<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 May 31, 1998
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 July 13, 1998
Common Stock, $0.001 par value 3,305,897 shares
Transitional Small Business Disclosure Format (check one)
Yes No X
---- ----
<PAGE> 2
Page 1 of 9
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
1998 1997
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash 1,898,054 842,343
Restricted Short-Term Investments 180,000 189,638
Receivable (Net of Allowance for 1,783,899 2,274,008
Doubtful Accounts)
Inventory 31,556 31,679
Other Current Assets 47,003 198,094
---------- ----------
Total Current Assets 3,940,512 3,535,762
FIXED ASSETS - NET 4,904,061 5,057,627
OTHER ASSETS 515,005 266,200
---------- ----------
TOTAL ASSETS 9,359,578 8,859,589
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable 468,338 431,366
Accrued Liabilities 97,175 718,881
Notes Payable 250,000 250,000
Current Portion of Notes Payable 150,335 180,353
Federal Income Taxes Payable 299,590 131,000
---------- ----------
TOTAL CURRENT LIABILITIES 1,265,438 1,711,600
LONG-TERM DEBT 1,103,308 788,473
DEFERRED FEDERAL INCOME TAX PAYABLE 390,877 127,000
MINORITY INTERESTS IN SUBSIDIARY 1,044,482 895,267
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 4 to 1 reverse Stock Split,
3,309,934 Shares Issued and
Outstanding
3,607 14,235
Additional Paid In Capital 3,552,761 3,452,130
Retained Earnings 2,597,082 1,928,206
LESS TREASURY STOCK; 296,650 shares at cost (597,977) (57,322)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 5,555,473 5,337,249
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 9,359,578 8,859,589
========== ==========
</TABLE>
<PAGE> 3
Page 2 of 9
DYNACQ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
May,31 May 31,
1998 1997 1998 1997
-------------------------- --------------------------
<S> <C> <C> <C> <C>
INCOME 2,142,551 2,477,777 6,749,205 6,913,954
COST OF SALE 95,863 89,521 408,260 243,906
---------- ---------- ---------- ----------
GROSS PROFIT 2,046,688 2,388,256 6,340,945 6,670,048
LESS EXPENSES :
Contract payments to physicians 293,662 1,000,970 1,202,335 2,512,117
Compensation and benefits 418,474 598,515 1,409,093 1,696,143
Medical Supplies 397,439 354,780 696,461 755,599
Other general &administrative expenses 297,250 356,802 1,062,673 1,003,915
Depreciation & Amortization 129,615 109,377 373,535 334,811
Rent and occupancy 74,165 72,022 220,390 267,662
Interest 50,146 29,994 114,217 87,485
---------- ---------- ---------- ----------
Total Expenses 1,660,751 2,522,460 5,078,704 6,657,732
---------- ---------- ---------- ----------
NET INCOME FROM OPERATIONS 385,937 (134,204) 1,262,241 12,316
MINORITY INTERESTS IN (21,136) (26,020) (160,815) (56,827)
(PROFIT)/LOSS OF SUBSIDIARY
LESS PROVISION FOR FEDERAL
INCOME TAXES
Current 310,200 (28,378) 310,200 0
Deferred (148,218) 0 122,350 0
---------- ---------- ---------- ----------
Total Income Taxes 161,982 (28,378) 432,550 0
---------- ---------- ---------- ----------
NET INCOME (LOSS) 202,819 (131,846) 668,876 (44,511)
========== ========== ========== ==========
NET INCOME (LOSS) PER SHARE: 0.061 (0.037) 0.202 (0.013)
WEIGHTED AVERAGE NUMBER 3,313,550 3,558,784 3,313,550 3,558,784
OF SHARES OUTSTANDING (2) (1) (2) (1)
</TABLE>
(1) (AS ADJUSTED FOR 4 TO 1 REVERSE STOCK SPLIT EFFECTIVE FEBRUARY 10, 1998.)
(2) (AS ADJUSTED FOR 4 TO 1 REVERSE STOCK SPLIT EFFECTIVE FEBRUARY 10, 1998
AND 296,650 POST 4 TO 1 REVERSE SPLIT TREASURY SHARES)
<PAGE> 4
Page 3 of 9
DYNACQ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED MAY 31
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
USED BY OPERATING ACTIVITIES:
Net Income (Loss) 668,876 (44,511)
ADD: ITEMS NOT REQUIRING CASH:
DEPRECIATION 373,535 334,811
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
(Increase) Decrease in Accounts Receivable 490,109 (224,537)
(Increase) Decrease in Inventory 123 (2,677)
(Increase) Decrease in Prepaid Expenses 0 28,454
(Increase) Decrease in Notes Receivable 0 0
(Increase) Decrease in Other Current Assets 151,091 69,858
Increase (Decrease) in Accounts Payable 36,972 112,750
Increase (Decrease) in Accrued Liabilities (621,706) 162,971
Increase (Decrease) in Current Notes Payable (30,018) 0
Increase (Decrease) in Current Income Taxes 168,590 (213,663)
Increase (Decrease) in Deferred Income Taxes 263,877 0
---------- ----------
Net Cash Used by Operating Activities 1,501,449 223,456
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of Fixed Assets (219,969) (283,440)
Purchase of Other Assets (248,805) 0
(Decrease) Increase of Minority Interests 149,215 56,827
in subsidiary ---------- ----------
Net Cash Used by Investing Activities (319,559) (226,613)
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowing (Retirement) of Long -Term Debt 314,835 (213,038)
(Reverse Split) Issuance of Common Stock (10,628) 0
Increase Paid In Capital 100,631 0
Acquisition of Treasury Stock (540,655) 0
---------- ----------
Net Cash Provided by Financing Activities (135,817) (213,038)
---------- ----------
Net Increase/(Decrease) in Cash 1,046,073 (216,195)
CASH BALANCE AT BEGINNING OF YEAR 1,031,981 1,134,579
---------- ----------
CASH BALANCE AT END OF THE QUARTER 2,078,054 918,384
========== ==========
</TABLE>
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Page 4 of 9
DYNACQ INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998
(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 nine months
period ended May 31,1998 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 MAY 31, 1998
TO THE THREE MONTHS ENDED MAY 31, 1997
Consolidated revenues for the three months ended May 31, 1998 decreased $335,226
or 14% from that for the corresponding previous quarter ended May 31, 1997.
Notwithstanding this moderate decrease 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") decreased $935,692 or 58% due to fewer physicians under
management, home infusion therapy revenue decreased $235,098 or 75% 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, and revenue attributable to Vista operations increased $835,564 or 151%
from that of the prior year due to more patient referrals.
Consolidated costs of sale for the three months ended May 31, 1998 increased
$6,342 or 7% from that for the corresponding previous quarter ended May 31,
1997, was primarily attributable to Vista.
Consolidated operating expenses for the three months ended May 31, 1998
decreased $861,709 or 34% from that for the corresponding previous quarter ended
May 31, 1997 primarily due to decrease 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 decrease in contract services of $707,308 or 71% was primarily
attributable to the decrease in the activities of DPMI.
(2) The decrease in compensation and benefits expenses of $180,041 or 30% was
primarily attributable to the decrease in the activities of DPMI.
(3) The increase in medical supplies expense of $42,659 or 12% was primarily
attributable to the increase in the activities of Vista
(4) The decrease in other general and administrative expenses of $59,552 or
17% was primarily attributable to the decrease in the activities of DPMI.
<PAGE> 6
Page 5 of 9
(5) The increase in interest expense of $20,152 or 67% was primarily
attributable to the purchase of its own treasury shares by the Company.
COMPARISON OF THE NINE MONTHS ENDED MAY 31, 1998 TO THE NINE
MONTHS ENDED MAY 31, 1997.
Consolidated revenues for the nine months ended May 31, 1998 decreased $164,749
or 2% from that for the corresponding period ended May 31 of the previous fiscal
year. Notwithstanding this small decrease in consolidated revenues, there were a
number of significant increases and decreases in the component revenue
categories. For instance, revenue attributable to DPMI decreased $2,248,458 or
52% due to fewer physicians under management. Revenue attributable to home
infusion therapy operations decreased $310,640 or 27% 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, and revenue attributable to Vista operations increased
$2,394,350 or 167% from that of the prior year due to increase in patient
referrals.
Consolidated costs of sale for the nine months ended May 31, 1998 increased
$164,354 or 67% from that for the corresponding period ended May 31 of the
previous fiscal year, primarily due to increase in the activities in Vista
operations.
Consolidated operating expenses for the nine months ended May 31, 1998 decreased
$1,579,028 or 24% from that for the corresponding period ended May 31 of the
previous fiscal year primarily due to decrease 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 decrease in contract services expense of $1,309,782 or 52% was
primarily attributable to the decrease in the activities of DPMI.
(2) The decrease in compensation and benefits expense of $287,050 or 17% was
primarily attributable to the decrease in the activities of DPMI.
(3) The decrease in medical supplies expense of $59,138 or 8% was primarily
attributable to the decrease in the activities of DPMI.
(4) The decrease in rent and occupancy expense of $47,272 or 18% was primarily
attributable to the decrease in the activities of DPMI.
(5) The increase in interest expense of $26,732 or 30% was primarily
attributable to the buy back of its own treasury shares by the Company.
<PAGE> 7
Page 6 of 9
FINANCIAL CONDITION
COMPARISON OF THE BALANCE SHEETS AT NINE MONTHS ENDED MAY 31, 1998 TO THE
AUDITED BALANCE SHEET AT FISCAL YEAR ENDED AUGUST 31, 1997.
Consolidated cash for the nine months ended May 31, 1998 increased $1,046,073 or
101% from that of the previous audited balance sheet ending August 31, 1997 was
due to $1,501,449 provided by operating activities, $319,559 used by investing
activities and $135,817 used by financing activities. Consolidated accounts
receivable for the nine months ended May 31, 1998 decreased $490,109 or 22% from
that of the previous audited balance sheet ended August 31, 1997. Consolidated
accounts payable and accrued liabilities for the nine months ended May 31, 1998
decreased $584,734 or 50% from that of the previous audited balance sheet ended
August 31, 1997 due to payment of trade payable.
Liquidity and Capital Resources
Working Capital of $2,675,074 at May 31, 1998 increased $850,912 or 74% from
working capital at August 31, 1997 primarily due to increase in cash, income
taxes payable and decrease in accrued liabilities. At May 31, 1998, the Company
maintained a liquid position evidenced by a current ratio of 3 to 1 and total
debt to equity of 0.27 to 1.
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 269th District
Court of Harris County, Texas to seek repayment of advances of $110,000 owed to
DPMI pursuant to the revolving credit agreement and security agreement executed
in July of 1996. The Defendants are a physician group that DPMI entered into a
Management Agreement with Plaintiff 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, attorneys' fees and court costs. In May, 1997 DPMI and the Company's
President filed a response denying all 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 physician. No additional amounts
are recorded on the books of the Company in anticipation of a loss as a result
of this contingency..
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
<PAGE> 8
Page 7 of 9
ITEM 5. - OTHER INFORMATION
The Company bought back 4,175 shares of its own common stock in the
open market at a price of $2.709 on March 7, 1998.
The Company bought back 4,975 shares of its own common stock in the
open market at a price of $2.380 on April 30, 1998.
The Company bought back 800 shares of its own common stock in the open
market at a price of $2.41 on July 6, 1998.
The Company bought back 3,237 shares of its own common stock in the
open market at a price of $2.45 on July 9, 1998.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
27 Financial Data Schedule
FORWARD-LOOKING INFORMATION
The information in this Form 10-QSB contains forward-looking
statements 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 "opinion", "anticipate", "believe", "estimate", "expect", "intend" and
similar expressions, as they relate to the Company or the Company's management,
identify forward-looking statements. Such statements reflect the current views
or expectations of the Company with respect to future events, and are subject to
change based on numerous factors including, but not limited to, regulatory
changes and changes in management's intentions or beliefs.
<PAGE> 9
Page 8 of 9
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 15, 1998 BY: /s/ Philip Chan
Philip Chan
VP-Finance/Treasurer &
Chief Financial Officer
<PAGE> 10
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> MAY-31-1998
<CASH> 2,078,054
<SECURITIES> 0
<RECEIVABLES> 1,783,899
<ALLOWANCES> 0
<INVENTORY> 31,556
<CURRENT-ASSETS> 3,940,512
<PP&E> 4,904,061
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,359,578
<CURRENT-LIABILITIES> 1,265,438
<BONDS> 0
0
0
<COMMON> 3,607
<OTHER-SE> 5,555,473
<TOTAL-LIABILITY-AND-EQUITY> 9,359,578
<SALES> 0
<TOTAL-REVENUES> 6,749,205
<CGS> 408,260
<TOTAL-COSTS> 4,964,487
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 114,217
<INCOME-PRETAX> 1,262,241
<INCOME-TAX> 432,550
<INCOME-CONTINUING> 829,681
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 668,876
<EPS-PRIMARY> 0.202
<EPS-DILUTED> 0.202
</TABLE>
