<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 February 28, 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 February 28, 1999
Common Stock, $0.001 par value 3,296,045 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
FEBRUARY 28, AUGUST 31,
1999 1998
- --------------------------------------------------------------------------------
CURRENT ASSETS:
Cash 2,193,989 2,413,257
Restricted Short-Term Investments 30,000 30,000
Receivable (Net of Allowance for
Doubtful Accounts) 1,604,660 1,665,349
Inventory 34,721 29,608
Due from Related Party 15,826 15,856
- --------------------------------------------------------------------------------
Total Current Assets 3,879,196 4,154,070
FIXED ASSETS - NET 6,703,919 5,212,841
OTHER ASSETS 185,506 245,145
- --------------------------------------------------------------------------------
TOTAL ASSETS 10,768,621 9,612,056
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable 570,109 187,817
Accrued Liabilities 120,974 311,354
Notes Payable 250,000 250,000
Current Portion of Notes Payable 150,335 242,612
Income Taxes Payable 611,923 465,306
Deferred Income Taxes Payable 186,000 186,000
- --------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,889,341 1,643,089
LONG-TERM DEBT 928,206 954,144
DEFERRED FEDERAL INCOME TAX PAYABLE 165,640 133,000
MINORITY INTERESTS IN SUBSIDIARY 1,186,986 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
3,296,045 Shares Outstanding 3,607 3,607
Additional Paid In Capital 3,552,761 3,552,761
Retained Earnings 3,681,055 2,874,049
LESS TREASURY STOCK: 310,583 shares at cost (638,975) (625,899)
- --------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 6,598,448 5,804,518
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 10,768,621 9,612,056
================================================================================
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Page 2 of 9
DYNACQ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
FEBRUARY 28 FEBRUARY 28
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCOME 3,235,153 2,336,093 5,652,778 4,606,654
COST OF SALE 100,673 183,289 198,763 312,397
- ----------------------------------------------------------------------------------------------------
GROSS PROFIT 3,134,480 2,152,804 5,454,015 4,294,257
LESS EXPENSES:
Contract payments to physicians 565,810 485,320 959,068 908,673
Compensation and benefits 490,998 437,246 983,481 990,619
Medical supplies 293,392 148,116 589,579 299,022
Other general & administrative exp. 695,967 365,637 1,081,627 765,423
Depreciation & amortization 160,898 122,355 285,300 243,920
Rent and occupancy 49,625 107,870 161,180 146,225
Interest 29,508 32,280 62,898 64,071
- ----------------------------------------------------------------------------------------------------
Total Expenses 2,286,198 1,698,824 4,123,133 3,417,953
- ----------------------------------------------------------------------------------------------------
NET INCOME FROM OPERATIONS 848,282 453,980 1,330,882 876,304
MINORITY INTERESTS IN (75,983) (62,577) (109,681) (139,679)
(PROFIT)/LOSS OF SUBSIDIARY
LESS PROVISION FOR FEDERAL
INCOME TAXES
Deferred 256,505 153,205 414,195 270,568
- ----------------------------------------------------------------------------------------------------
Total Income Taxes 256,505 153,205 414,195 270,568
- ----------------------------------------------------------------------------------------------------
NET INCOME (LOSS) 515,794 238,198 807,006 466,057
====================================================================================================
NET INCOME (LOSS) PER COMMON SHARE:
BASIC EARNINGS (LOSS) PER SHARE 0.156 0.072 0.245 0.141
DILUTED EARNINGS (LOSS) PER SHARE 0.149 0.069 0.232 0.134
- ----------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARE-BASIC 3,296,045 3,296,045 3,296,045 3,296,045
WEIGHTED AVERAGE SHARE-DILUTED 3,471,177 3,471,177 3,471,177 3,471,177
(1) (1) (1) (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.)
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Page 3 of 9
DYNACQ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED FEBRUARY 28
(UNAUDITED)
1999 1998
- --------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH
USED BY OPERATING ACTIVITIES:
Net Income (Loss) 807,006 466,057
ADD: ITEMS NOT REQUIRING CASH:
DEPRECIATION 285,300 243,920
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
(Increase) Decrease in Accounts Receivable 60,689 368,355
(Increase) Decrease in Inventory (5,113) 4,333
(Increase) Decrease in Other Current Assets 0 0
(Increase) Decrease in Due from Related Party 30 15,400
Increase (Decrease) in Accounts Payable 382,292 (313,978)
Increase (Decrease) in Accrued Liabilities (190,380) (444,533)
Increase (Decrease) in Current Notes Payable (92,277) (30,018)
Increase (Decrease) in Current Income Taxes 146,617 0
Increase (Decrease) in Deferred Income Taxes 32,640 277,999
- --------------------------------------------------------------------------------
Net Cash Provided/(Used) by Operating Activities 1,426,804 587,535
CASH FLOW FROM INVESTING ACTIVITIES:
(Purchase)/Dispose of Fixed Assets (1,776,378) (96,445)
(Purchase)/Amortization of Other Assets 59,639 (78,292)
(Decrease)/Increase of Minority Interests 109,681 128,079
in subsidiary
- --------------------------------------------------------------------------------
Net Cash Provided/(Used) by Investing Activities (1,607,058) (46,658)
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowing/(Retirement) of Long -Term Debt (25,938) 437,726
Issuance of Common Stock 0 (10,628)
Issuance of Paid In Capital 0 100,631
Acquisition of Treasury Stock (13,076) (517,500)
- --------------------------------------------------------------------------------
Net Cash Provided/(Used) by Financing Activities (39,014) 10,229
- --------------------------------------------------------------------------------
Net Increase/(Decrease) in Cash (219,268) 551,106
CASH BALANCE AT BEGINNING OF YEAR 2,413,257 1,031,981
- --------------------------------------------------------------------------------
CASH BALANCE AT END OF THE QUARTER 2,193,989 1,583,087
================================================================================
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Page 4 of 9
DYNACQ INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 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 six months
period ended February 28,1999 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 FEBRUARY 28, 1999
TO THE THREE MONTHS ENDED FEBRUARY 28, 1998
Consolidated revenues for the three months ended February 28, 1999 increased
$899,060 or 39% from that for the corresponding previous quarter ended
February 28, 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") generated $871,165 revenues in the corresponding quarter of the
previous fiscal year, it only generated $737,753 revenues in the current
quarter, a reduction of $133,411 or 15% due to fewer physicians under
management. Revenue attributable to home infusion therapy operations in the
current quarter decreased $86,400 or 22% compared to the corresponding quarter
of the previous fiscal year. Rental revenue increased $40,000 and revenue
attributable to Vista operations increased $1,078,500 or 82% from that of the
prior fiscal year due to more patient referrals.
Consolidated costs of sale for the three months ended February 28, 1999
decreased $82,616 or 45% from that for the corresponding previous quarter ended
February 28, 1998, was primarily attributable to the home infusion therapy
operations, which has decreased activities in the current quarter.
Consolidated operating expenses for the three months ended February 28, 1999
increased $587,734 or 35% from that for the corresponding previous quarter ended
February 28, 1998 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:
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Page 5 of 9
(1) The increase in other general and administrative expense of $330,330 or 90%
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.
(2) The increase in compensation and benefits expenses of $53,752 or 12%, of
which $26,000 was attributable to Vista as a result of increase in
activities, and the remaining $27,000 was attributable to DPMI, which has
employed personnel for the new hospital to be opened in the third quarter.
(3) The increase in medical supplies expense of $145,276 or 98% was primarily
attributable to Vista, which has increased activities in the current
quarter.
(4) The decrease in rent and occupancy expenses of $58,245 or 54% was primarily
due to incurring of less rent expense by DPMI for fewer physicians under
management in the current quarter.
COMPARISON OF THE SIX MONTHS ENDED FEBRUARY 28, 1999
TO THE SIX MONTHS ENDED FEBRUARY 28, 1998.
Consolidated revenues for the six months ended February 28, 1999 increased
$1,046,124 or 23% from that for the corresponding period ended February 28 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, while DPMI generated $1,483,102
revenues in the corresponding previous period of fiscal 1998, it only generated
$676,624 revenues in the current period, a reduction of $806,478 or 54% due to
fewer physicians under management. Revenue attributable to home infusion therapy
operations decreased $294,593 or 43% 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 $2,107,583 or 86% from that
of the prior year due to more patient referrals.
Consolidated costs of sale for the six months ended February 28, 1999 decreased
$113,634 or 36% from that for the corresponding period ended February 28 of the
previous fiscal year, primarily attributable to the home infusion operations,
which has decreased activities in the period.
Consolidated operating expenses for the six months ended February 28, 1999
increased $705,180 or 21% from that for the corresponding period ended
February 28 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 other general and administrative expense of $316,204 or 41%
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.
(2) The increase in medical supplies expense of $290,557 or 97% was primarily
attributable to Vista, which had increased activities in the current
period.
FINANCIAL CONDITION
COMPARISON OF THE BALANCE SHEETS AT SIX MONTHS ENDED FEBRUARY 28, 1999
TO THE AUDITED BALANCE SHEET AT FISCAL YEAR ENDED AUGUST 31, 1998.
Consolidated cash for the six months ended February 28, 1999 decreased $219,268
or 9% from that of the previous audited balance sheet ending August 31, 1999 was
due to $1,426,804 provided by operating activities, $1,607,058 used by investing
activities and $39,014 used by financing activities. Consolidated accounts
payable and accrued liabilities for the six months ended February 28, 1999
increased $191,912 or 25% from that of the previous audited balance sheet ended
August 31, 1998 due to incurring of new payable.
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Page 6 of 9
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 $1,989,855 at February 28,
1999 which decreased $521,126 or 21% from working capital at August 31, 1998
primarily due to decrease in cash, and funding for the construction of the
hospital. At February 28, 1999, the Company maintained a liquid position
evidenced by a current ratio of 2 to 1 and total debt to equity of 0.63 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 $3,500,000 to construct and equip the hospital of which
approximately $2,100,000 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.
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 8, 1999, the Company purchased back 4,000 post 4 to 1 Reverse
Split shares at $3.756 per share for a total purchase price of $15,022.79 as
treasury shares.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
27 Financial Data Schedule
<PAGE>
Page 7 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.
<PAGE>
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: April 13, 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> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> FEB-28-1999
<CASH> 2,193,989
<SECURITIES> 0
<RECEIVABLES> 1,604,660
<ALLOWANCES> 0
<INVENTORY> 34,721
<CURRENT-ASSETS> 3,879,196
<PP&E> 6,703,919
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,768,621
<CURRENT-LIABILITIES> 1,889,341
<BONDS> 928,206
0
0
<COMMON> 3,607
<OTHER-SE> 6,594,841
<TOTAL-LIABILITY-AND-EQUITY> 10,768,621
<SALES> 0
<TOTAL-REVENUES> 5,652,778
<CGS> 198,763
<TOTAL-COSTS> 4,060,235
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62,898
<INCOME-PRETAX> 1,330,882
<INCOME-TAX> 414,195
<INCOME-CONTINUING> 916,687
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 807,006
<EPS-PRIMARY> 0.245
<EPS-DILUTED> 0.232
</TABLE>
