UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 2003
| ¨ | 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: 000-21574
DYNACQ HEALTHCARE, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 76-0375477 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| 10304 Interstate 10 East, Suite 369 Houston, Texas |
77029 | |
| (Address of principal executive offices) | (Zip Code) |
(713) 378-2000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No x
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
As of August 20, 2004, the number of shares outstanding of the registrant’s common stock, par value $.001 per share, was: 14,852,072.
| Item 1. |
Financial Statements. |
|||
| 3 | ||||
| Consolidated Balance Sheets as of November 30, 2003 and August 31, 2003 |
4 | |||
| Consolidated Statements of Operations for the three months ended November 30, 2003 and 2002 |
6 | |||
| Consolidated Statements of Cash Flows for the three months ended November 30, 2003 and 2002 |
7 | |||
| 8 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
13 | ||
| Item 3. |
18 | |||
| Item 4. |
18 | |||
| PART II–OTHER INFORMATION |
||||
| Item 1. |
20 | |||
| Item 3. |
22 | |||
| Item 4. |
23 | |||
| Item 5. |
23 | |||
| Item 6. |
24 | |||
| 25 | ||||
| 26 | ||||
- 2 -
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Stockholders and Board of Directors
Dynacq Healthcare, Inc.
Houston, Texas
We have reviewed the consolidated balance sheet of Dynacq Healthcare Inc., as of November 30, 2003, and the related consolidated statements of operations and cash flows for the three-month periods ended November 30, 2003 and 2002. These interim financial statements are the responsibility of the Company’s management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial statements for them to be in conformity with United States generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Dynacq Healthcare Inc., as of August 31, 2003, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended not presented herein, and in our report dated June 18, 2004, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of August 31, 2003, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s/ Killman, Murrell & Company, P.C.
Killman, Murrell & Company, P.C.
Houston, TX
August 27, 2004
3
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
Dynacq Healthcare, Inc.
| November 30, 2003 |
August 31, 2003 | |||||
| (Reviewed) | (Audited) | |||||
| Assets |
||||||
| Current assets: |
||||||
| Cash and cash equivalents |
$ | 3,701,908 | $ | 1,883,833 | ||
| Restricted cash |
2,000,000 | 2,000,000 | ||||
| Current portion of accounts receivable, net of contractual allowances of approximately $72,607,000 and $49,603,000 and allowances for uncollectible accounts of approximately $662,000 and $483,000 at November 30, 2003 and August 31, 2003, respectively |
22,118,758 | 17,397,746 | ||||
| Inventories |
2,098,333 | 2,100,035 | ||||
| Prepaid expenses |
646,763 | 793,257 | ||||
| Deferred tax assets |
895,747 | 939,655 | ||||
| Income taxes receivable |
3,236,125 | 4,430,485 | ||||
| Asset held for sale |
2,315,204 | 2,315,204 | ||||
| Total current assets |
37,012,838 | 31,860,215 | ||||
| Property and equipment, net |
39,633,167 | 38,002,399 | ||||
| Long term portion of accounts receivable, net of contractual allowances of approximately $30,937,000 and $48,560,000 and allowances for uncollectible accounts of approximately $225,000 and $473,000 at November 30, 2003 and August 31, 2003, respectively |
9,424,512 | 17,031,862 | ||||
| Goodwill |
582,547 | 582,547 | ||||
| Other assets |
610,161 | 659,631 | ||||
| Total assets |
$ | 87,263,225 | $ | 88,136,654 | ||
See accompanying notes.
4
Dynacq Healthcare, Inc.
Consolidated Balance Sheets (continued)
| November 30, 2003 |
August 31, 2003 |
|||||||
| (Reviewed) | (Audited) | |||||||
| Liabilities and stockholders’ equity |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 3,285,843 | $ | 3,459,881 | ||||
| Accrued liabilities |
7,191,448 | 7,403,850 | ||||||
| Notes payable |
1,723,452 | 7,083,312 | ||||||
| Deposit for proposed sale of accounts receivable |
3,360,000 | — | ||||||
| Current taxes payable |
1,513,795 | 1,524,244 | ||||||
| Current portion of capital lease obligations |
132,570 | 129,805 | ||||||
| Total current liabilities |
17,207,108 | 19,601,092 | ||||||
| Non-current liabilities: |
||||||||
| Deferred tax liabilities |
972,760 | 751,273 | ||||||
| Long-term portion of capital lease obligations |
383,462 | 428,587 | ||||||
| Total liabilities |
18,563,330 | 20,780,952 | ||||||
| Minority interests |
1,349,638 | 2,568,634 | ||||||
| Commitments and contingencies |
— | — | ||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, $.01 par value; 5,000,000 shares authorized, none issued or outstanding |
— | — | ||||||
| Common stock, $.001 par value; 100,000,000 shares authorized, 16,318,343 and 16,294,343 shares issued at November 30, 2003 and August 31, 2003, respectively |
16,319 | 16,294 | ||||||
| Treasury stock, 1,445,099 shares at November 30, 2003 and at August 31, 2003, at cost |
(5,813,284 | ) | (5,813,284 | ) | ||||
| Additional paid-in capital |
18,575,948 | 17,521,843 | ||||||
| Retained earnings |
55,184,895 | 53,721,286 | ||||||
| Deferred compensation |
(613,621 | ) | (659,071 | ) | ||||
| Total stockholders’ equity |
67,350,257 | 64,787,068 | ||||||
| Total liabilities and stockholders’ equity |
$ | 87,263,225 | $ | 88,136,654 | ||||
See accompanying notes.
5
Dynacq Healthcare, Inc.
Consolidated Statements of Operations
| Three months ended November 30, |
||||||||
| 2003 |
2002 |
|||||||
| (Reviewed) | (Unaudited) | |||||||
| Net patient service revenue |
$ | 18,098,825 | $ | 17,933,926 | ||||
| Costs and expenses: |
||||||||
| Compensation and benefits |
5,656,185 | 2,674,395 | ||||||
| Medical services and supplies |
2,489,292 | 3,956,053 | ||||||
| Other operating expenses |
6,115,683 | 3,395,260 | ||||||
| Provision for uncollectible accounts |
130,639 | 75,683 | ||||||
| Depreciation and amortization |
871,066 | 352,249 | ||||||
| Total costs and expenses |
15,262,865 | 10,453,640 | ||||||
| Income from operations |
2,835,960 | 7,480,286 | ||||||
| Other income (expense): |
||||||||
| Rent and other income |
90,632 | 105,533 | ||||||
| Interest income |
1,920 | 33,070 | ||||||
| Interest expense |
(63,104 | ) | (846 | ) | ||||
| Total other income, net |
29,448 | 137,757 | ||||||
| Income before income tax, minority interests, extraordinary gain and cumulative effect of a change in accounting principle |
2,865,408 | 7,618,043 | ||||||
| Provision for income taxes |
1,391,625 | 2,701,436 | ||||||
| Minority interest in earnings |
197,044 | 743,507 | ||||||
| Income before extraordinary gain and cumulative effect of a change in accounting principle |
1,276,739 | 4,173,100 | ||||||
| Extraordinary gain, net of $114,170 of income tax expense |
186,870 | — | ||||||
| Income before cumulative effect of a change in accounting principle |
1,463,609 | 4,173,100 | ||||||
| Cumulative effect of a change in accounting principle, net of $562,193 income tax expense |
— | 988,717 | ||||||
| Net income |
$ | 1,463,609 | $ | 5,161,817 | ||||
| Basic earnings per common share: |
||||||||
| Income before extraordinary gain and cumulative effect of a change in accounting principle |
$ | 0.09 | $ | 0.28 | ||||
| Extraordinary gain, net of tax |
0.01 | — | ||||||
| Cumulative effect of a change in accounting principle, net of tax |
— | 0.07 | ||||||
| Net income |
$ | 0.10 | $ | 0.35 | ||||
| Diluted earnings per common share: |
||||||||
| Income before extraordinary gain and cumulative effect of a change in accounting principle |
$ | 0.08 | $ | 0.27 | ||||
| Extraordinary gain, net of tax |
0.01 | — | ||||||
| Cumulative effect of a change in accounting principle, net of tax |
— | 0.06 | ||||||
| Net income |
$ | 0.09 | $ | 0.33 | ||||
| Weighted average common shares—basic |
14,865,932 | 14,835,465 | ||||||
| Weighted average common shares—diluted |
15,538,938 | 15,563,702 | ||||||
See accompanying notes.
6
Dynacq Healthcare, Inc.
Consolidated Statements of Cash Flows
| Three months ended November 30, |
||||||||
| 2003 |
2002 |
|||||||
| (Reviewed) | (Unaudited) | |||||||
| Cash flows from operating activities |
||||||||
| Net income |
$ | 1,463,609 | $ | 5,161,817 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Extraordinary gain, net of tax |
(186,870 | ) | — | |||||
| Cumulative effect of a change in accounting principle, net of tax |
— | (988,717 | ) | |||||
| Depreciation and amortization |
871,066 | 352,249 | ||||||
| Provision for uncollectible accounts |
130,639 | 75,683 | ||||||
| Deferred income taxes |
265,395 | — | ||||||
| Minority interests |
197,044 | 743,507 | ||||||
| Stock options issued for compensation |
913,648 | — | ||||||
| Deferred stock compensation amortization |
45,450 | 45,450 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
2,755,699 | 383,119 | ||||||
| Inventories |
1,702 | (105,084 | ) | |||||
| Prepaid expenses |
146,494 | (42,720 | ) | |||||
| Income taxes receivable |
1,080,190 | (314,250 | ) | |||||
| Other assets |
45,469 | 143,812 | ||||||
| Accounts payable |
(174,037 | ) | (605,259 | ) | ||||
| Accrued liabilities |
(293,304 | ) | 42,330 | |||||
| Income taxes payable |
(10,449 | ) | 2,189,257 | |||||
| Net cash provided by operating activities |
$ | 7,252,745 | $ | 7,081,194 | ||||
| Cash flows from investing activities |
||||||||
| Purchase of property and equipment |
$ | (2,497,833 | ) | $ | (3,462,455 | ) | ||
| Accrued liabilities related to purchase of property and equipment |
1,729,902 | — | ||||||
| Payment of accrued liabilities related to purchase of property and equipment |
(1,650,000 | ) | — | |||||
| Net cash used in investing activities |
$ | (2,417,931 | ) | $ | (3,462,455 | ) | ||
| Cash flows from financing activities |
||||||||
| Payment on notes payable |
$ | (5,359,860 | ) | — | ||||
| Deposit for proposed sale of accounts receivable |
3,360,000 | — | ||||||
| Principal payments on long-term debt |
— | |||||||