<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1997
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-20554
DYNACQ INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
NEVADA 76-0375477
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10304 INTERSTATE 10 EAST, SUITE 369, HOUSTON, TEXAS 77029
(address of principal executive offices) Zip Code
Registrants telephone number, including area code (713) 673-6432
N/A
(Former name, former address and former
fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirement for the past
90 days. Yes X. No __.
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable dates.
Title of Each Class Outstanding at June 30, 1997
Common Stock, $0.001 par value 14,235,136 shares
Transitional Small Business Disclosure Format (check one)
Yes [ ] No [X]
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Page 1 of 8
<PAGE> 2
PART I. - FINANCIAL INFORMATION
ITEM I. - FINANCIAL STATEMENTS
DYNACQ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited) (Audited)
ASSETS
May 31, AUGUST 31
1997 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash 918,384 1,134,579
Restricted Short-Term Investments 180,000 180,000
Receivable (Net of Allowance for 2,637,909 2,413,372
Doubtful Accounts)
Inventory 32,024 29,347
Other Current Assets 2,666 31,120
------------ ------------
Total Current Assets 3,770,983 3,788,418
FIXED ASSETS - NET 5,145,736 5,197,107
OTHER ASSETS 1,263,226 1,333,084
------------ ------------
TOTAL ASSETS 10,179,945 10,318,609
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable 312,202 199,452
Accrued Liabilities 959,992 797,021
Income Taxes Payable 197,651 252,110
Current Portion of Notes Payable 277,833 277,833
Federal Income Taxes Payable 276,796 436,000
------------ ------------
TOTAL CURRENT LIABILITIES 2,024,474 1,962,416
LONG-TERM DEBT 756,354 969,392
DEFERRED FEDERAL INCOME TAX PAYABLE 134,000 134,000
MINORITY INTERESTS IN SUBSIDIARY 913,184 856,357
STOCKHOLDERS' EQUITY:
Preferred Stock, $0.01 Par Value,
5,000,000 Shares Authorized,
None Issued or Outstanding
Common Stock, $0.001 Par Value,
300,000,000 Shares Authorized
After 8 to 1 reverse Stock Split,
14,235,136 Shares Issued and
Outstanding 14,235 14,235
Additional Paid In Capital 3,452,130 3,452,130
Retained Earnings 2,942,890 2,987,401
LESS TREASURY STOCK; 71,335 shares at cost (57,322) (57,322)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 6,351,933 6,396,444
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 10,179,945 10,318,609
============ ============
</TABLE>
Page 2 of 8
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DYNACQ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
May, 31 May 31,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INCOME 2,477,777 2,451,385 6,913,954 5,960,078
COST OF SALE 89,521 79,523 243,906 260,445
----------- ----------- ----------- -----------
GROSS PROFIT 2,388,256 2,371,862 6,670,048 5,699,633
LESS EXPENSES :
Contract Services 1,000,970 913,954 2,512,117 1,709,167
Salaries 598,515 341,725 1,696,143 807,119
Medical Supplies 354,780 180,934 755,599 460,591
Administrative 97,476 89,168 367,176 207,517
Depreciation & Amortization 109,377 130,151 334,811 388,690
Auto Expenses 9,829 10,195 34,374 28,954
Taxes, Licences & Prof. Fees 154,588 338,405 364,626 625,472
Leasing 2,702 4,105 10,070 9,928
Rent 33,191 29,514 138,214 37,230
Marketing & Promotion 69,755 6,727 152,699 25,438
Maintenance & Repairs 15,744 36,427 52,263 96,607
Utilities 23,087 29,563 77,185 75,134
Insurance 22,452 42,973 74,970 51,953
Interest 29,994 33,285 87,485 105,690
----------- ----------- ----------- -----------
Total Expenses 2,522,460 2,187,126 6,657,732 4,629,490
----------- ----------- ----------- -----------
NET INCOME FROM OPERATIONS (134,204) 184,736 12,316 1,070,143
MINORITY INTERESTS IN (26,020) 15,703 (56,827) (69,948)
(PROFIT)/LOSS OF SUBSIDIARY
LESS PROVISION FOR FEDERAL
INCOME TAXES
Current (28,378) 130,932 0 314,068
Deferred 0 (60,779) 0 36,000
----------- ----------- ----------- -----------
Total Income Taxes (28,378) 70,153 0 350,068
----------- ----------- ----------- -----------
NET INCOME (LOSS) (131,846) 130,286 (44,511) 650,127
=========== =========== =========== ===========
NET INCOME (LOSS) PER SHARE:
INCOME BEFORE PROVISION
FOR FEDERAL INCOME TAX (0.009) 0.014 (0.003) 0.070
PROVISION FOR FEDERAL
INCOME TAX (0.000) 0.005 0.000 0.024
----------- ----------- ----------- -----------
NET INCOME (0.009) 0.009 (0.003) 0.046
WEIGHTED AVERAGE NUMBER 14,235,136 14,235,136 14,235,136 14,235,136
OF SHARES OUTSTANDING
*(AS ADJUSTED FOR 8 TO 1 REVERSE * * * *
STOCK SPLIT EFFECTIVE MARCH 8, 1993.)
</TABLE>
Page 3 of 8
<PAGE> 4
DYNACQ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED MAY 31
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
USED BY OPERATING ACTIVITIES:
Net Income (Loss) (44,511) 650,127
ADD: ITEMS NOT REQUIRING CASH:
DEPRECIATION 334,811 388,690
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
(Increase) Decrease in Accounts Receivable (224,537) 414,626
(Increase) Decrease in Inventory (2,677) 2,387
(Increase) Decrease in Prepaid Expenses 28,454 34,994
(Increase) Decrease in Notes Receivable 0 (374,308)
(Increase) Decrease in Other Assets 69,858 62,194
Increase (Decrease) in Accounts Payable 112,750 127,893
Increase (Decrease) in Accrued Liabilities 162,971 7,437
Increase (Decrease) in Current Notes Payable 0 (29,223)
Increase (Decrease) in Current Income Taxes (213,663) (18,065)
Increase (Decrease) in Deferred Income Taxes 0 36,000
---------- ----------
Net Cash Used by Operating Activities 223,456 1,302,752
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of Fixed Assets (283,440) (149,454)
(Decrease) Increase of Minority Interests 56,827 (34,368)
in subsidiary
---------- ----------
Net Cash Used by Investing Activities (226,613) (183,822)
CASH FLOW FROM FINANCING ACTIVITIES:
Retirement of Long -Term Debt (213,038) (188,430)
Acquisition of treasury stock 0 0
---------- ----------
Net Cash Provided by Financing Activities (213,038) (188,430)
---------- ----------
Net Increase/(Decrease) in Cash (216,195) 930,500
CASH BALANCE AT BEGINNING OF YEAR 1,134,579 649,572
---------- ----------
CASH BALANCE AT END OF THE QUARTER 918,384 1,580,072
========== ==========
</TABLE>
Page 4 of 8
<PAGE> 5
DYNACQ INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997
(UNAUDITED)
NOTE 1. - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by Dynacq
International, Inc. without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted as
allowed by such rules and regulations, and management believes that the
disclosures are adequate to make the information presented not misleading.
These financial statements include all of the adjustments which, in the opinion
of management, are necessary for a fair presentation of financial position and
results of operations. All such adjustments are of a normal and recurring
nature. These unaudited financial statements should be read in conjunction with
the audited financial statements at August 31, 1996. Operating results for the
nine months period ended May 31,1997 are not necessarily indicative of the
results that may be expected for the year ending August 31, 1997.
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MAY 31, 1997
TO THE THREE MONTHS ENDED MAY 31, 1996
Consolidated revenues for the three months ended May 31, 1997 increased $26,392
or 1% from that for the corresponding previous quarter ended May 31, 1996.
Notwithstanding this small increase in consolidated revenues, there were a
number of significant increases and decreases in the component revenue
categories. For instance, revenue attributable to Doctor's Practice Management,
Inc. ("DPMI") increased $32,973 or 2%, rental revenue decreased $63,698 and
revenue attributable to Vista operations increased $53,418 or 11% from that of
the prior year.
Consolidated costs of sale for the three months ended May 31, 1997 increased
$9,998 or 13% from that for the corresponding previous quarter ended May 31,
1996, was primarily attributable to DPMI and Vista.
Consolidated operating expenses for the three months ended May 31, 1997
increased $269,316 or 12% from that for the corresponding previous quarter
ended May 31, 1996 primarily due to increase in the activities of DPMI. The
significant increases and decreases in the component expense categories of the
consolidated operating expenses are explained as follows:
(1) The increase in contract services of $87,016 or 10% was primarily
attributable to DPMI.
(2) The increase in salaries expenses of $256,790 or 75% was primarily
attributable to DPMI.
(3) The increase in medical supplies expense of $173,846 or 96% was primarily
attributable to DPMI and Vista
(4) The increase in administrative expenses of $8,308 or 9% was primarily
attributable to DPMI.
Page 5 of 8
<PAGE> 6
(5) The decrease in taxes, licences and professional fees of $183,817 or 54%
was primarily due to eliminating of management fee paid by Vista to DPMI.
(6) The decrease in leasing expense of $1,403 or 34% was primarily due to the
expiration of some lease agreements attributable to the home infusion
therapy operations.
(7) The increase in rent expense of $3,677 or 12% was primarily attributable
to DPMI.
(8) The increase in marketing and promotion expense of $63,028 or 937% was
primarily due to Vista to increase public awareness of the facilities.
(9) The decrease in utilities expense of $6,476 or 22% was primarily
attributable to Vista.
(10) The decrease in insurance expense of $20,521 or 48% was primarily
attributable to Vista.
(11) The decrease in interest expense of $3,291 or 10% was primarily
attributable to Vista due to the amortization of the mortgage interest
expense.
COMPARISON OF THE NINE MONTHS ENDED MAY 31, 1997
TO THE NINE MONTHS ENDED MAY 31, 1996.
Consolidated revenues for the nine months ended May 31, 1997 increased $953,876
or 16% from that for the corresponding period ended May 31 of the previous
fiscal year. Notwithstanding this moderate increase in consolidated revenues,
there were a number of significant increases and decreases in the component
revenue categories. For instance, revenue attributable to DPMI increased
$1,866,657 or 80% due to increase in activities. Revenue attributable to home
infusion therapy operations decreased $163,610 or 13% in the current period due
to lower patient load as a result of fewer referrals and lower reimbursable
insurance charges per patient compared to the corresponding period of the
previous fiscal year. Rental revenue decreased $246,334 and revenue
attributable to Vista operations decreased $502,837 or 26% from that of the
prior year due to fewer patient referrals, primarily as a result of the
relocation of a physician group which was located on the premises.
Consolidated costs of sale for the nine months ended May 31, 1997 decreased
$16,539 or 6% from that for the corresponding period ended May 31 of the
previous fiscal year, primarily due to lower patient load of the Vista
operations.
Consolidated operating expenses for the nine months ended May 31, 1997
increased $1,962,224 or 42% from that for the corresponding period ended May 31
of the previous fiscal year. The significant increases and decreases in the
component expense categories of the consolidated operating expenses are
explained as follows:
(1) The increase in contract services expense of $802,950 or 47% was primarily
attributable to DPMI.
(2) The increase in salaries expense of $889,024 or 110% was primarily
attributable to DPMI.
(3) The increase in medical supplies expense of $295,008 or 64% was primarily
attributable to DPMI.
(4) The increase in administrative expense of $159,659 or 77% was primarily
attributable to DPMI.
(5) The increase in auto expense of $5,420 or 19% was primarily attributable
to DPMI.
(6) The decrease in taxes, licences and professional fees of $260,846 or 42%
was primarily due to decreasing in management fee paid by Vista to DPMI.
(7) The increase in rent expense of $100,984 or 271% was primarily
attributable to DPMI.
(8) The increase in marketing and promotion expense of $127,261 or 500% was
primarily attributable to Vista to increase public awareness of the
facilities.
(9) The increase in insurance expense of $23,016 or 44% was primarily
attributable to DPMI.
(10) The decreased in interest expense of $18,205 or 17% was primarily
attributable to Vista due to the amortization of mortgage interest
expense.
Page 6 of 8
<PAGE> 7
FINANCIAL CONDITION
COMPARISON OF THE BALANCE SHEETS AT NINE MONTHS ENDED MAY 31, 1997 TO THE
AUDITED BALANCE SHEET AT FISCAL YEAR ENDED AUGUST 31, 1996.
Consolidated cash for the nine months ended May 31, 1997 decreased $216,195 or
19% from that of the previous audited balance sheet ending August 31, 1996 was
due to $223,456 provided by operating activities, $226,613 used by investing
activities and $213,038 used by financing activities. Consolidated accounts
receivable for the nine months ended May 31, 1997 increased $224,537 or 9% from
that of the previous audited balance sheet ended August 31, 1996. Consolidated
accounts payable and accrued liabilities for the nine months ended May 31, 1997
increased $275,721 or 28% from that of the previous audited balance sheet ended
August 31, 1996 due to the accrual of trade payable.
Liquidity and Capital Resources
Working Capital of $1,812,527 at May 31, 1997 decreased $13,475 or 0.1% from
working capital at August 31, 1996 primarily due to decrease in cash, and
income taxes payable. At May 31, 1997, the Company maintained a liquid position
evidenced by a current ratio of 1.86 to 1 and total debt to equity of 0.60 to
1.
PART II.
ITEM 1. - LEGAL PROCEEDINGS
In March, 1997 DPMI filed a civil lawsuit (Case No. 97-08711) against
Houston Physical Medicine Associates, M.D., P.A. ("HPM") and Anjali Jain, M.D.
("Jain") in the 269th District Court of Harris County, Texas to seek repayment
of $110,000 owed to DPMI pursuant to the Revolving Credit Agreement and
Security Agreement executed in July of 1996. In April, 1997 HPM and Jain filed
a counterclaim against and complain against DPMI and Chiu M. Chan seeking
alleged actual damages in excess of $300,000. In May, 1997 DPMI and Chiu M.
Chan through court filing denied each and every allegation made by HPM/Jain. No
reserve for bad debt or loss pursuant to this lawsuit has been recorded in the
current quarterly financial statement. However, $27,000 legal fee has been
accrued in the current quarterly financial statement.
ITEM 2. - CHANGES IN SECURITIES
None
ITEM 3. - DEFAULT UPON SENIOR SECURITIES
None
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. - OTHER INFORMATION
None
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
27 Financial Data Schedule
Page 7 of 8
<PAGE> 8
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.
DYNACQ INTERNATIONAL, INC.
DATE: July 21, 1997 BY: /s/ PHILIP CHAN
--------------------------------
Philip Chan
VP-Finance/Treasurer &
Chief Financial Officer
Page 8 of 8
<PAGE> 9
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 - Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> MAY-31-1997
<CASH> 918,384
<SECURITIES> 0
<RECEIVABLES> 2,637,909
<ALLOWANCES> 0
<INVENTORY> 32,024
<CURRENT-ASSETS> 3,770,983
<PP&E> 5,145,736
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,179,945
<CURRENT-LIABILITIES> 2,024,474
<BONDS> 756,354
0
0
<COMMON> 14,235
<OTHER-SE> 6,351,933
<TOTAL-LIABILITY-AND-EQUITY> 10,179,945
<SALES> 0
<TOTAL-REVENUES> 6,913,954
<CGS> 243,906
<TOTAL-COSTS> 6,570,247
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 87,485
<INCOME-PRETAX> (44,511)
<INCOME-TAX> 0
<INCOME-CONTINUING> (44,511)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (44,511)
<EPS-PRIMARY> (0.003)
<EPS-DILUTED> (0.003)
</TABLE>
