<PAGE> 1
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 November 30, 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 issurer (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 January 13, 1998
Common Stock, $0.001 par value 14,426,336 shares
Transitional Small Business Disclosure Format (check one)
Yes [ ] No [X]
<PAGE> 2
PART I. - FINANCIAL INFORMATION
ITEM I. - FINANCIAL STATEMENTS
DYNACQ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited) (Audited)
ASSETS
NOVEMBER 30, AUGUST 31
1997 1997
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash 1,332,473 842,343
Restricted short-term investments 189,638 189,638
Receivable (Net of Allowance for 1,740,194 2,274,008
Doubtful Accounts)
Inventory 30,626 31,679
Due from related party 1,400 16,800
Other Current Assets 181,294 181,294
------------ ------------
Total Current Assets 3,475,625 3,535,762
FIXED ASSETS - NET 4,943,876 5,057,627
OTHER ASSETS 434,114 266,200
------------ ------------
TOTAL ASSETS 8,853,615 8,859,589
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable 589,641 431,366
Accrued Liabilities 168,630 718,881
Notes Payable 250,000 250,000
Current Portion of Notes Payable 144,112 180,353
Deferred Income Taxes Payable 131,000 131,000
------------ ------------
TOTAL CURRENT LIABILITIES 1,283,383 1,711,600
LONG-TERM DEBT 788,473 788,473
DEFERRED FEDERAL INCOME TAX PAYABLE 244,282 127,000
MINORITY INTERESTS IN SUBSIDIARY 972,389 895,267
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,
14,415,136 Shares Issued and
Outstanding 14,235 14,235
Additional Paid In Capital 3,452,130 3,452,130
Retained Earnings 2,156,045 1,928,206
LESS TREASURY STOCK; 71,335 shares at cost (57,322) (57,322)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 5,565,088 5,337,249
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 8,853,615 8,859,589
============ ============
</TABLE>
<PAGE> 3
DYNACQ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30
1997 1996
------------ ------------
<S> <C> <C>
INCOME 2,270,561 2,182,493
COST OF SALE 129,108 52,534
------------ ------------
GROSS PROFIT 2,141,453 2,129,959
LESS EXPENSES :
Contract payments to physicians 423,353 760,874
Compensation and benefits 553,373 486,681
Medical Supplies 150,906 151,452
Other general and administrative expense 399,786 406,820
Depreciation and Amortization 121,565 109,846
Rent and occupancy 38,355 77,494
Interest 31,791 29,600
------------ ------------
Total Expenses 1,719,129 2,022,767
------------ ------------
NET INCOME (LOSS) FROM OPERATIONS 422,324 107,192
MINORITY INTERESTS IN (PROFITS)/LOSS (77,122) (20,903)
OF SUBSIDIARY
LESS PROVISION FOR FEDERAL INCOME TAXES
Current 0 12,943
Deferred 117,363 0
------------ ------------
Total Income Taxes 117,363 12,943
------------ ------------
NET INCOME (LOSS) 227,839 73,346
============ ============
NET INCOME (LOSS) PER SHARE:
INCOME BEFORE PROVISION FOR
FEDERAL INCOME TAX 0.024 0.006
PROVISION FOR FEDERAL INCOME TAX 0.008 0.001
------------ ------------
NET INCOME 0.016 0.005
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 14,415,136 14,235,136
</TABLE>
<PAGE> 4
DYNACQ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED NOVEMBER 30
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
USED BY OPERATING ACTIVITIES:
Net Income (Loss) 227,839 73,346
ADD: ITEMS NOT REQUIRING CASH:
DEPRECIATION 121,565 109,846
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
(Increase) Decrease in Accounts Receivable 533,814 267,090
(Increase) Decrease in Inventory 1,053 (2,153)
(Increase) Decrease in Other Current Assets 0 18,550
(Increase) Decrease in Due from related party 15,400 0
(Increase) Decrease in Other Assets (167,914) 3,282
Increase (Decrease) in Accounts Payable 158,275 333,346
Increase (Decrease) in Accrued Liabilities (550,251) (699,636)
Increase (Decrease) in Current Notes Payable (36,241) 0
Increase (Decrease) in Current Income Taxes 0 (193,421)
Increase (Decrease) in Deferred Income Taxes 117,282 0
------------ ------------
Net Cash Provided (Used) by Operating Activities 420,822 (89,750)
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of Fixed Assets (7,814) (135,249)
(Decrease) Increase of Minority Interests 77,122 20,903
in subsidiary
------------ ------------
Net Cash Provided (Used) by Investing Activities 69,308 (114,346)
CASH FLOW FROM FINANCING ACTIVITIES:
Retirement of Long -Term Debt 0 28,316
Acquisition of treasury stock 0 (57,322)
------------ ------------
Net Cash Provided (Used) by Financing Activities 0 (29,006)
------------ ------------
Net Increase/(Decrease) in Cash 490,130 (233,102)
CASH BALANCE AT BEGINNING OF YEAR 1,031,981 1,134,579
------------ ------------
CASH BALANCE AT END OF THE QUARTER 1,522,111 901,477
============ ============
</TABLE>
<PAGE> 5
DYNACQ INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 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, 1997. Operating results for the three months
period ended November 30,1997 are not necessarily indicative of the results that
may be expected for the year ending August 31, 1998.
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED NOVEMBER 30, 1997
TO THE THREE MONTHS ENDED NOVEMBER 30, 1996
Consolidated revenues for the three months ended November 30, 1997 increased
$88,000 or 4% from that for the corresponding previous quarter ended November
30, 1996. Notwithstanding this insignificant increase in consolidated revenues,
there were a number of significant increases and decreases in the component
revenue categories. For instance, revenue attributable to Doctors Practice
Management, Inc. ("DPMI") decreased $406,000 or 32% from the corresponding
previous quarter due to fewer physicians under management. The number of
physicians under management was reduced from eleven from the corresponding
previous quarter to four in the current quarter. Revenue attributable to home
infusion therapy operations decrease $148,000 or 33% in the current quarter due
to lower patient load as a result of fewer referrals and lower reimbursable
insurance charges per patient compared to the corresponding quarter of the
previous fiscal year. Revenue attributable to Vista operations significantly
increased by $644,000 or 135% from the corresponding previous quarter due to
increase in patient referrals, primarily as a result of the marketing effort by
the new administrator.
Consolidated costs of sale for the three months ended November 30, 1997
increased $76,754 or 146% from that for the corresponding previous quarter ended
November 30, 1996, was primarily attributable to Vista operations.
Consolidated operating expenses for the three months ended November 30, 1997
decreased $336,638 or 17% from that for the corresponding previous quarter ended
November 30, 1996 primarily due to decrease in activities of DPMI. The
significant increases and decreases in the component expense categories of the
consolidated operating expenses are explained as follows:
(1) The decrease in contract services of $337,521 or 44% was primarily
attributable to DPMI, which has fewer physicians under management in the
current quarter.
(2) The increase in salaries expenses of $66,692 or 14% was primarily
attributable to Vista, which has increased activities in the current
quarter.
(3) The decrease in rent and occupancy expense of $39,139 or 51% was primarily
due to DPMI, which has fewer off site physician leased spaces in the
current quarter.
<PAGE> 6
FINANCIAL CONDITION
COMPARISON OF THE BALANCE SHEETS AT THREE MONTHS ENDED NOVEMBER 30, 1997 TO THE
AUDITED BALANCE SHEET AT FISCAL YEAR ENDED AUGUST 31, 1997.
Consolidated cash for the three months ended November 30, 1997 increased
$490,130 or 58% from that of the previous audited balance sheet ending August
31, 1997 was due to $420,822 provided by operating activities and $69,308
provided by investing activities. Consolidated accounts receivable for the three
months ended November 30, 1997 decreased $553,814 or 23% from that of the
previous audited balance sheet ended August 31, 1997 due to the collection of
accounts receivable.
Liquidity and Capital Resources
Working Capital of $2,192,242 at November 30, 1997 increased $368,080 or 20%
from working capital at August 31, 1997 primarily due to decrease in accounts
receivable and increase in cash. At November 30, 1997, the Company maintained a
liquid position evidenced by a current ratio of 2.71 to 1 and total debt to
equity of 0.42 to 1.
Management believes that available cash funds and funds generated from
operations will be sufficient for the Company to finance working capital
requirements for the foreseeable future and to meet its payment obligations on
its long-term indebtedness.
Inflation. Inflation has not significantly impacted the Company's financial
position or operations.
Forward-Looking Information. Information in this Form 10-QSB contains
forward-looking statements and information relating to the Company that are
based on the beliefs of the Company's management, as well as assumptions made
by, and information currently available to the Company's management. When used
in this Form 10-QSB, words such as "anticipate", "believe", "estimate",
"expect", "intend", and similar expressions, as they related to the Company or
the Company's management, identify forward-looking statements. Such statements
reflect the current views of the Company with respect to future events, and are
subject to certain risks, uncertainties, and assumptions relating to the
operations and results of operations of the Company, competitive factors and
pricing pressures, costs of products and services, general economic conditions,
and the acts of third parties, as well as other factors described in this Form
10-QSB, and, from time to time, in the Company's periodic earnings releases and
other reports filed with the Securities and Exchange Commission. Should one or
more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results or outcomes may vary materially from
those described herein as anticipated, believed, estimated, or intended, or the
like.
PART II.
ITEM 1. - LEGAL PROCEEDINGS
In March 1997, DPMI filed a civil lawsuit styled Doctors Practice
Management, Inc., Plaintiff vs. Houston Physical Medicine Associates, M.D., P.A.
and Anjali Jain, M.D., Defendants; Cause No. 97-08711; in the 279th Judicial
Court of Harris County, Texas to seek repayment of advances of $110,000 owed to
the Company pursuant to a revolving credit agreement and a revolving credit
note. The Defendants are a physician group that DPMI entered into a Management
Agreement with to manage their practice. In April 1997, the Defendants filed a
counterclaim against DPMI and the president of the Company, jointly and
severally, alleging fraud, intentional misrepresentation, violations of the
Texas Deceptive Trade Practices Act, and various other causes of action,
including breach of contract, seeking actual damages in excess of $300,000,
consequential damages in an amount in excess of $200,000 and exemplary damages,
attorney's fees and court costs. In May 1997, DPMI and the Company's President
filed a response denying allegations made in the counterclaim by the Defendants.
The Company intends to vigorously defend this case and believes that a
settlement or related judgment will not have a material adverse effect on the
Company's financial position. The Company believes that the Defendants filed the
counterclaims against DPMI in an effort to find some legal basis to attempt to
avoid or delay repayment of the advances. The Company may not have insurance
coverage for any of the claims filed by the Defendants. In the opinion of
management, the Company's allowance for doubtful accounts is adequate to cover
the loss, if any, on the advances made to the Defendants. No additional amounts
are recorded on the books of the Company in anticipation of a loss as a result
of this contingency.
<PAGE> 7
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
In January 1998, the Company's Board of Directors adopted a
resolution by unanimous written consent to amend its Articles of Incorporation
(the "Amendment") to effect a 4 to 1 reverse stock split (the "Reverse Stock
Split") of the Company's outstanding common stock $0.001 par value (the "Common
Stock"). The Amendment was approved by the Board of Directors and adopted by
written consent of the holders of a majority of the outstanding shares of the
Company's common stock. The Amendment will become effective on approximately
February 10, 1998, the date on which the Company expects to file the Amendment
with the Nevada Secretary of State (the "Effective Date"). The Reverse Stock
Split is expected to facilitate the continued listing of the Company's Common
Stock on the Nasdaq Small Cap Market. The Company currently has 14,426,336
shares of Common Stock issued and outstanding. The Reverse Stock Split will
reduce the number of shares of the Company's outstanding Common Stock on the
Effective Date to approximately 3,606,584 shares. The Information Statement
detailing the Reverse Stock Split will be provided to all stockholders of
record as of January 22, 1998.
ITEM 6. - EXHIBITS AND 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.
DYNACQ INTERNATIONAL, INC.
DATE: January 14, 1998 BY: /s/ Philip Chan
Philip Chan
VP-Finance/Treasurer &
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> NOV-30-1997
<CASH> 1,522,111
<SECURITIES> 0
<RECEIVABLES> 1,740,194
<ALLOWANCES> 0
<INVENTORY> 30,626
<CURRENT-ASSETS> 3,475,625
<PP&E> 4,943,876
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,853,615
<CURRENT-LIABILITIES> 1,283,383
<BONDS> 788,473
0
0
<COMMON> 14,235
<OTHER-SE> 5,550,853
<TOTAL-LIABILITY-AND-EQUITY> 8,853,615
<SALES> 0
<TOTAL-REVENUES> 2,270,561
<CGS> 129,108
<TOTAL-COSTS> 1,687,338
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,791
<INCOME-PRETAX> 422,324
<INCOME-TAX> 117,363
<INCOME-CONTINUING> 227,839
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 227,839
<EPS-PRIMARY> 0.016
<EPS-DILUTED> 0.016
</TABLE>
