $.001 par value:
Authorized - 25,000,000 shares
Issued and outstanding 8,372,500
shares 8,373
Additional paid-in capital 2,686,126
Retained deficit (539,937)
Stock subscription receivable (689,862)
----------------------
TOTAL STOCKHOLDERS' EQUITY 1,464,700
----------------------
$ 3,024,722
======================
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
---------------------------- ----------------------------
6/30/96 6/30/95 6/30/96 6/30/95
------------- ------------- ------------- -------------
Net Sales $ 735,823 $ 981,894 $ 1,449,651 $ 1,862,995
Cost of sales 525,420 665,969 1,026,245 1,203,369
------------- ------------- ------------- -------------
GROSS PROFIT 210,403 315,925 423,406 659,626
Selling and General and Administrative expenses 474,111 146,399 850,445 342,043
Research and development 134,678 -0- 242,216 -0-
------------- ------------- ------------- -------------
608,789 146,399 1,092,661 342,043
------------- ------------- ------------- -------------
NET OPERATING INCOME (LOSS) (398,386) 169,526 (669,255) 317,583
OTHER INCOME (EXPENSE)
Interest income 62,265 6,206 77,363 9,186
Interest expense (20,040) (6,586) (34,805) (11,725)
Miscellaneous income 2,510 30 2,510 30
Miscellaneous expense -0- -0- -0- (3,415)
------------- ------------- ------------- -------------
44,735 (350) 45,068 (5,924)
NET INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST (353,651) 169,176 (624,187) 311,659
INCOME TAX EXPENSE (BENEFIT) (2,600) 83,800 17,800 118,000
------------- ------------- ------------- -------------
NET INCOME (LOSS) BEFORE
MINORITY INTEREST (351,051) 85,376 (641,987) 193,659
MINORITY INTEREST 8,442 42,688 27,872 96,829
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ (359,493) $ 42,688 $ (669,859) $ 96,830
============= ============= ============= =============
Net income (loss) per weighted
average share $ (.04) $ .04 $ (.09) $ .10
============= ============= ============= =============
Weighted average number of common
shares used to compute net income
(loss) per weighted average share 8,026,768 1,000,000 7,513,384 1,000,000
============= ============= ============= =============
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
Common Stock Additional Stock Retained
Par Value $.001 Paid-In Subscription Earnings
----------------------------
Shares Amount Capital Receivable (Deficit)
------------- ------------- ----------------- ------------------ --------------
Balances at 12/31/95 7,000,000 $ 7,000 $ 1,335,000 $ $ 129,922
Sale of common stock (Regulation
S) at $2.00 per share at 3/25/96 12,500 13 24,987
Sale of common stock (Regulation
S) at $1.75 per share 1,290,000 1,290 2,256,209 (689,862)
Sale of common stock (S-8) at
$1.00 per share 30,000 30 29,970
Sale of common stock (restricted)
at $1.00 per share 40,000 40 39,960
Acquisition of subsidiary (972,128)
Minority interest adjustment (27,872)
Net loss for period (669,859)
------------- ------------- ----------------- ------------------ --------------
Balances at 6/30/96 8,372,500 $ 8,373 $ 2,686,126 $ (689,862) $ (539,937)
============= ============= ================= ================== =============
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
---------------------------------------
6/30/96 6/30/95
----------------- -----------------
OPERATING ACTIVITIES
Net income (loss) $ (669,859) $ 96,830
Adjustments to reconcile net income (loss) to cash provided (used) by
operating activities:
Depreciation & amortization 26,395 43,424
Bad debt -0- 10,187
Minority interest 27,872 96,829
Deferred income tax -0- 37,000
Stock received for interest (50,000) -0-
Changes in assets and liabilities:
Accounts receivable 323,216 57,785
Inventories (252,455) (73,619)
Prepaid expenses (17,262) (19,284)
Insurance receivable -0- 63,001
Other assets -0- 10,320
Accounts payable and accrued expenses 161,090 (69,456)
Income taxes payable (129,805) 40,001
Refund payable -0- (104,360)
----------------- -----------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (580,808) 188,658
INVESTING ACTIVITIES
Loans to related party and accrued interest 94,249 -0-
Loan - other (92,953) -0-
Purchase of equipment (120,531) (7,118)
Refund of option 30,000 -0-
Purchase of subsidiary (1,000,000) -0-
----------------- -----------------
NET CASH USED BY INVESTING ACTIVITIES (1,089,235) (7,118)
FINANCING ACTIVITIES
Decrease in book overdraft -0- (8,905)
Principal payments on debt (259,058) (23,185)
Principal payments on capital lease obligation -0- (6,215)
Loan proceeds -0- 81,758
Proceeds from sale of common stock 1,662,637 -0-
----------------- -----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,403,579 43,453
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (266,464) 224,993
Cash and cash equivalents at beginning of year 1,289,000 202,821
----------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,022,536 $ 427,814
================= =================
SUPPLEMENTAL INFORMATION Cash paid for:
Interest $ 36,271 $ 11,862
Income taxes 168,590 48,291