<PAGE>
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, 1999
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 25, 1999
Common Stock, $0.001 par value 3,289,045 shares
Transitional Small Business Disclosure Format (check one)
Yes [_] No [X]
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Page 1 of 9
PART I. - FINANCIAL INFORMATION
ITEM I. - FINANCIAL STATEMENTS
DYNACQ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited) (Audited)
ASSETS
May 31, August 31,
1999 1998
CURRENT ASSETS:
Cash 1,987,623 2,413,257
Restricted Short-Term Investments 30,000 30,000
Receivable (Net of Allowance for
Doubtful Accounts) 1,602,752 1,665,349
Inventory 34,610 29,608
Due from Related Party 15,826 15,856
- --------------------------------------------------------------------------------
Total Current Assets 3,670,811 4,154,070
FIXED ASSETS - NET 8,382,416 5,212,841
OTHER ASSETS 185,887 245,145
- --------------------------------------------------------------------------------
TOTAL ASSETS 12,239,114 9,612,056
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable 1,048,934 187,817
Accrued Liabilities 277,399 311,354
Notes Payable 250,000 250,000
Current Portion of Notes Payable 150,335 242,612
Income Taxes Payable 524,506 465,306
Deferred Income Taxes Payable 312,555 186,000
- --------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 2,563,729 1,643,089
LONG-TERM DEBT 866,802 954,144
DEFERRED FEDERAL INCOME TAX PAYABLE 501,916 133,000
MINORITY INTERESTS IN SUBSIDIARY 1,185,628 1,077,305
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 & 4 to 1 Reverse Stock Split,
3,606,628 Shares Issued and
3,289,045 Shares Outstanding 3,607 3,607
Additional Paid In Capital 3,552,761 3,552,761
Retained Earnings 4,234,367 2,874,049
LESS TREASURY STOCK: 317,583 shares at cost (669,696) (625,899)
- --------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 7,121,039 5,804,518
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 12,239,114 9,612,056
================================================================================
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Page 2 of 9
DYNACQ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
THREE MONTHS ENDED NINE MONTHS ENDED
May 31 May 31
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------
INCOME 4,346,327 2,142,551 9,999,105 6,749,205
COST OF SALE 133,749 95,863 332,512 408,260
- ----------------------------------------------------------------------------------------
GROSS PROFIT 4,212,578 2,046,688 9,666,593 6,340,945
LESS EXPENSES:
Contract payments to physicians 105,316 293,662 1,064,384 1,202,335
Compensation and benefits 815,781 418,474 1,799,262 1,409,093
Medical supplies 558,079 397,439 1,147,658 696,461
Other general & administrative
exp. 1,551,558 297,250 2,633,185 1,062,673
Depreciation & amortization 152,257 129,615 437,557 373,535
Rent and occupancy 114,158 74,165 275,338 220,390
Interest 43,026 50,146 105,924 114,217
- ----------------------------------------------------------------------------------------
Total Expenses 3,340,175 1,660,751 7,463,308 5,078,704
- ----------------------------------------------------------------------------------------
NET INCOME FROM OPERATIONS 872,403 385,937 2,203,285 1,262,241
MINORITY INTERESTS IN
(PROFIT)/LOSS OF SUBSIDIARY 1,358 (21,136) (108,323) (160,815)
LESS PROVISION FOR FEDERAL
INCOME TAXES
Current 0 310,200 0 310,200
Deferred 320,449 (148,218) 734,644 122,350
- ----------------------------------------------------------------------------------------
Total Income Taxes 320,449 161,982 734,644 432,550
- ----------------------------------------------------------------------------------------
NET INCOME (LOSS) 553,312 202,819 1,360,318 668,876
NET INCOME (LOSS) PER COMMON SHARE:
- ----------------------------------------------------------------------------------------
BASIC EARNINGS (LOSS) PER SHARE 0.168 0.061 0.414 0.202
DILUTED EARNINGS (LOSS) PER SHARE 0.160 0.061 0.393 0.202
- ----------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARE-BASIC 3,289,045 3,313,550 3,289,045 3,313,550
WEIGHTED AVERAGE SHARE-DILUTED 3,464,177 3,313,550 3,464,177 3,313,550
(2) (1) (2) (1)
</TABLE>
(1) (AS ADJUSTED FOR 4 TO 1 REVERSE STOCK SPLIT EFFECTIVE FEBRUARY 10, 1998
AND 310,583 POST 4 TO 1 REVERSE SPLIT TREASURY SHARES.)
(2) (AS ADJUSTED FOR 4 TO 1 REVERSE STOCK SPLIT EFFECTIVE FEBRUARY 10, 1998
AND 317,583 POST 4 TO 1 REVERSE SPLIT TREASURY SHARES.)
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Page 3 of 9
DYNACQ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED MAY 31
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
USED BY OPERATING ACTIVITIES:
Net Income (Loss) 1,360,318 668,876
ADD: ITEMS NOT REQUIRING CASH:
DEPRECIATION 437,557 373,535
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
(Increase) Decrease in Accounts Receivable 62,597 490,109
(Increase) Decrease in Inventory ( 5,002) 123
(Increase) Decrease in Other Current Assets 0 151,091
(Increase) Decrease in Due from Related Party 30 0
Increase (Decrease) in Accounts Payable 861,117 36,972
Increase (Decrease) in Accrued Liabilities ( 33,955) (621,706)
Increase (Decrease) in Current Notes Payable ( 92,277) ( 30,018)
Increase (Decrease) in Current Income Taxes 59,200 168,590
Increase (Decrease) in Deferred Income Taxes 495,471 263,877
- --------------------------------------------------------------------------------------
Net Cash Provided/(Used by) Operating Activities 3,145,056 1,501,449
CASH FLOW FROM INVESTING ACTIVITIES:
(Purchase)/Dispose of Fixed Assets (3,607,132) (219,969)
(Purchase)/Amortization of Other Assets 59,258 (248,805)
(Decrease)/Increase of Minority Interests 108,323 149,215
in subsidiary
- --------------------------------------------------------------------------------------
Net Cash Provided/(Used ) by Investing Activities (3,439,551) (319,559)
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowing/(Retirement) of Long -Term Debt (87,342) 314,835
Issuance of Common Stock 0 (10,628)
Issuance of Paid In Capital 0 100,631
Acquisition of Treasury Stock (43,797) (540,655)
- --------------------------------------------------------------------------------------
Net Cash Provided/(Used) by Financing Activities (131,139) (135,817)
- --------------------------------------------------------------------------------------
Net Increase/(Decrease) in Cash (425,634) 1,046,073
CASH BALANCE AT BEGINNING OF YEAR 2,413,257 1,031,981
- --------------------------------------------------------------------------------------
CASH BALANCE AT END OF THE QUARTER 1,987,623 2,078,054
- --------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Page 4 of 9
DYNACQ INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999
(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, 1998. Operating results for the nine months
period ended May 31, 1999 are not necessarily indicative of the results that may
be expected for the year ending August 31, 1999.
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, 1999 TO THE THREE MONTHS
ENDED MAY 31, 1998
Consolidated revenues for the three months ended May 31, 1999 increased
$2,203,776 or 103% from that for the corresponding previous quarter ended May
31, 1998. Notwithstanding this significant increase in consolidated revenues,
there were a number of significant increases and decreases in the component
revenue categories. For instance, while Doctor's Practice Management, Inc.
("DPMI") had no significant increase or decrease in revenues from the
corresponding quarter of the previous fiscal year. Revenue attributable to home
infusion therapy operations in the current quarter increased $137,740 or 92%
compared to the corresponding quarter of the previous fiscal year due to more
patient load. Rental revenue increased $34,930 and revenue attributable to Vista
operations increased $1,998,080 or 144% from that for the prior fiscal year due
to more patient referrals. The hospital which opened in May recorded $32,940
revenue.
Consolidated costs of sale for the three months ended May 31, 1999 increased
$37,886 or 40% from that for the corresponding previous quarter ended May 31,
1998, was primarily attributable to the home infusion therapy operations, which
has increased activities in the current quarter.
Consolidated operating expenses for the three months ended May 31, 1999
increased $1,679,424 or 101% from that for the corresponding previous quarter
ended May 31, 1998 primarily due to increase in activities of Vista and the
opening of the new hospital. The significant increases and decreases in the
component expense categories of the consolidated operating expenses are
explained as follows:
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Page 5 of 9
(1) The decrease in contract payments to physicians of $188,346 or 64% was
primarily attributable to the decrease in activities of DPMI in the current
quarter.
(2) There was an increase of $397,307 or 95% in compensation and benefits
expenses, of which $135,930 was attributable to Vista as a result of
increase in activities, and the remaining balance of $261,370 was
attributable to the hospital which has opened in May.
(3) The increase in medical supplies expense of $160,640 or 40%, of which
$135,170 was attributable to Vista, which has increased activities in the
current quarter, and the balance of 25,460 was attributable to the
hospital.
(4) The increase in other general and administrative expenses of $1,254,308 or
422%, of which $97,320 was attributable to the hospital , and the balance
of the increase was primarily attributable to the increase in management
and consulting fee paid to outside management company for overall operation
improvement and enhancement in the current quarter.
(5) The increase in rent and occupancy expenses of $39,993 or 54% was primarily
due to operating the hospital in the current quarter.
Net Income increased $350,493 or 173% from $202,819 in the corresponding quarter
of the previous fiscal year to $553,312 in the current quarter.
Basic earnings per share increased $0.107 per share or 175% from $0.061 per
share in the corresponding quarter of the previous year to $0.168 per share in
the current quarter.
Fully diluted earnings per share increased $0.099 per share or 162% from $0.061
per share in the corresponding quarter of the previous year to $0.160 per share
in the current quarter.
COMPARISON OF THE NINE MONTHS ENDED MAY 31, 1999
TO THE NINE MONTHS ENDED MAY 31, 1998.
Consolidated revenues for the nine months ended May 31, 1999 increased
$3,249,900 or 48% from that for the corresponding period ended May 31 of the
previous fiscal year. Notwithstanding this significant increase in consolidated
revenues, there were a number of significant increases and decreases in the
component revenue categories. For instance, while DPMI generated $2,088,300
revenues in the corresponding previous period of fiscal 1998, it only generated
$1,180,729 revenues in the current period, a reduction of $907,571 or 43% due
to fewer physicians under management. Revenue attributable to home infusion
therapy operations decreased $71,840 or 9% 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. Revenues attributable to Vista operations increased $4,105,750 or 107%
from that for the corresponding period of the prior fiscal year due to more
patient referrals, and rental revenue increased $123,560 from that for the
corresponding period of the prior fiscal year due to some physicians still
remain in the premises after the termination of their practice management
agreements.
Consolidated costs of sale for the nine months ended May 31, 1999 decreased
$75,748 or 19% from that for the corresponding period ended May 31 of the
previous fiscal year, primarily attributable to the home infusion operations,
which has decreased activities in the current period.
Consolidated operating expenses for the nine months ended May 31, 1999 increased
$2,384,604 or 47% 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:
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Page 6 of 9
(1) The decrease in contract payments to physicians expense of $137,951 or 11%
was primarily attributable to DPMI, which had fewer physicians under
management in the current period.
(2) The increase in compensation and benefits expense of $390,169 or 28%, of
which $128,800 was attributable to Vista as a result of increase in
activities, and the remaining balance of $261,370 was attributable to the
hospital, which has opened in May.
(3) The increase in medical supplies expense of $451,197 or 65%, of which
$425,730 was attributable to Vista, which has increased activities in the
current period, and the balance of $25,460 was attributable to the
hospital, which has opened in May.
(4) The increase in other general and administrative expenses of $1,570,512 or
148%, of which $93,720 was attributable to the hospital, and the remaining
balance of the increase was primarily attributable to the increase in
management and consulting fee paid to outside management company for
overall operation improvement and enhancement in the current period.
(5) The increase in rent and occupancy expense of $54,948 or 25% was primarily
due to the operating of the hospital in the current period.
Net Income increased 691,442 or 103% from $668,876 in the corresponding period
of the previous fiscal year to $1,360,318 in the current period.
Basic Earnings per share increased $0.212 per share or 105% from $0.202 per
share in the corresponding period of the previous fiscal year to $0.414 per
share in the current period.
Fully diluted earnings per share increased $0.191 per share or 95% from $0.202
per share in the corresponding period of the previous fiscal year to $0.393 per
share in the current period.
FINANCIAL CONDITION
COMPARISON OF THE BALANCE SHEETS AT NINE MONTHS ENDED MAY 31, 1999 TO THE
AUDITED BALANCE SHEET AT FISCAL YEAR ENDED AUGUST 31, 1998.
Consolidated cash for the nine months ended May 31, 1999 decreased $425,634 or
17% from that of the previous audited balance sheet ending August 31, 1998 was
due to $3,145,056 provided by operating activities, $3,439,551 used by investing
activities and $131,139 used by financing activities. Consolidated accounts
payable and accrued liabilities for the nine months ended May 31, 1999 increased
$827,162 or 166% from that for the previous audited balance sheet ended
August 31, 1998 due to incurring of new payable.
Liquidity and Capital Resources
The Company maintained sufficient liquidity in fiscal 1999 and 1998 to meet its
business needs. The Company had working capital of $1,107,082 at May 31, 1999
which decreased $1,403,899 or 56% from working capital at August 31, 1998
primarily due to decrease in cash, and funding for the construction of the
hospital. At May 31, 1999, the Company maintained a liquid position evidenced by
a current ratio of 1.43 to 1 and total debt to equity of 0.72 to 1. The Company
expects to have positive cash flow from operations for fiscal 1999.
The Company is actively targeting opportunities to expand in the outpatient
surgical clinic markets by acquisition of existing facilities or the
construction of new facilities. The Company will be required to fund
approximately $5,500,000 to construct and equip the hospital of which
approximately $4,715,000 has been paid. The Company expects to fund the balance
from cash-on-hand and internally generated funds. The Company believes it has
the ability to borrow funds if necessary to meet its capital needs. However,
there can be no assurance that the Company will have sufficient funds available
to meet all of its capital needs.
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Page 7 of 9
The Company expects the operations of the hospital to have a material effect on
the Company's consolidated operating results. While the Company believes the
operating results of the hospital will be successful in the long-term, it can
provide no such assurance at this time to its shareholders. In the short-term,
expected operating results from the hospital could be negatively impacted by
construction delays, start-up delays or problems including staffing and
equipment, low patient utilization (particularly in the first year), licensing
or regulatory delays or other problems, which could have a material adverse
effect on the Company's liquidity and capital resources. In the long-term, the
skill and experience of the hospital's management team and competition will play
critical roles.
PART II.
ITEM 1. - LEGAL PROCEEDINGS
The Company is not a party to any material litigation.
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
On April 28, 1999, the Company purchased back 1,400 post 4 to 1
Reverse Split shares at $4.02 per share for a total purchase price of $5,629.50
as treasury shares.
On April 29,1999, the Company purchased back 1,000 post 4 to 1 Reverse
Split shares at $4.03 per share for a total purchase price of $4,029.50 as
treasury shares.
On May 17, 1999, the Company sold 900 post 4 to 1 Reverse Split shares
at $4.31 per share for a total selling price of $3,875.58
On May 17, 1999, the Company sold 900 post 4 to 1 Reverse Split shares
at $4.47 per share for a total selling price of $4,020.36
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
27 Financial Data Schedule
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Page 8 of 9
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.
Year 2000 Compliance Issues. The Company is currently evaluating its entire
operation as a result of potential problems associated with Year 2000. The
Company's personnel are evaluating all areas for compliance issues and are
developing correction plans if necessary. Some internal areas and processes
being evaluated include initial charge entry through billing and collections;
accounts payable invoice receipt through processing and payment; bank processing
of receipts and disbursements; computer hardware and software functionality; and
time and/or date-sensitive office and medical equipment functionality. At
present, the Company does not anticipate any material disruption in its
operations or significant costs to be incurred to attain compliance. There can
be no assurance, however, that the Company will identify or adequately assess
all aspects of its business that may be effected. Due to this uncertainty, a
contingency plan will be developed as each area is evaluated to minimize any
negative impact to the Company. The Company is in the process of soliciting
information concerning the Year 2000 compliance status of its payers (including
the Medicare and Medicaid government programs), suppliers, and customers. In the
event that any of the Company's significant payers, suppliers, or customers do
not successfully and timely achieve Year 2000 compliance, the Company's business
and/or operations could be adversely affected.
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Page 9 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, 1999 BY: /s/ Philip Chan
Philip Chan
VP-Finance/Treasurer &
Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-END> MAY-31-1999
<CASH> 2,017,623
<SECURITIES> 0
<RECEIVABLES> 1,602,745
<ALLOWANCES> 0
<INVENTORY> 34,610
<CURRENT-ASSETS> 3,670,811
<PP&E> 8,382,416
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,239,114
<CURRENT-LIABILITIES> 2,563,729
<BONDS> 866,802
0
0
<COMMON> 3,607
<OTHER-SE> 7,117,432
<TOTAL-LIABILITY-AND-EQUITY> 12,239,114
<SALES> 0
<TOTAL-REVENUES> 9,999,105
<CGS> 332,512
<TOTAL-COSTS> 7,357,384
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 105,924
<INCOME-PRETAX> 2,203,285
<INCOME-TAX> 734,644
<INCOME-CONTINUING> 1,468,641
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,360,318
<EPS-BASIC> 0.414
<EPS-DILUTED> 0.393
</TABLE>
