UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1998
[ ] 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 Small Business Issuer as specified in its charter)
Nevada 87-0473323
(State or other jurisdiction of (IRS Employer
incorporation ) Identification No.)
7373 North Scottsdale Road, Suite B-169
Scottsdale, Arizona 85253
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (602) 483-8700
Indicate by a check mark whether the issuer (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 September 30, 1998
- ------------------------------------ ------------------------------------
$.001 par value Class A Common Stock 14,223,929 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 nine
months ended September 30, 1998, are not necessarily indicative of the results
that can be expected for the year ending December 31, 1998.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The Company is engaged in managing the operations of psychiatric/geriatric units
for various hospitals through Genesis and GCCA, its wholly owned subsidiaries.
The Company completed the spin-off of MW Medical, Inc. ("MW Medical" or "MW") on
March 11, 1998. MW Medical is the owner of P&H and MMC, each of which were
subsidiaries of the Company until completion of the spin-off. MW Medical is a
Nevada corporation incorporated on December 4, 1997. The Company distributed to
the shareholders, one common share of MW Medical for each common share of the
Company held by the shareholder as of the record date of February 25, 1998. No
consideration was paid by Dynamic shareholders for shares of MW Common Stock.
In 1997, the Company issued Convertible Notes in Reliance on Regulation S to non
U.S. persons. Each note is for $18,500.00 and bears interest at 10% per annum
and is convertible into common stock of the Company at $3.50 per share. With the
spin off of MMC and P&H March 11, 1998, the material asset value of the Company
resulted in the conversion price to be lowered from $3.50 to $2.75. The notes
mature September 16, 2006.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company had $448,924 in cash and cash equivalents.
For the nine months ending September 30, 1998 the Company generated a loss of
$.22 per share after deducting $2,104,870 for amortization of goodwill and debt
costs and depreciation. The Company also generated a $.16 per share profit on
its income from operations, excluding depreciation and amortization.
Genesis, a Louisiana 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 Genesis 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. Genesis , together with GCCA, expects to generate a
profit.
RESULTS OF OPERATIONS
The financial statements present the combined activities of the Company, Genesis
and GCCA.
During the nine months ended September 30, 1998, management fees of $241,067
were paid compared to $320,000 for the same period in 1997. The Company's
President received $135,000 and the Company's Secretary/Treasurer received
$81,067 and $25,000 was paid in management fees to an outside firm.
Net loss for the nine months ended September 30, 1998 was $1,000,401, before
deducting the debts owed by its former subsidiaries, compared to a loss of
$1,395,005 for the same period in 1997. With the spin off of its former
subsidiaries, Microwave Medical Corp. and P&H Laboratories, Inc. on March 11,
1998, the Company also wrote-off debts of $2,169,806 incurred by these
subsidiaries to the Company. A charge for amortization of goodwill and debt cost
and depreciation of $2,104,870 was incurred in the period which represents $.15
per share.
Management fee income was $10,845,603 for the nine months ended September 30,
1998 compared to $10,949,050 for the same period in 1997. This is a 1.0%
decrease from 1997.
Selling and general and administrative expenses for the nine months ended
September 30, 1998 were $7,846,232 compared to $7,711,081 for the same period in
1997.
Depreciation and amortization expenses for the nine months ended September 30,
1998 were $1,955,101 compared to $1,932,104 for the same period in 1997.
Interest expense for the nine months ended September 30, 1998 was $1,426,695
compared to $1,526,780 for the same period in 1997. Interest expense is incurred
to the Convertible Note Holders of the Company and includes $149,769 of
amortized debt issue costs.
Net loss for the three months ended September 30, 1998 was $314,095 compared to
a loss of $627,877 for the same period in 1997. The net loss is $.02 per share
for the quarter. A charge for amortization of goodwill and debt cost and
depreciation of $701,716 was incurred in the period which represents $.05 per
share.
Management fee income for the three months ended September 30, 1998 was
$3,081,373 compared to $3,839,650 for the same period in 1997. This reflects a
19.7% decrease from 1997.
Selling and general and administrative expenses for the three months ended
September 30, 1998 were $2,260,171 compared to $2,689,965 for the same period in
1997. The decrease is due to the reduced number of subsidiaries owned in 1998.
Depreciation and amortization expenses for the three months ended September 30,
1998 were $651,793 compared to $649,589 for the same period in 1997.
Interest expense for the three months ended September 30, 1998 was $479,390
compared with $529,557 for the same period in 1997. This decrease is due to the
conversion to stock of some of the convertible notes.
Item 5. Other Information.
Genesis Health Management Corporation (Genesis)
In December 1996, the Company purchased 100% of the outstanding common stock of
Genesis for $25,373,000. Of the purchase price, $15,050,000 was paid in cash or
notes and accounts payable and $10,323,000 was paid by issuing 3,100,000 shares
of the Common Stock of the Company at a value of $3.33 per share. The note
issued in connection with the acquisition of Genesis was paid in full on March
3, 1997. Genesis had been operating in Louisiana for 3 years prior to the
purchase by the Company. Genesis is in the business of managing and operating
psychiatric/geriatric units in various hospitals (both in-patient and
out-patient). At September 30, 1998, Genesis had 25 contracted units. Genesis
has contracts with hospitals in the states of Louisiana, Arkansas, Mississippi
and Tennessee.
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 September 30, 1998, GCCA had 3
operating units.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
99-1 Financial Statements as of September 30, 1998
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.
DATED: November 13, 1998 /S/Jan Wallace
Jan Wallace, President, C.E.O.
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30,
1998
----------------------
ASSETS
CURRENT ASSETS
Cash $ 448,924
Accounts receivable (less allowance for doubtful accounts of $1,183,800) 5,800,777
Other receivables 114,162
Prepaid expense and other current assets 48,693
Deferred Tax Benefit 300,000
----------------------
TOTAL CURRENT ASSETS 6,712,556
PROPERTY, PLANT & EQUIPMENT 240,351
OTHER ASSETS
Deferred debt issue costs (less amortization of $337,627) 1,381,230
Investment - restricted stock 25,000
Goodwill (less amortization of $4,626,680) 20,231,095
Deposits 410
----------------------
21,637,735
----------------------
$ 28,590,642
======================
LIABILITIES & EQUITY
CURRENT LIABILITIES
Accounts payable $ 314,481
Accrued expenses 504,151
Current portion of long-term debt 15,733
Loan payable - related party 150,000
Income taxes payable 0
Accrued interest payable 358,804
----------------------
TOTAL CURRENT LIABILITIES 1,343,169
LONG-TERM DEBT 12,760
CONVERTIBLE NOTES 17,001,500
----------------------
17,014,260
----------------------
TOTAL LIABILITIES 18,357,429
STOCKHOLDERS' EQUITY Common stock $.001 par value:
Authorized - 25,000,000 shares
Issued and outstanding 14,223,929 shares 14,224
Additional paid-in capital 18,512,330
Retained deficit (8,293,341)
----------------------
TOTAL STOCKHOLDERS' EQUITY 10,233,213
----------------------
$ 28,590,642
======================
F-1
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
------------- ------------- ------------- -------------
Management fees $ 3,081,373 $ 3,839,650 $ 10,845,603 $ 10,949,050
------------- ------------- ------------- -------------
3,081,373 3,839,650 10,845,603 10,949,050
Selling and General administrative expenses 2,260,171 2,689,965 7,846,232 7,711,081
Depreciation and amortization 651,793 649,589 1,955,101 1,932,104
Bad debts 0 0 735,000 0
------------- ------------- ------------- -------------
2,911,964 3,339,554 10,536,333 9,643,185
------------- ------------- ------------- -------------
NET OPERATING INCOME 169,409 500,096 309,270 1,305,865
OTHER INCOME (EXPENSE)
Interest income 2,882 (19,490) 16,877 39,538
Interest expense (479,390) (529,557) (1,426,695) (1,526,780)
Miscellaneous income 0 1,172 0 1,172
Miscellaneous expense 0 (2,367) 0 (2,367)
Bad debts - former subsidiaries 0 0 (2,169,806) 0
Disposition of subsidiaries 0 0 256,493 0
Unrealized change in investment (2,000) (367,972) (4,800) (385,947)
Loss on disposition (16,996) 0 (16,996) (2,138)
------------- ------------- ------------- -------------
(495,504) (918,214) (3,344,927) (1,876,522)
------------- ------------- ------------- -------------
NET LOSS
BEFORE DISCONTINUED OPERATIONS (326,095) (418,118) (3,035,657) (570,657)
Discontinued operations:
Operations of former subsidiaries 0 (143,000) 0 (570,203)
------------- ------------- ------------- -------------
NET (LOSS) BEFORE INCOME TAXES (326,095) (561,118) (3,035,657) (1,140,860)
INCOME TAX EXPENSE (BENEFIT) (12,000) 66,759 134,550 254,145
-------------- ------------- ------------- -------------
NET (LOSS) $ (314,095) $ (627,877) $ (3,170,207) $ (1,395,005)
============= ============= ============= =============
Net (loss) per weighted average share $ (.02) $ (.05) $ (.22) $ (.11)
============= ============= ============= =============
Weighted average number of common shares used to
compute net (loss) per weighted average share 14,223,929 13,710,328 14,172,647 12,763,274
============= ============= ============= =============
F-2
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited)
Common Stock Additional
Par Value $.001 Paid-In Retained
Shares Amount Capital Deficit
----------------- ------------------ ------------------ -----------------
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 period (3,170,207)
----------------- ------------------ ------------------ -----------------
Balances at 9/30/98 14,223,929 $ 14,224 $ 18,512,330 $ (8,293,341)
================= ================== ================== =================
F-3
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
1998 1997
----------------- -----------------
OPERATING ACTIVITIES
Net (loss) $ (3,170,207) $ (1,395,005)
Adjustments to reconcile net (loss) to cash (used) by operating activities:
Depreciation & amortization 2,104,870 2,142,236
Net book value of assets sold` 53,017 2,138
Book value of spun-off subsidiaries 1,743,312 0
Bad debts 735,000 0
Adjustment for investment received as interest income 0 (15,000)
Unrealized change in investment 4,800 385,947
Deferred income tax 0 5,000
Changes in assets and liabilities:
Accounts receivable (2,903,710) (1,745,890)
Inventories 0 46,492
Prepaid expenses (9,265) 39,758
Accounts payable and accrued expenses (424,075) (440,331)
Income taxes payable (253,328) 129,544
Deposits (11,496) 20,000
----------------- -----------------
NET CASH (USED) BY OPERATING ACTIVITIES (2,131,082) (825,111)
INVESTING ACTIVITIES
Loans to related party and accrued interest 0 90,246
Loan - other (9,861) 0
Purchase of equipment (14,951) (496,999)
Deposits 0 (113,467)
Goodwill 0 (500,000)
Deferred debt issue costs 0 (340,356)
----------------- -----------------
NET CASH (USED) BY INVESTING ACTIVITIES (24,812) (1,360,576)
FINANCING ACTIVITIES
Cash from (to) subsidiaries (387,982) 41,518
Principal payments on debt (23,374) (3,279,952)
Capital raising costs 0 (3,000)
Convertible note proceeds 0 3,996,000
Loans - related parties 150,000 0
Loan proceeds 0 132,021
Proceeds from sale of common stock 250,000 924,600
----------------- -----------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (11,356) 1,811,187
----------------- -----------------
(DECREASE) IN CASH AND CASH EQUIVALENTS (2,167,250) (374,500)
Cash and cash equivalents at beginning of year 2,616,174 3,447,019
----------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 448,924 $ 3,072,519
================= =================
SUPPLEMENTAL INFORMATION Cash paid for:
Interest $ 1,710,114 $ 1,163,802
Income taxes 256,595 132,210
During 1997, the Company issued 150,000 shares of its restricted common stock as
part of the acquisition of GCCA. The transaction has been recorded at $300,000.
During 1998, the Company purchased a vehicle in the amount of $16,943 by
incurring a loan in the same amount.
F-4
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
STATEMENT OF OPERATIONS
Nine months ended September 30, 1997
Pro Forma Consolidated
Dynamic Geriatric (1) Adjustments Pro Forma
--------------- --------------- --------------- ---------------
Management fee income $ 10,949,050 $ 244,125 $ $ 11,193,175
--------------- --------------- --------------- ---------------
10,949,050 244,125 11,193,175
Selling and general and administrative expenses 7,711,081 26,792 7,737,873
Depreciation and amortization 1,932,104 0 1,932,104
--------------- --------------- --------------- ---------------
9,643,185 26,792 9,669,977
--------------- --------------- --------------- ---------------
NET OPERATING INCOME 1,305,865 217,333 1,523,198
OTHER INCOME (EXPENSE)
Interest income 39,538 0 39,538
Interest expense (1,526,780) 0 (1,526,780)
Miscellaneous income 1,172 0 1,172
Miscellaneous expense (2,367) 0 (2,367)
Unrealized decline in investment (385,947) 0 (385,947)
Loss on disposition (2,138) 0 (2,138)
--------------- --------------- --------------- ---------------
(1,876,522) 0 (1,876,522)
--------------- --------------- --------------- ---------------
NET LOSS BEFORE DISCONTINUED OPERATIONS (570,657) 217,333 (353,324)
Discontinued operations:
Operations of former subsidiaries (570,203) 0 (570,203)
--------------- --------------- --------------- ---------------
NET INCOME (LOSS) BEFORE INCOME TAXES (1,140,860) 217,333 (923,527)
INCOME TAX EXPENSE 254,145 13,000 267,145
--------------- --------------- --------------- ---------------
NET INCOME (LOSS) $ (1,395,005) $ 204,333 $ $ (1,190,672)
=============== =============== =============== ===============
Net income (loss) per weighted average share $ (.11) $ (.09)
=============== ===============
Weighted average number of common shares
used to compute net income (loss) per weighted
average share 12,763,274 12,763,274
=============== ===============
(1) First quarter activity
F-5