<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, 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 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 3,280,589 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
1998 1998
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<S> <C> <C>
CURRENT ASSETS:
Cash 2,719,923 2,413,257
Restricted short-term investments 30,000 30,000
Receivable (Net of Allowance for
Doubtful Accounts) 1,392,309 1,665,349
Inventory 28,608 29,608
Due from related party 15,826 15,856
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Total Current Assets 4,186,666 4,154,070
FIXED ASSETS - NET 5,493,240 5,212,841
OTHER ASSETS 240,706 245,145
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 9,920,612 9,612,056
====================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable 181,422 187,817
Accrued Liabilities 273,862 311,354
Notes Payable 250,000 250,000
Current Maturity of Notes Payable 202,716 242,612
Income Taxes Payable 401,306 465,306
Deferred Income Taxes Payable 186,000 186,000
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TOTAL CURRENT LIABILITIES 1,495,306 1,643,089
LONG-TERM DEBT, NET OF CURRENT MATURITY 954,144 954,144
DEFERRED FEDERAL INCOME TAX PAYABLE 290,690 133,000
MINORITY INTERESTS IN SUBSIDIARY 1,096,088 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
Outstanding 3,607 3,607
Additional Paid In Capital 3,552,761 3,552,761
Retained Earnings 3,165,261 2,874,049
LESS TREASURY STOCK; 326,039 shares at cost (637,245) (625,899)
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TOTAL STOCKHOLDERS' EQUITY 6,084,384 5,804,518
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 9,920,612 9,612,056
====================================================================================================================================
</TABLE>
<PAGE> 3
DYNACQ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30
1998 1997
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<S> <C> <C>
INCOME 2,417,625 2,270,561
COST OF SALE 98,090 129,108
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GROSS PROFIT 2,319,535 2,141,453
LESS EXPENSES:
Contract payments to physicians 393,258 423,353
Compensation and benefits 492,483 553,373
Medical Supplies 296,187 150,906
Other general and administrative expense 385,660 399,786
Depreciation and Amortization 124,402 121,565
Rent and occupancy 111,555 38,355
Interest 33,390 31,791
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Total Expenses 1,836,935 1,719,129
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NET INCOME (LOSS) FROM OPERATIONS 482,600 422,324
MINORITY INTERESTS IN (PROFITS)/LOSS
OF SUBSIDIARY (33,698) (77,122)
LESS PROVISION FOR FEDERAL INCOME TAXES
Current 0 0
Deferred 157,690 117,363
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Total Income Taxes 157,690 117,363
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NET INCOME (LOSS) 291,212 227,839
====================================================================================================================================
NET INCOME (LOSS) PER SHARE:
INCOME BEFORE PROVISION FOR
FEDERAL INCOME TAX 0.129 0.100
PROVISION FOR FEDERAL INCOME TAX 0.045 0.034
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME 0.084 0.066
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 3,467,542 3,467,542
</TABLE>
<PAGE> 4
DYNACQ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED NOVEMBER 30
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
USED BY OPERATING ACTIVITIES:
Net Income (Loss) 291,212 227,839
ADD: ITEMS NOT REQUIRING CASH:
DEPRECIATION 124,402 121,565
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
(Increase) Decrease in Accounts Receivable 273,040 533,814
(Increase) Decrease in Inventory 1,000 1,053
(Increase) Decrease in Other Current Assets 0 0
(Increase) Decrease in Due from related party 30 15,400
(Increase) Decrease in Other Assets 4,439 (167,914)
Increase (Decrease) in Accounts Payable (6,395) 158,275
Increase (Decrease) in Accrued Liabilities (37,492) (550,251)
Increase (Decrease) in Current Notes Payable (39,896) (36,241)
Increase (Decrease) in Current Income Taxes (64,000) 0
Increase (Decrease) in Deferred Income Taxes 157,690 117,282
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Net Cash Provided (Used) by Operating Activities 704,030 420,822
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of Fixed Assets (404,801) (7,814)
(Decrease) Increase of Minority Interests
in subsidiary 18,783 77,122
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Net Cash Provided (Used) by Investing Activities (386,018) 69,308
CASH FLOW FROM FINANCING ACTIVITIES:
Retirement of Long-Term Debt 0 0
Acquisition of treasury stock (11,346) 0
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Net Cash Provided (Used) by Financing Activities (11,346) 0
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Net Increase/(Decrease) in Cash 306,666 490,130
CASH BALANCE AT BEGINNING OF YEAR 2,413,257 1,031,981
- ------------------------------------------------------------------------------------------------------------------------------------
CASH BALANCE AT END OF THE QUARTER 2,719,923 1,522,111
====================================================================================================================================
</TABLE>
<PAGE> 5
DYNACQ INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 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, 1998.
Operating results for the three months period ended November 30,1998 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 NOVEMBER 30, 1998
TO THE THREE MONTHS ENDED NOVEMBER 30, 1997
Consolidated revenues for the three months ended November 30, 1998 increased
$147,000 or 6% from that for the corresponding previous quarter ended November
30, 1997. 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 $680,000 or 80% from the corresponding
previous quarter due to fewer physicians under management. Revenue attributable
to home infusion therapy operations decrease $202,770 or 68% 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 $1,029,000 or 92% from the corresponding previous
quarter due to increased in patient referrals, primarily as a result of the
marketing effort.
Consolidated costs of sale for the three months ended November 30, 1998
decreased $31,018 or 24% from that for the corresponding previous quarter
ended November 30, 1997, was primarily attributable to the decreased home
infusion operations.
Consolidated operating expenses for the three months ended November 30, 1998
increased $117,806 or 7% from that for the corresponding previous quarter ended
November 30, 1997 primarily due to increase in activities of Vista. 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 $30,095 or 7% was primarily
attributable to DPMI, which has fewer physicians under management in the
current quarter.
(2) The decrease in salaries expenses of $60,890 or 11% was primarily
attributable to DPMI, which has fewer activities in the current quarter.
(3) The increase in medical supplies expense of $145,281 or 96% was primarily
due to Vista, which has
<PAGE> 6
more activities in the current quarter.
(4) The increase in rent and occupancy expense of $77,819 or 245% was primarily
due to including the property maintenance expense of $21,740, property
insurance of $8,300 and property taxes of $41,000, which were included in
the Other General & Administrative Expense category in the corresponding
previous quarter.
FINANCIAL CONDITION
COMPARISON OF THE BALANCE SHEETS AT THREE MONTHS ENDED NOVEMBER 30, 1998 TO THE
AUDITED BALANCE SHEET AT FISCAL YEAR ENDED AUGUST 31, 1998.
Consolidated cash for the three months ended November 30, 1998 increased
$306,666 or 13% from that of the previous audited balance sheet ending August
31, 1998 was due to $704,030 provided by operating activities, $386,018 used by
investing activities and $11,346 used by financing activities. Consolidated
accounts receivable for the three months ended November 30, 1998 decreased
$273,040 or 16% from that of the previous audited balance sheet ended August
31, 1998 due to the collection of accounts receivable.
Liquidity and Capital Resources
Working Capital of $2,691,360 at November 30, 1998 increased $180,379 or 7%
from working capital at August 31, 1998 primarily due to decrease in accounts
receivable and increase in cash. At November 30, 1998, the Company maintained
a liquid position evidenced by a current ratio of 2.80 to 1 and total debt to
equity of 0.63 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", "will", "will be" 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, intended, or will be or the like.
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
<PAGE> 7
ITEM 5. - OTHER INFORMATION
The Company bought back 2,000 shares of its own stock in the open
market at a price of $2.375 on October 1, 1998.
The Company bought back 2,694 shares of its own stock in the open
market at a price of $2.4375 on October 2, 1998.
The Company bought back 4,900 shares of its own stock in the open
market at a price of $2.4375 on October 6, 1998.
The Company bought back 1,500 shares of its own stock in the open
market at a price of $2.4375 on October 8, 1998.
The Company sold 20,000 shares of its own stock in the open market at
a price of $2.4375 on October 16, 1998.
The Company bought back 534 shares of its own stock in the open market
at a price of $2.4375 on October 16, 1998.
The Company bought back 1,700 shares of its own stock in the open
market at a price of $2.43 on October 19, 1998.
The Company bought back 1,250 shares of its own stock in the open
market at a price of $2.375 on December 9, 1998.
The Company bought back 2,000 shares of its own stock in the open
market at a price of $2.4375 on December 10, 1998.
Pursuant to the Company's Incentive Stock Option Plan, options to
purchase 88,000 shares were granted on January 4, 1999, which number includes
24,000 options granted to Philip Chan, chief financial officer and 30,000
options granted to Glenn Rodriguez, President of Vista Healthcare, Inc. The
remaining options were granted to approximately 5 employees of the Company and
its subsidiaries. These options are exercisable at $2.375 and expire on January
3, 2004.
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, 1999 BY: /s/ Philip Chan
Philip Chan
VP-Finance/Treasurer &
Chief Financial Officer
<PAGE> 8
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-END> NOV-30-1998
<CASH> 2,749,923
<SECURITIES> 0
<RECEIVABLES> 1,392,309
<ALLOWANCES> 0
<INVENTORY> 28,608
<CURRENT-ASSETS> 4,186,666
<PP&E> 5,493,240
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,920,612
<CURRENT-LIABILITIES> 1,495,306
<BONDS> 954,144
0
0
<COMMON> 3,607
<OTHER-SE> 6,080,777
<TOTAL-LIABILITY-AND-EQUITY> 9,920,612
<SALES> 0
<TOTAL-REVENUES> 2,417,625
<CGS> 98,090
<TOTAL-COSTS> 1,803,545
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,390
<INCOME-PRETAX> 482,600
<INCOME-TAX> 157,690
<INCOME-CONTINUING> 324,910
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 291,212
<EPS-PRIMARY> 0.084
<EPS-DILUTED> 0.084
</TABLE>
