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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 May 31, 2004

 

¨ 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.

 

Table of Contents

PART I— FINANCIAL INFORMATION

    
Item 1.    Financial Statements.     
     Report of Independent Registered Public Accounting Firm    3
     Consolidated Balance Sheets as of May 31, 2004 and August 31, 2003    4
     Consolidated Statements of Operations for the three and nine months ended May 31, 2004 and 2003    6
     Consolidated Statements of Cash Flows for the nine months ended May 31, 2004 and 2003    7
     Notes to Consolidated Financial Statements    9
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.    14
Item 3.    Quantitative and Qualitative Disclosure About Market Risk.    20
Item 4.    Controls and Procedures.    20

PART II– OTHER INFORMATION

    
Item 1.    Legal Proceedings.    22
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds    24
Item 3.    Defaults Upon Senior Securities.    24
Item 4.    Submission of Matter to a Vote of Security Holders.    24
Item 5.    Other Information.    24
Item 6.    Exhibits and Reports on Form 8-K.    24
Signatures    26

Index of Exhibits

    27

 

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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 May 31, 2004, and the related consolidated statements of operations for the three-month and nine-month periods ended May 31, 2004 and 2003 and cash flows for the nine-month periods ended May 31, 2004 and 2003. 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

 

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PART I - FINANCIAL INFORMATION

 

ITEM I - FINANCIAL STATEMENTS

 

Dynacq Healthcare, Inc.

Consolidated Balance Sheets

 

     May 31, 2004
    August 31, 2003
     (Reviewed)    (Audited)

Assets

              

Current assets:

              

Cash and cash equivalents

    $ 3,228,989    $ 1,883,833

Restricted cash

      2,000,000      2,000,000

Current portion of accounts receivable, net of contractual allowances of approximately $74,545,000 and $49,603,000 and allowances for uncollectible accounts of approximately $828,000 and $483,000 at May 31, 2004 and August 31, 2003, respectively

      17,671,804      17,397,746

Inventories

      2,117,472      2,100,035

Prepaid expenses

      473,997      793,257

Deferred tax assets

      688,330      939,655

Income taxes receivable

      4,940,845      4,430,485

Asset held for sale

      —        2,315,204
    
  

Total current assets

      31,121,437      31,860,215

Property and equipment, net

      39,779,732      38,002,399

Long term portion of accounts receivable, net of contractual allowances of approximately $42,784,000 and $48,560,000 and allowances for uncollectible accounts of approximately $475,000 and $473,000 at May 31, 2004 and August 31, 2003, respectively

      10,089,433      17,031,862

Goodwill

      582,547      582,547

Other assets

      1,116,331      659,631
    
  

Total assets

    $ 82,689,480    $ 88,136,654
    
  

 

See accompanying notes.

 

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Dynacq Healthcare, Inc.

Consolidated Balance Sheets (continued)

 

     May 31, 2004
    August 31, 2003
  
     (Reviewed)     (Audited)  

Liabilities and stockholders’ equity

                 

Current liabilities:

                 

Accounts payable

    $ 3,175,465     $ 3,459,881  

Accrued liabilities

      4,210,893       7,403,850  

Notes payable

      6,713,337       7,083,312  

Current taxes payable

      566,217       1,524,244  

Current portion of capital lease obligations

      136,829       129,805  
    
 

Total current liabilities

      14,802,741       19,601,092  

Non-current liabilities:

                 

Deferred tax liabilities

      1,608,698       751,273  

Long-term portion of capital lease obligations

      313,966       428,587  
    
 

Total liabilities

      16,725,405       20,780,952  
    
 

Minority interests

      171,839       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, 16,399,843 and 16,294,343 shares issued at May 31, 2004 and August 31, 2003, respectively

      16,400       16,294  

Treasury stock, 1,548,275 shares and 1,445,099 shares at May 31, 2004 and August 31, 2003, respectively, at cost

      (7,424,449 )     (5,813,284 )

Additional paid-in capital

      18,931,302       17,521,843  

Retained earnings

      54,791,704       53,721,286  

Deferred compensation

      (522,721 )     (659,071 )
    
 

Total stockholders’ equity

      65,792,236       64,787,068  
    
 

Total liabilities and stockholders’ equity

    $ 82,689,480     $ 88,136,654  
    
 

 

See accompanying notes.

 

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Dynacq Healthcare, Inc.

Consolidated Statements of Operations

 

     Three months ended May 31,
    Nine months ended May 31,
  
     2004
     2003
    2004
     2003
  
     (Reviewed)     (Unaudited)    (Reviewed)     (Unaudited)  

Net patient service revenue

    $ 12,954,816     $ 25,606,146    $ 47,921,321     $ 64,667,579  
    
 
  
 

Costs and expenses:

                                

Compensation and benefits

      4,667,040       4,679,298      15,239,293       10,622,069  

Medical services and supplies

      2,511,102       4,169,571      7,627,623       11,520,909  

Other operating expenses

      6,618,891       4,880,508      19,632,247       14,098,431  

Provision for uncollectible accounts

      75,068       156,217      316,563       382,441  

Depreciation and amortization

      1,003,831       601,281      2,840,511       1,510,251  
    
 
  
 

Total costs and expenses

      14,875,932       14,486,875      45,656,237       38,134,101  
    
 
  
 

Income (loss) from operations

      (1,921,116 )     11,119,271      2,265,084       26,533,478  

Other income (expense):

                                

Rent and other income

      119,067       235,251      631,042       434,318  

Interest income

      11,331       8,230      24,424       66,841  

Interest expense

      (85,284 )     —        (201,108 )     (940 )
    
 
  
 

Total other income, net

      45,114       243,481      454,358       500,219  
    
 
  
 

Income (loss) before income tax, minority interests, extraordinary gain and cumulative effect of a change in accounting principle

      (1,876,002 )     11,362,752      2,719,442       27,033,697  

Provision for income taxes

      (600,944 )     4,163,956      1,601,677       9,710,958  

Minority interest in earnings

      43       801,962      234,217       2,630,064  
    
 
  
 

Income (loss) before extraordinary gain and cumulative effect of a change in accounting principle

      (1,275,101 )     6,396,834      883,548       14,692,675  

Extraordinary gain, net of $114,170 of income tax expense

      —         —        186,870       —    
    
 
  
 

Income (loss) before cumulative effect of a change in accounting principle

      (1,275,101 )     6,396,834      1,070,418       14,692,675  

Cumulative effect of a change in accounting principle, net of $562,193 income tax expense

      —         —        —         988,717  
    
 
  
 

Net income (loss)

    $ (1,275,101 )   $ 6,396,834    $ 1,070,418     $ 15,681,392  
    
 
  
 

Basic earnings per common share:

                                

Income (loss) before extraordinary gain and cumulative effect of a change in accounting principle

    $ (0.09 )   $ 0.43    $ 0.06     $ 0.99  

Extraordinary gain, net of tax

      —         —        0.01       —    

Cumulative effect of a change in accounting principle, net of tax

      —         —        —         0.07  
    
 
  
 

Net income (loss)

    $ (0.09 )   $ 0.43    $ 0.07     $ 1.06  
    
 
  
 

Diluted earnings per common share:

                                

Income (loss) before extraordinary gain and cumulative effect of a change in accounting principle

    $ (0.09 )   $ 0.41    $ 0.06     $ 0.94  

Extraordinary gain, net of tax

      —         —        0.01       —    

Cumulative effect of a change in accounting principle, net of tax

      —         —        —         0.06  
    
 
  
 

Net income (loss)

    $ (0.09 )   $ 0.41    $ 0.07     $ 1.00  
    
 
  
 

Weighted average common shares—basic

      14,851,068       14,875,100      14,848,913       14,860,739  
    
 
  
 

Weighted average common shares—diluted

      14,962,864       15,573,752      15,213,071       15,555,003  
    
 
  
 

 

See Accompanying Notes.

 

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Dynacq Healthcare, Inc.

Consolidated Statements of Cash Flows

(Reviewed)

 

     Nine months ended May 31,
  
     2004
     2003
  
     (Reviewed) &n