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, 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 x No ¨
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 January 5, 2005, the number of shares outstanding of the registrant’s common stock, par value $.001 per share, was 14,851,568.
2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
| To: | 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, 2004, and the related consolidated statements of operations and cash flows for the three-month periods ended November 30, 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, 2004, 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 October 30, 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, 2004, 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, Texas
January 5, 2005
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PART I - FINANCIAL INFORMATION
Consolidated Balance Sheets
| November 30, 2004 |
August 31, 2004 | |||||
| (Reviewed) | (Audited) | |||||
| Assets |
||||||
| Current assets: |
||||||
| Cash |
$ | 7,723,074 | $ | 5,537,776 | ||
| Current portion of accounts receivable, net of contractual allowances of approximately $73,890,000 and $76,736,000 and allowances for uncollectible accounts of approximately $744,000 and $719,000 at November 30, 2004 and August 31, 2004, respectively |
15,475,191 | 16,629,780 | ||||
| Accounts receivable - other |
332,929 | 152,525 | ||||
| Inventories |
2,545,705 | 2,576,067 | ||||
| Prepaid expenses |
540,655 | 668,270 | ||||
| Deferred tax assets |
1,335,326 | 1,294,555 | ||||
| Income taxes receivable |
3,833,298 | 5,523,248 | ||||
| Total current assets |
31,786,178 | 32,382,221 | ||||
| Property and equipment, net |
37,687,498 | 38,004,680 | ||||
| Long-term portion of accounts receivable, net of contractual allowances of approximately $56,765,000 and $51,445,000 and allowances for uncollectible accounts of approximately $572,000 and $482,000 at November 30, 2004 and August 31, 2004, respectively |
11,888,584 | 11,148,789 | ||||
| Goodwill |
582,547 | 582,547 | ||||
| Other assets |
1,043,183 | 1,023,595 | ||||
| Total assets |
$ | 82,987,990 | $ | 83,141,832 | ||
See accompanying notes.
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Dynacq Healthcare, Inc.
Consolidated Balance Sheets (continued)
| November 30, 2004 |
August 31, 2004 |
|||||||
| (Reviewed) | (Audited) | |||||||
| Liabilities and stockholders’ equity |
||||||||
| Current liabilities: |
||||||||
| Cash overdraft |
$ | — | $ | 622,375 | ||||
| Accounts payable |
4,379,827 | 4,741,992 | ||||||
| Accrued liabilities |
6,110,232 | 4,912,816 | ||||||
| Notes payable |
6,466,683 | 6,590,004 | ||||||
| Current taxes payable |
454,016 | 379,094 | ||||||
| Current portion of capital lease obligations |
141,225 | 127,087 | ||||||
| Total current liabilities |
17,551,983 | 17,373,368 | ||||||
| Non-current liabilities: |
||||||||
| Deferred tax liabilities |
1,499,698 | 1,600,705 | ||||||
| Long-term portion of capital lease obligations |
242,231 | 290,308 | ||||||
| Total liabilities |
19,293,912 | 19,264,381 | ||||||
| Minority interests |
717,386 | 666,794 | ||||||
| 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 shares issued at November 30, 2004 and at August 31, 2004 |
16,400 | 16,400 | ||||||
| Treasury stock, 1,548,275 shares at November 30, 2004 and at August 31, 2004, at cost |
(7,424,449 | ) | (7,424,449 | ) | ||||
| Additional paid-in capital |
18,980,710 | 18,982,951 | ||||||
| Retained earnings |
51,835,852 | 52,113,026 | ||||||
| Deferred compensation |
(431,821 | ) | (477,271 | ) | ||||
| Total stockholders’ equity |
62,976,692 | 63,210,657 | ||||||
| Total liabilities and stockholders’ equity |
$ | 82,987,990 | $ | 83,141,832 | ||||
See accompanying notes.
5
Consolidated Statements of Operations
(Reviewed)
| Three months ended November 30, |
||||||||
| 2004 |
2003 |
|||||||
| Net patient service revenue |
$ | 15,011,711 | $ | 18,098,825 | ||||
| Costs and expenses: |
||||||||
| Compensation and benefits |
4,686,560 | 5,656,185 | ||||||
| Medical services and supplies |
2,694,195 | 2,489,292 | ||||||
| Other operating expenses |
6,895,445 | 6,115,683 | ||||||
| Provision for uncollectible accounts |
114,516 | 130,639 | ||||||
| Depreciation and amortization |
1,056,936 | 871,066 | ||||||
| Total costs and expenses |
15,447,652 | 15,262,865 | ||||||
| Income (loss) from operations |
(435,941 | ) | 2,835,960 | |||||
| Other income (expense): |
||||||||
| Rent and other income |
132,975 | 90,632 | ||||||
| Interest income |
10,136 | 1,920 | ||||||
| Interest expense |
(76,646 | ) | (63,104 | ) | ||||
| Total other income, net |
66,465 | 29,448 | ||||||
| Income (loss) before income tax, minority interests and extraordinary gain |
(369,476 | ) | 2,865,408 | |||||
| Benefit (provision) for income taxes |
27,644 | (1,391,625 | ) | |||||
| Minority interest in loss (earnings) |
64,658 | (197,044 | ) | |||||
| Income (loss) before extraordinary gain |
(277,174 | ) | 1,276,739 | |||||
| Extraordinary gain, net of $114,170 of income tax expense in 2003 |
— | 186,870 | ||||||
| Net income (loss) |
$ | (277,174 | ) | $ | 1,463,609 | |||
| Basic earnings (loss) per common share: |
||||||||
| Income (loss) before extraordinary gain |
$ | (0.02 | ) | $ | 0.09 | |||
| Extraordinary gain, net of tax |
— | 0.01 | ||||||
| Net income (loss) |
$ | (0.02 | ) | $ | 0.10 | |||
| Diluted earnings (loss) per common share: |
||||||||
| Income (loss) before extraordinary gain |
$ | (0.02 | ) | $ | 0.08 | |||
| Extraordinary gain, net of tax |
— | 0.01 | ||||||
| Net income (loss) |
$ | (0.02 | ) | $ | 0.09 | |||
| Weighted average common shares—basic |
14,851,568 | 14,865,932 | ||||||
| Weighted average common shares—diluted |
14,851,568 | 15,538,938 | ||||||
See accompanying notes.
6
Consolidated Statements of Cash Flows
(Reviewed)
| Three months ended November 30, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities |
||||||||
| Net income (loss) |
$ | (277,174 | ) | $ | 1,463,609 | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
| Extraordinary gain, net of tax |
— | (186,870 | ) | |||||
| Depreciation and amortization |
1,056,936 | 871,066 | ||||||
| Provision for uncollectible accounts |
114,516 | 130,639 | ||||||
| Deferred income taxes |
(141,778 | ) | 265,395 | |||||
| Minority interests in earnings (loss) |
(64,658 | ) | 197,044 | |||||
| Stock options issued for compensation |
(2,241 | ) | 913,648 | |||||
| Deferred stock compensation amortization |
45,450 | 45,450 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
300,278 | 2,755,699 | ||||||
| Inventories |
30,362 | 1,702 | ||||||
| Prepaid expenses |
127,615 | 146,494 | ||||||
| Income taxes receivable |
1,689,950 | 1,080,190 | ||||||
| Other assets |
(22,088 | ) | 45,469 | |||||
| Cash overdrafts |
(622,375 | ) | — | |||||
| Accounts payable |
(362,165 | ) | (174,037 | ) | ||||
| Accrued liabilities |
504,651 | (292,304 | ) | |||||
| Income taxes payable |
74,922 | (10,449 | ) | |||||
| Net cash provided by operating activities |
2,452,201 | 7,252,745 | ||||||
| Cash flows from investing activities |
||||||||
| Purchase of property and equipment |
(737,254 | ) | (2,497,833 | ) | ||||
| Accrued liabilities related to purchase of property and equipment |
692,765 | 1,729,902 | ||||||
| Purchase of accounts receivable - other |
(244,000 | ) | — | |||||
| Collections on purchased accounts receivable - other |
63,596 | — | ||||||
| Payment of accrued liabilities related to purchase of property and equipment |
— | (1,650,000 | ) | |||||
| Net cash used in investing activities |
(224,893 | ) | (2,417,931 | ) | ||||
| Cash flows from financing activities |
||||||||
| Payment on notes payable |
(123,321 | ) | (5,359,860 | ) | ||||
| Deposit for proposed sale of accounts receivable |
— | 3,360,000 | ||||||
| Payments on capital leases |
(33,939 | ) | (42,360 | ) | ||||
| Proceeds from exercise of stock options |
— | 140,481 | ||||||
| Distributions to minority interest holders |
(84,750 | ) | (715,000 | ) | ||||
| Sale (purchase) of minority interests |
200,000 | (400,000 | ||||||