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 March 31, 2001
[ ] 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.)
6617 North Scottsdale Road, Suite 103
Scottsdale, Arizona 85253
- ------------------- -----
(Address of principal executive offices (Zip Code)
Issuer's telephone number, including area code (480) 315-8600
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest
practicable date: 57,071,435 shares of Common Stock as of
March 31, 2001.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BASIS OF PRESENTATION
General
The accompanying un-audited 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
March 31, 2001 are not necessarily indicative of the results that
can be expected for the year ending December 31, 2001.
The 2000 financial statements present the activities of the
Company and its subsidiary Perspectives Health Management Corp.
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DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2001 2000
(Unaudited) (Audited)
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 258,479 $ 363,670
Accounts receivable (less
allowance for doubtful accounts
of $1,157,472) 3,129,422 2,831,284
Prepaid expense and other
current assets 63,017 817
------------ ------------
TOTAL CURRENT ASSETS 3,450,918 3,195,771
PROPERTY, PLANT & EQUIPMENT 68,096 74,474
OTHER ASSETS
Deferred debt issue costs (less
amortization of $454,692) 422,505 450,157
Investment in closely held
corporation 140,000 0
Goodwill 1,590,000 1,590,000
------------ ------------
2,152,505 2,040,157
------------ ------------
$ 5,671,519 $ 5,310,402
============ ============
LIABILITIES & (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 67,669 $ 58,487
Accrued expenses 637,749 551,243
Current portion of long-term debt 53,169 10,015
Accrued interest payable 388,150 1,011,331
------------ ------------
TOTAL CURRENT LIABILITIES 1,146,737 1,631,076
Long-term debt 7,175 6,046
Convertible notes 2,873,750 8,676,500
------------ ------------
2,880,925 8,682,546
------------ ------------
TOTAL LIABILITIES 4,027,662 10,313,622
STOCKHOLDERS'(DEFICIT)
Common Stock $.001 par value:
Authorized - 100,000,000 shares
Issued and outstanding: 57,071,435
shares at 3-31-01, and 18,386,429
shares at 12-31-00 57,071 18,386
Additional paid-in capital 25,584,956 19,146,474
Retained deficit (23,998,170) (24,168,080)
------------ ------------
TOTAL STOCKHOLDERS'(DEFICIT) 1,643,857 (5,003,220)
------------ ------------
$5,671,519 $ 5,310,402
============ ============
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DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
2001 2000
------------ ------------
Management fees $ 1,503,540 $ 1,692,199
------------ ------------
1,503,540 1,692,199
General & administrative expenses 1,271,277 1,418,123
Depreciation 6,375 3,786
Bad debts 0 100,000
------------ ------------
1,277,652 1,521,909
------------ ------------
NET OPERATING INCOME 225,888 170,290
OTHER INCOME (EXPENSE)
Interest expense (55,971) (194,335)
NET INCOME (LOSS) BEFORE INCOME TAXES 169,917 (24,045)
INCOME TAX EXPENSE 0 0
NET INCOME (LOSS) $ 169,917 $ (24,045)
============ ============
Basic net income (loss) per
weighted average share: $ .004 $ (.001)
============ ============
Diluted net income (loss) per
weighted average share: $ .004 $ (.001)
============ ============
Basic weighted average number
of common shares used to
compute net (loss) per weighted
average share 40,964,933 18,386,429
============ ============
Diluted weighted average number
of common shares used to
compute net (loss) per weighted
average share 41,177,785 18,386,429
============ ============
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DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
2001 2000
------------ ------------
OPERATING ACTIVITIES
Net income (loss) $ 169,917 $ (24,045)
Adjustments to reconcile
net income (loss) to cash provided
(used) by operating activities:
Depreciation and amortization 34,030 31,438
Bad debts 0 100,000
Changes in assets and liabilities:
Accounts receivable (298,138) (406,773)
Prepaid expenses and other (62,200) 18,383
Accounts payable and accrued expenses 146,917 317,007
------------ ------------
NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES (9,474) 36,010
INVESTMENT ACTIVITIES
Cash from (to) investments (140,000) 0
------------ ------------
NET CASH (USED) BY
INVESTMENT ACTIVITIES (140,000) 0
FINANCING ACTIVITIES
Principal payments on debt (38,699) (49,071)
Loans 82,982 0
------------ ------------
NET CASH (USED) BY
FINANCING ACTIVITIES 44,283 (49,071)
------------ ------------
DECREASE IN CASH AND CASH EQUIVALENTS (105,191) (13,061)
Cash and cash equivalents at
beginning of period 363,670 181,826
------------ ------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 258,479 $ 168,765
============ ============
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 4,379 $ 16,303
Cash paid for income taxes 0 0
NON-CASH ITEMS
During the quarter ended March 31, 2001, the company issued 38,685,006
shares of common stock to extinguish debt of $5,802,750 and accrued
interest of $679,156.
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DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
SELECTED NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1: EXPECTED SALE OF SUBSIDIARIES
In late 1999, the Company began negotiations to sell
Perspectives. On November 28, 2000, the Company entered
into a Brokerage Agreement for the sale of Perspectives.
Under the Brokerage Agreement, the Broker is entitled to
one-half of any net proceeds from the sale in excess of
$2.1 million, upon procuring a ready, willing, and able
buyer. Associated with the sale of the business, the
Company is also finalizing an agreement with the holders
of notes in Dynamic in the amount of $8,676,500, to
convert the notes owed to them into the Company's common
stock at the rate of $.15 per share. This would result
in approximately 57,843,333 new shares of the Company's
common stock being issued, and the note holders as a
group would have voting control of the Company.
As of May 14, 2001, $8,214,000 of the 7.5% notes and
$148,000 of the remaining 10% notes have been converted
to common stock at the rate of $.15 per share,
increasing the number of common stock issued and
outstanding by 55,745,000 shares for a total issued and
outstanding at May 14, 2001 of 74,131,429 shares. If
all of the note holders of Dynamic convert their debt to
common stock, there will be approximately 76,228,096
shares of Dynamic common stock issued and outstanding.
The current amount remaining on the notes payable at May
14, 2001 is:
$ 203,500 110
111,000 7.5%
-----------
$ 314,500
===========
On November 28, 2000, the Company entered into an
agreement and plan of merger with Tele-Lawyer, Inc.
("Tele-Lawyer"). Tele-Lawyer is a Nevada based
technology company and application services provider to
the legal services industry. The merger is subject to
certain conditions which include the condition that the
Company extinguish all of its outstanding debt,
including all existing notes, through a conversion to
common stock or otherwise. If the conditions are met
and the merger occurs, the operations of Tele-Lawyer
will become the operations of the Company and the assets
currently held in the Company will be held for sale.
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ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The consolidated financial statements for the quarter ended March
31, 2001 include the accounts of the Company and its wholly owned
subsidiary, Perspectives Health Management Corp. All significant
inter-company balances and transactions have been eliminated in the
consolidation.
Over the past two years, because of the down turn in the medical
management business created by changes to the Medicare
reimbursement rules, management has been attempting to sell the
operating business of it's wholly owned subsidiary, Perspectives,
and obtain another business through merger or otherwise. Efforts
to sell the Perspectives business have not succeeded, as yet, but
the Company has entered into a merger agreement with Tele-Lawyer,
Inc., a Nevada based technology company and application service
provider to the legal services industry. While management is
confident that the merger will occur, the merger is conditioned
upon a number of things that are outside management's control, and
therefore management can provide no assurance that the merger will
occur. In addition, because the business of Tele-Lawyer involves
new technology applied in new situations, management can provide no
projections as to the likelihood of success of the Company in the
event a merger is consummated.
Efforts to sell the Perspectives business have been hampered by the
existence of the Company's large, secured debt to its note holders.
With the current effort and near completion of the conversion of
this debt to equity, management is hopeful that a sale of the
Perspectives business will occur during this year. While
management has received some indications of interest from
prospective buyers, no specific proposals have been made at this
time and no assurance can therefore be given that the Perspectives
business can or will be sold at a price acceptable to management.
Assets
- ------
At March 31, 2001, the Company had cash of $258,479 as compared to
$363,670 as of December 31, 2000. This decrease was largely
attributable to a combination of principal payments on debt and
investment activities. At March 31, 2001, accounts receivable (less
allowance for doubtful accounts of $1,157,472) was $3,129,422 as
compared with $2,831,284 (net of allowance for doubtful accounts of
$1,157,472) as of December 31, 2000. The Company continues to
maintain high accounts receivable, which it has been unable to
collect largely due to hospital clients' inability to pay. The
Company has initiated action on one large account and is currently
working with its clients to come up with innovative methods of
paying down these receivables.
Equipment, net of accumulated depreciation was $68,096 as of March
31, 2001 as compared to $74,474 as of December 31, 2000.
Liabilities and Stockholders' Equity
- ------------------------------------
At March 31, 2001, the Company had accounts payable of $67,669 as
compared to $58,487 at December 31, 2000. In addition, the Company
had accrued expense of $637,749 at March 31, 2001 as compared to
$551,243 as of December 31, 2000. At March 31, 2001 the balance
outstanding of convertible notes owed by the Company was $2,873,750
a reduction of $5,802,750 or 67% from the amount owed on these
notes as of December 31, 2000. This was due to the Company's
efforts to
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convert its note and accrued interest debt to common
stock. As a result, the Company issued out an additional
38,685,006 shares of common stock to these note holders.
Consequently, due to the Company's conversion of these notes,
accrued interest payable declined from $1,011,331 at December 31,
2000 to $388,150 at March 31, 2001. The Company is in the process
of negotiating with the remaining note holders to convert the
amounts owing on these notes into common stock at a rate of $0.15
of debt for each share. To May 14, 2001, management has further
reduced the amounts owed under these notes, reducing the principal
amount of the note debt to $314,500, for a decrease of over 96% in
the Company's note debt. In the process, the Company has also
further reduced its accrued interest payable. Management believes
this conversion process, as part of the proposed merger with Tele-
Lawyer, is critical to moving the Company onto a long-term track of
success.
The Company's operations were largely funded by cash flow generated
by the Perspectives subsidiary.
Stockholders' equity was $1,643,857 as of March 31, 2001, as
compared to ($5,003,220) as of December 31, 2000. This increase
was largely due to the conversion of the note debt to equity.
Results of Operations
- ---------------------
Derived from the operating results of Perspectives, the Company
generated $1,503,540 in management fees during the first quarter of
2001 as compared to $1,692,199 in the first quarter of 2000. The
decrease primarily related to the termination of hospital contracts
and adjustments to hospital billings made necessary by reductions
in Medicare reimbursements. General and Administrative Expenses
were $1,271,277 in this quarter as compared to $1,418,123 in the
first quarter of 2000. The Company was able to reduce or eliminate
some of its expenses over the prior year in order to achieve the
decline. In addition, the Company reported no bad debt expense in
this quarter as compared to $100,000 in the first quarter of 2000.
The Company worked aggressively to minimize its administrative
expenses, concluding that such reductions were necessary due to the
impact of the changes in the Medicare reimbursement schedules as
discussed below.
As a result of these reductions in cost, primarily in interest
expense, the Company showed a net income of $169,917 in this
quarter as compared to a loss of $24,045 in the first quarter of
2000.
Liquidity and Capital Resources
- -------------------------------
Cash Flows. At March 31, 2001 the Company maintained $258,479 in
cash and cash equivalents.
Capital Expenditures. Generally, we have spent little of our
resources on capital equipment.
Perspectives has been feeling the harsh negative effects of the
change in the Medicare rules contained in the Balanced Budget
Reconciliation Act of 1997 and has had to adjust its operating
contracts and reduce its expenses to continue operations. Although
Perspectives does not bill Medicare directly, the sweeping effects
of the changes to Medicare reimbursement materially affected the
subsidiary's revenue with regard to its hospital agreements. In
brief, Perspectives has had to renegotiate its hospital agreements
to reflect such lower reimbursement amounts. This resulted in a bad
debt expense of $264,465 for the year ended December 31, 2000, but
has not
8
resulted in any bad debt thus far in 2001.
The Company recognizes revenue on an accrual basis and carefully
monitors appropriate allowances for bad debt. The allowance account
is indirectly affected whenever the U.S. government issues new
policies regarding Medicare reimbursement to its contracted
hospitals. Such hospital agreements require the Company to
renegotiate its fee agreements, and result in the recording of
additional bad debt via the adjustments to the allowance account
due to the change in the underlying Medicare reimbursement
schedules between the contracted hospitals and the U.S. government.
The Company is dependent on the operating performance of
Perspectives. This subsidiary does not have any physician practice
management (PPM) relationships. As a material segment of the
business, Perspectives would be adversely affected by the loss of
one or more key hospital contracts. In addition, Perspectives could
be adversely affected by further changes in U.S. government polices
regarding hospital reimbursements under Medicare.
Recent Developments
- -------------------
Based on its current financial situation and future prospects,
management has been unable to support its outstanding debt
obligations. The Company was in default of its debt service
obligations for the entire quarter. As a consequence, management
has been negotiating for the conversion of the Company's note
obligations into common stock. The Company has made substantial
progress in its attempts to arrange for the conversion of its
existing debt to equity, reducing this debt by over 96% to $314,500
as of May 14, 2001. This conversion of debt to equity has been
done as part of the Company's proposed merger with Tele-Lawyer,
Inc., as discussed further in Item 5.
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
9
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.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company issued 38,685,006 shares of its common stock during the
quarter ended March 31, 2001 at a deemed value of $0.15 per share,
to its note holders pursuant to Regulation S in exchange for the
conversion of their debt.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
The Company is currently in default under its existing secured and
unsecured note obligations and is the process of re-negotiating and
converting these existing note obligations into common stock.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
The Company is in the final stages of consummating a merger
agreement with Tele-Lawyer, Inc. Under this agreement, Tele-Lawyer
will be merged with and into the Company with the Company being the
surviving entity and Tele-Lawyer either ceasing to exist or
operating as a wholly owned subsidiary of the Company. The merger
calls for each of the Tele-Lawyer shareholders to receive one share
of the Company's common stock for each share of Tele-Lawyer common
stock they hold. In addition, each holder of an option or warrant
to purchase Tele-Lawyer common stock under its incentive stock
option plan will be entitled to receive an option to purchase the
same number of shares of the Company stock under the same terms as
provided in their option or warrant agreement.
Currently, Tele-Lawyer has 5,354,999 shares of common stock issued
and outstanding and has issued options to purchase 325,000 common
shares at $1 per share and options to purchase an additional
386,000 common shares at $3 per share. In addition, Tele-Lawyer
has issued warrants to purchase 450,000 common shares at $3 per
share.
In brief, the merger agreement is conditioned, among other things,
upon the following:
* The Company extinguishing all of its outstanding debt,
including all existing notes, through a conversion to common stock
or otherwise.
* The Company having settled and/or paid all outstanding claims,
liabilities, actions or lawsuits to the satisfaction of Tele-Lawyer.
10
* The Company having extinguished all of its outstanding warrants,
options and any other rights to acquire any shares of its common stock.
* The Company enacting a reverse split of its shares so as to have at
the consummation of the merger no more than 500,000 shares of common
stock outstanding.
The conversion of the note holder's debt to equity has been
proceeding since December 2000 and is almost complete. This
condition of the merger may be waived in whole or in part by Tele-
Lawyer, but all conversions that have been made are final and are
not conditioned or contingent upon the consummation of the merger.
The number of the Company's shares held by each of its shareholders
will be reverse split on a 1 for 153 basis prior to the
consummation of the merger. No fractional shares will be issued.
Shareholders will receive one additional share for any fractional
shares resulting from the reverse split; however, shareholders with
less than 153 shares will be paid the value of their shares based
on the closing price for the Company's common stock on the record
date for the determination of the shareholder's right to vote at
the annual meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
None
11
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: May 15, 2001 By: /s/ Grace Sim
---------------------------
Grace Sim, Secretary/Treasurer
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