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 February 28, 2002
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 __.
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 April 2, 2002
Common Stock, $0.001 par value 14,777,170 shares
Page 1 of 11
PART I. - FINANCIAL INFORMATION
ITEM I. - FINANCIAL STATEMENTS
DYNACQ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited) (Audited)
ASSETS
FEBRUARY 28 AUGUST 31
2002 2001
---------------- --------------
CURRENT ASSETS:
Cash and cash equivalents $ 6,321,676 $ 5,031,614
Accounts receivables, net $ 19,129,945 $ 18,993,648
Inventories $ 513,551 $ 511,248
Prepaid expenses $ 34,652 $ 109,993
Due from related parties $ - $ 1,585,000
Deferred tax assets $ 71,000 $ 71,000
------------ ------------
TOTAL CURRENT ASSETS $ 26,070,824 $ 26,302,503
PROPERTY AND EQUIPMENT, NET $ 13,981,741 $ 10,497,730
OTHER ASSETS, NET $ 282,377 $ 130,890
------------ ------------
TOTAL ASSETS $ 40,334,942 $ 36,931,123
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current Maturities of Long-Term Debt $ 165,904 $ 228,697
Accounts Payable $ 450,475 $ 798,787
Accrued Liabilities $ 1,276,574 $ 725,412
Income Taxes Payable $ 988,630 $ 3,246,620
------------ ------------
TOTAL CURRENT LIABILITIES $ 2,881,583 $ 4,999,516
LONG-TERM DEBT, NET OF CURRENT MATURITIES $ 519,075 $ 519,075
DEFERRED INCOME TAXES PAYABLE $ 29,000 $ 29,000
NEGATIVE GOODWILL, NET $ 332,581 $ 332,581
MINORITY INTERESTS IN SUBSIDIARIES $ 2,018,034 $ 3,505,769
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 and 4 to 1 Reverse Stock Splits & 100% Stock Dividends
on 1/10/2000 and 3/12/2001, 16,442,331 Shares Issued $ 16,442 $ 16,266
Additional Paid In Capital $ 7,496,576 $ 6,690,042
Retained Earnings $ 29,365,085 $ 22,445,443
Treasury Stock: 1,679,984 shares at cost $ (1,959,412) $ (1,190,507)
Deferred compensation $ (364,022) $ (416,062)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY $ 34,554,669 $ 27,545,182
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 40,334,942 $ 36,931,123
============ ============
Page 2 of 11
DYNACQ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
FEBRUARY 28 FEBRUARY 28
2002 2001 2002 2001
----------- ------------ ------------ ------------
NET REVENUES $15,036,293 $ 9,787,411 $ 28,890,824 $ 18,691,939
LESS EXPENSES:
Wages and benefits $ 1,862,685 $ 1,157,126 $ 3,823,591 $ 2,233,880
Medical supplies $ 3,632,598 $ 2,055,872 $ 6,712,043 $ 3,372,766
General and administrative $ 2,405,630 $ 1,264,219 $ 4,334,587 $ 2,716,959
Professional fees $ 387,295 $ 521,328 $ 895,059 $ 900,994
Rent & lease $ 447,009 $ 333,614 $ 769,907 $ 508,648
Bad debt expense $ 88,353 $ 17,312 $ 130,023 $ 34,750
Depreciation and amortization $ 321,101 $ 204,929 $ 593,857 $ 400,449
Interest $ 10,632 $ 15,212 $ 16,953 $ 32,273
----------- ------------ ------------ ------------
Total Expenses $ 9,155,303 $ 5,569,612 $ 17,276,020 $ 10,200,719
----------- ------------ ------------ ------------
INCOME BEFORE INCOME TAXES & MINORITY INTERESTS $ 5,880,990 $ 4,217,799 $ 11,614,804 $ 8,491,220
PROVISION FOR INCOME TAXES $ 1,832,329 $ 1,182,270 $ 3,657,896 $ 2,527,598
----------- ------------ ------------ ------------
INCOME BEFORE MINORITY INTERESTS $ 4,048,661 $ 3,035,529 $ 7,956,908 $ 5,963,622
MINORITY INTERESTS $ (506,634) $ (619,310) $(1,037,266) $(1,175,284)
----------- ------------ ------------ ------------
NET INCOME $ 3,542,027 $ 2,416,219 $ 6,919,642 $ 4,788,338
=========== ============ ============ ============
BASIC EARNINGS PER COMMON SHARE $ 0.24 $ 0.17 $ 0.47 $ 0.34
DILUTED EARNINGS PER COMMON SHARE $ 0.24 $ 0.17 $ 0.47 $ 0.34
WEIGHTED AVERAGE COMMON SHARES-BASIC 14,781,959 13,922,314 14,781,959 13,922,314
WEIGHTED AVERAGE COMMON SHARES-DILUTED 14,811,651 14,196,162 14,811,651 14,196,162
(1) (1)
(1) COMMON SHARES PRESENTED IN THE CORRESPONDING PREVIOUS YEAR IN COMPUTING THE
EARNINGS PER SHARE ARE RESTATED AS IF THE 2 FOR 1 STOCK SPLIT EFFECTED IN
THE FORM OF A 100% STOCK DIVIDEND ON MARCH 12, 2001 HAD BEEN RETROACTIVELY
APPLIED FOR COMPARISON PURPOSES.
Page 3 of 11
DYNACQ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED FEBRUARY 28
(UNAUDITED)
2002 2001
------------ -------------
OPERATING ACTIVITIES
Net Income $ 6,919,642 $ 4,788,338
Adjustment to reconcile net income to net cash provided by
operating activities:
Depreciation $ 593,857 $ 400,449
Provision for Uncollectible Accounts $ 130,023 $ 34,750
Minority Interests $ 1,037,266 $ 1,175,284
Deferred Compensation Amortization $ 52,040 $ -
Changes in operating assets & liabilities
to net cash provided by operating activities:
(Increase) Decrease in Accounts Receivable $ (266,320) $ (3,177,420)
(Increase) Decrease in Inventories $ (2,304) $ (107)
(Increase) Decrease in Prepaid expenses $ 75,341 $ -
Increase (Decrease) in Accounts Payable $ (348,312) $ (561,217)
Increase (Decrease) in Accrued Liabilities $ 551,162 $ (145,562)
Increase (Decrease) in Income Taxes Payable $ (2,257,990) $ 903,891
------------ ------------
Net Cash Provided by Operating Activities $ 6,484,405 $ 3,418,406
------------ ------------
INVESTING ACTIVITIES:
Purchases of Property and Equipment $ (4,077,868) $ (338,130)
Due from Related Parties $ 1,585,000 $ -
Other Assets $ (151,487) $ (443,324)
------------ ------------
Net Cash Used in Investing Activities $ (2,644,355) $ (781,454)
------------ ------------
FINANCING ACTIVITIES:
Retirements of Long-Term Debt, Net $ (62,793) $ (144,965)
Proceeds from Exercise of Stock Options $ 806,710 $ 346,551
Acquisition of Treasury Stock, Net $ (768,905) $ (48,961)
Purchase of minority interest $ (240,000) $ -
Distributions to Minority Interests $ (2,285,000) $ -
------------ ------------
Net Cash Provided by (Used in) Financing Activities $ (2,549,988) $ 152,625
------------ ------------
Net Increase in Cash and Cash Equivalents $ 1,290,062 $ 2,789,577
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR $ 5,031,614 $ 4,301,523
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 6,321,676 $ 7,091,100
============ ============
Page 4 of 11
DYNACQ INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2002
(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 (GAAP) 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, 2001. Operating results for the six months
period ended February 28, 2002 are not necessarily indicative of the results
that may be expected for the year ending August 31, 2002.
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The Company provides surgical healthcare services and related ancillary
services through surgical hospital facilities and surgery centers. While
historically the Company has offered a range of healthcare services, including
ambulatory infusion and physician practice management, the focus over the last
five years has been on surgical services. During the last four quarters,
management has focused on same store growth of inpatient surgical services and
identification of additional surgical hospital sites, as it believes such
operations to be a more profitable and efficient use of resources. As of
February 28, 2002, the Company operated two locations in the Houston
metropolitan area, a medical center with inpatient and outpatient facilities
located in Pasadena, Texas and an outpatient surgery center located in Houston,
Texas. In November of 2001, the Company purchased a hospital in Baton Rouge,
Louisiana which is being renovated as a surgical hospital expected to be
operational in the fall of 2002. The Company continues to evaluate lease and
purchase options of additional surgical hospitals.
Accounting Policies
In addition to compliance with GAAP, the Company's unaudited quarterly
consolidated financial statements are prepared based on management's estimates,
assumptions and judgments that are believed to be reasonable under the
circumstances for a fair presentation of financial position and results of
operations. Should the underlying estimates, assumptions or judgments prove
incorrect, the reported amounts could differ materially in some cases with
respect to particular items in the financial statements.
Determination of net revenues, contractual adjustments
The Company's billings for services are predominately to third-party payors
and are subject to contractual adjustments. Consequently, our net revenues are
reported at estimated net realizable amounts from third-party payors. The
Company's provisions for contractual adjustments are based on management's
monthly review and analysis of historical collection rates.
2
Bad Debt Expense and Allowance for Doubtful Accounts
As with any healthcare provider, some of our accounts receivable will ultimately
prove uncollectible, primarily due to the inability of patients to satisfy their
financial obligations to us. Since substantially all of our admissions are pre-
certified or pre-authorized from third party payors, our bad debt reserve is
nominal.
Minority Interests
In May 1998, the Company through its wholly-owned subsidiary DPMI organized
Vista Community Medical Center, L.L.C. to operate a hospital adjacent to its
outpatient surgical center in Pasadena, Texas. The Company funded over
$5,000,000 from its cash flow to complete the construction and equip the
hospital in May 1999 and DPMI and Halcyon collectively invested $1,200,000 in
Vista Community Medical Center, L.L.C. From its inception and through August
31, 2001, Vista Medical was owned 70% by DPMI and 30% by Halcyon L.L.C. In
September 2001, pursuant to its contractual right, the Company purchased two-
thirds of Halcyon's interest for $240,000, reducing Halcyon's interest to 10%.
The Company has distributed $1,385,000 and $600,000 as profit distributions to
Halcyon for its 30% ownership interest in the Hospital operations for the period
from inception through August 31, 2001 and 10% ownership interest in the
Hospital operations for the six months ended February 28, 2002, respectively.
As of August 31, 2001, the `Due from related parties' account in the Balance
Sheet had a balance of $1,585,000 which included $1,385,000 advance to Halcyon
from October, 1999 through August, 2001 and was treated as profit distributions
to Halcyon by reducing both the `Due from related parties' account and the
`minority interests liability' account for the same amount in this period. The
payment of buy back price of $240,000 and the advance of $600,000 to Halcyon in
the first six months of the current fiscal year were booked as return of capital
and profit distributions to Halcyon by reducing both the `Due to related
parties' account and `minority interest liability' account by $840,000 in this
period. Halcyon will continue to receive its proportionate share of profit
distributions from the hospital and will reduce the Company's minority interests
liability owed to Halcyon.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED FEBRUARY 28, 2002
TO THE THREE MONTHS ENDED FEBRUARY 28, 2001.
Net revenues for the three months ended February 28, 2002 increased $5,248,882
or 54% from that for the corresponding previous quarter ended February 28, 2001,
primarily due to increased revenues from the Company's surgical hospital. Net
revenue from the surgical hospital in the current period increased $6,667,277 or
139 % due to more surgical cases, while net revenue from the outpatient surgical
centers decreased $1,048,215 or 25% primarily due to shifting of the Company's
priority to hospital operations, and other net revenue comprising of home
infusion operations and physician practice management decreased $322,779 or 45%
due to decrease in patient load, and interest revenue decreased $47,401 or 57%
due to reduction in interest rate. Management believes that future revenues
will continue to be derived primarily from its surgical hospital as the Company
intends to allocate its resources to expanding this segment of the business and
de-emphasizing outpatient surgical centers and other non surgical operations.
Operating expenses for the three months ended February 28, 2002 increased
$3,585,691 or 64 % from that for the corresponding quarter ended February 28,
2001 primarily due to increased surgical hospital activities. Wages and
benefits increased $705,559 or 61% during the current quarter ended February 28,
2002 from the corresponding quarter ended February 28, 2001, and medical
supplies increased $1,576,726 or 77% for the identical period; such increases
were primarily due to increased operations of the surgical hospital. General
and administrative expenses for the three months ended February 28, 2002
increased $1,141,411 or 90% from the corresponding quarter ended February 28,
2001 primarily due to increased activities of the surgical hospital and the
Company's increased management and expanded operations. Professional fees
3
for the three months ended February 28, 2002 decreased $134,033 or 26% from that
of the corresponding quarter ended February 28, 2001, primarily due to decreased
payments to physicians under management. Rent and lease expense for the three
months ended February 28, 2002 increased $113,395 or 34% from that of the
corresponding quarter ended February 28, 2001, primarily due to increased
surgical hospital operations. Depreciation and amortization expenses for the
three months ended February 28, 2002 increased $116,172 or 57% from that of the
corresponding quarter ended February 28, 2001, primarily due to increased
activities of the surgical hospital.
Net income increased $1,125,808 or 47% from $2,416,219 in the corresponding
period of the previous fiscal year to $3,542,027 in the current period.
Basic and diluted earnings per common share increased $0.07 per share or 41%
from $0.17 per share in the corresponding period of the previous fiscal year to
$0.24 per share in the current period.
COMPARISON OF THE SIX MONTHS ENDED FEBRUARY 28, 2002
TO THE SIX MONTHS ENDED FEBRUARY 28, 2001.
Net revenues for the six months ended February 28, 2002 increased $10,198,885
or 55% from that for the corresponding period ended February 28, 2001 primarily
due to increased revenues from the Company's surgical hospital. Net revenue from
the surgical hospital increased $12,157,407 or 148% in the current period
compared to the corresponding period of the previous fiscal year due to more
surgical cases, while net revenues from the outpatient surgical centers
decreased $1,374,710 or 16% in the current period primarily due to the shifting
of the Company's priority to the hospital operations, and other net revenues,
which include both physician practice management and home infusion operations
decreased $526,845 or 33% primarily due to less patient load, and interest
revenue decreased $56,967 or 38% due to reduction in interest rate in the
current period.
Operating expenses for the six months ended February 28, 2002 increased
$7,075,301 or 69% from that for the corresponding period ended February 28,
2001 primarily due to increased surgical hospital activities. Wages and benefits
increased $1,589,711 or 71% during the six months ended February 28, 2002 from
the corresponding period ended February 28, 2001 and medical supplies increased
$3,339,277 or 99% for the identical period; such increases were primarily due to
increased operations of the surgical hospital. General and administrative
expenses for the six months ended February 28, 2002 increased $1,617,628 or 60%
from the corresponding period ended February 28, 2001, primarily due to
increased activities of the surgical hospital and the Company's increased
management and expanded operations. Rent and lease expense for the six months
ended February 28, 2002 increased $261,259 or 51% from that of the corresponding
period ended February 28, 2001, primarily due to increased surgical hospital
operations. Depreciation and amortization for the six months ended February 28,
2002 increased $193,408 or 48% from that of the corresponding period ended
February 28, 2001, primarily due to increased activities of the surgical
hospital.
Net income increased $2,131,304 or 45% from $4,788,338 in the corresponding
period of the previous fiscal year to $6,919,642 in the current period.
Basic and diluted earnings per common share increased $0.13 per share or 38%
from $0.34 per share in the corresponding period of the previous fiscal year to
$0.47 per share in the current period.
Cash and cash equivalents for the six months ended February 28, 2002 increased
$1,290,062 or 26% from that of the previous audited balance sheet ending August
31, 2001 due to $6,484,405 provided by operating activities, $2,644,355 used by
investing activities and $2,549,988 used by financing activities. Accounts
receivable net of allowance for doubtful accounts for the six months ended
February 28, 2002 increased $136,297 or less than 1% from that of the previous
audited balance sheet ended August 31, 2001. Accrued liabilities increased
$551,162 or 76% primarily due to state corporate franchise tax obligations.
4
Liquidity and Capital Resources
The Company maintains sufficient liquidity to meet its business needs. The
Company had working capital of $23,189,241 at February 28, 2002 which increased
$1,886,254 or 9% from working capital at August 31, 2001 primarily due to
increase in cash and cash equivalents. At February 28, 2002, the Company
maintained a liquid position evidenced by a current ratio of 9 to 1 and total
debt to equity ratio of 0.17 to 1. The Company expects to have positive cash
flow from operations for fiscal 2002.
The Company is actively targeting opportunities to expand the hospital
operations in both local and national markets by leasing, and/or acquiring of
existing facilities or the constructing of new facilities. In October, 2001,
the Company obtained a $7,400,000 revolving credit facility with and borrowed
$600,000. The $600,000 note was paid off in March 2002 and replaced by a
$600,000 revolving line of credit. Both line of credit facilities have a
variable interest rate of 2.3% plus the "dealer commercial paper" rate and are
available by the Company until October 2011. As of April 15, 2002, the Company
has not borrowed from these lines of credit.
Exposures to Market Risk
We are exposed to market risk related to changes in interest rates. The impact
on earnings and value market risk-sensitive financial instruments (principally
marketable security investments) is subject to change as a result of movements
in market rate and prices. We do not hold or issue derivative instruments for
trading purposes and are not a party to any instruments with leverage features.
Dynacq has no foreign operations.
Our investments in marketable securities were $4,690,310 at February 28, 2002,
which represents less than 12 % of total assets at that date. These securities
are generally short-term, highly liquid instruments and, accordingly, their fair
value approximates cost. Earnings on investments in marketable securities are
not significant to our results of operations, and therefore any changes in
interest rates would have a minimal impact on future pre-tax earnings.
At February 28, 2002, we had $519,075 of long-term debt, net of current
maturities. In March 2002, the Company paid off this long-term debt and as of
the date of this Form 10-Q the Company maintains no long-term indebtedness.
Segment and related information
The Company has three reportable segments: surgical hospital, outpatient
surgical centers, and other. The surgical hospital segment is comprised of a
four surgical suites hospital and provide a wide range of ancillary medical
services located at 4301 Vista Road in Pasadena, Texas. The outpatient surgical
centers segment provides outpatient surgical facilities, which include two
centers; one located at 4301 Vista Road in Pasadena, Texas and the other one
located at 2500 Fondren in Houston, Texas, both of which have a total of six
surgical suites, contracted x-ray diagnostic services and laboratory testing.
The Other segment includes property and equipment which hold of all the fixed
assets of the outpatient surgical centers segment and the surgical hospital
segment, physician practice management and infusion therapy which operations no
longer constitute the core business of the Company.
The Company's reportable segments are business units that offer different
services. They are managed separately because each business requires different
technology, marketing strategies and performance evaluations.
5
Summarized financial information concerning the Company's reportable segments is
shown in the following table for the three months ended February 28, 2002 and
February 28, 2001, respectively:
Outpatient
Surgical Surgical
Hospital Centers Other Total
----------- ---------- ---------- -----------
2002
Revenues-external $11,463,293 $3,140,162 $ 396,397 $14,999,852
Intersegment revenues 0 0 3,946,136 3,946,136
Interest income 18,883 27,074 12,075 58,032
Interest expense 0 0 24,835 24,835
Depreciation and amortization 0 2,833 299,803 302,636
Income tax expense 1,652,301 57,218 124,531 1,834,050
Segment assets 15,065,759 9,108,690 18,487,577 42,662,026
Expenditures-segment 0 0 526,696 526,696
Segment profit 3,778,917 365,172 198,557 4,342,646
2001
Revenues-external $ 4,796,016 $4,188,377 $ 719,176 $ 9,703,569
Intersegment revenues 0 0 4,773,630 4,773,630
Interest income 27,549 38,652 43,289 109,490
Interest expense 0 9,071 32,420 41,491
Depreciation and amortization 0 0 204,929 204,929
Income tax expense 423,589 317,714 440,967 1,182,270
Segment assets 5,295,297 5,839,630 22,724,407 33,859,334
Expenditure-segment 0 0 287,789 287,789
Segment profit 2,320,414 663,755 897,934 3,882,103
6
Summmarized financial information concerning the Company's reportable segments
is shown in the following table for the six months ended February 28, 2002 and
February 28, 2001, respectively:
Outpatient
Surgical Surgical
Hospital Centers Other Total
----------- ---------- ----------- -----------
2002
Revenues-external $20,385,800 $7,348,806 $ 1,063,627 $28,798,233
Intersegment revenues 0 0 8,287,042 8,287,042
Interest income 46,406 54,500 36,075 136,981
Interest expense 0 7,387 53,956 61,343
Depreciation and amortization 0 5,667 551,262 556,929
Income tax expense 2,729,908 383,425 546,283 3,659,616
Segment assets 15,065,759 9,108,690 18,487,577 42,662,026
Expenditures-segment 0 0 4,218,550 4,218,550
Segment profit 6,092,608 877,910 1,008,193 7,978,711
2001
Revenues-external 8,228,393 8,723,516 1,590,472 18,542,381
Intersegment revenues 0 0 9,164,504 9,164,504
Interest income 39,439 70,259 93,531 203,229
Interest expense 0 19,318 66,626 85,944
Depreciation and amortization 0 0 400,449 400,449
Income tax expense 829,474 803,181 894,943 2,527,598
Segment assets 5,295,297 5,839,630 22,724,407 33,859,334
Expenditures-segment 0 0 338,130 338,130
Segment profit 3,796,148 1,702,783 1,880,610 7,379,541
The following tables provide a reconciliation of the reportable segments'
revenues, profit, assets, and other significant items to the consolidated totals
as of February 28, 2002 and February 28, 2001, and for three months and six
months ended February 28, 2002 and February 28, 2001, respectively:
THREE MONTHS ENDED SIX MONTHS ENDED
2/28/2002 2/28/2001 2/28/2002 2/28/2001
----------- ----------- ----------- -----------
REVENUES:
- --------
Total revenues for reportable segments $14,999,852 $ 9,703,569 $28,798,233 $18,542,381
Interest Income 58,032 109,490 136,981 203,229
Elimination of interest income ( 21,591) (25,648) (44,390) (53,671)
----------- ----------- ----------- -----------
Consolidated total revenues $15,036,293 $ 9,787,411 $28,890,824 $18,691,939
PROFIT:
- ------
Total profit for reportable segments $ 4,342,646 $ 3,882,103 $ 7,978,711 $ 7,379,541
Elimination of intersegment income (293,985) (846,574) (21,803) (1,415,919)
Elimination of minority interests (506,634) (619,310) (1,037,266) (1,175,284)
----------- ----------- ----------- -----------
Consolidated net income $ 3,542,027 $ 2,416,219 $ 6,919,642 $ 4,788,338
7
THREE MONTHS ENDED SIX MONTHS ENDED
2/28/2002 2/28/2001 2/28/2002 2/28/2001
----------- ----------- ----------- -----------
ASSETS:
- ------
Total assets for reportable segments $42,662,026 $33,859,334 $42,662,026 $33,859,334
Elimination of intercompany accounts
& other (2,327,084) (4,499,734) (2,327,084) (4,499,734)
----------- ----------- ----------- -----------
Consolidated total assets $40,334,942 $29,359,600 $40,334,942 $29,359,600
OTHER SIGNIFICANT ITEMS:
- -----------------------
Interest expense $ 24,835 $ 41,491 $ 61,343 $ 85,944
Elimination of intersegment expense (14,203) (26,279) (44,390) (53,671)
----------- ----------- ----------- -----------
Consolidated interest expense $ 10,632 $ 15,212 $ 16,953 $ 32,273
PART II.
ITEM 1. - LEGAL PROCEEDINGS
The Company and its wholly owned subsidiary, Doctors Practice
Management, Inc. sued Benchmark, an architectural corporation in the 151st
Judicial District Court of Harris County, Texas for damages of $1,000,000 caused
by Benchmark's delay in the completion of the hospital and additional costs
and/or expenses incurred by the Company as a result of being overcharged for
services and/or work that was done incorrectly by Benchmark. On April 26, 2000,
defendant filed a counterclaim of $540,011 actual damages and $2,000,000 in
punitive and/or exemplary damages. The Company believes the counterclaims
asserted in the above lawsuit are without merit, and expect to vigorously defend
against such claims. Because the lawsuit remains at an early stage, the Company
cannot currently predict the outcome of the lawsuit or the magnitude of any
potential loss if the Company's defense is unsuccessful.
Since January 2002, the Company and two of its officers were named as
defendants in several virtually identical lawsuits in the United States District
Court for the Southern District of Texas claiming, among other things, that the
defendants violated certain federal securities laws and regulations. Each
complaint seeks certification as a class action on behalf of virtually all
purchasers of the Company's stock from November 29, 1999 through January 16,
2002. The cases have not been consolidated into a single case as of April 11,
2002. In summary, the various complaints claim that the defendants violated
Sections 10(b) and 20(a) and SEC Rule 10b-5 of the Securities Exchange act of
1934, by virtue of statements that the plaintiffs claim were materially false or
misleading. In substance, the complaints allege that, throughout the class
period, senior management of the Company knew that the Company's balance sheet
was eroding, that it was in violation of federal laws governing maintenance of
facilities, that it improperly cared for its patients, and that the Company did
not adequately disclose those problems until the end of the class period. The
complaints seek damages, pre-judgment interest, costs and attorneys' fees. The
defendants' time to respond to the complaints has not yet expired, and it is
likely that this response will not be due for several months, after certain
procedural issues are resolved. The Company strongly believes that the lawsuit
lacks merit, and the Company intends to defend against the claims vigorously.
However, the Company could incur substantial costs defending the lawsuit, has no
insurance coverage relating to these claims, and has undertaken to indemnify the
individual defendants for any losses they may suffer. The Company has not yet
established a reserve for legal costs. The lawsuits could also divert the time
and attention of the Company's management. The Company cannot predict the
outcome of the lawsuits at this time, and there can be no assurance that the
litigation will not have a material adverse impact on its financial condition or
results of operations.
8
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
From January 25, 2002 through February 5, 2002, pursuant to the
Company's announced common stock buy back program in January, 2002, the Company
bought back 80,000 shares of its own common stock in the open market at prices
ranging from $6.33 to $12.82 for a total purchase price of $768,905.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
None
FORWARD-LOOKING INFORMATION
Statements contained in this Quarterly Report on Form 10-Q which are not
historical facts are forward-looking statements. Without limiting the
generality of the preceding statement, all statements in this Form 10-Q
concerning or relating to estimated and projected earnings, margins, costs,
expenditures, cash flows, growth rates and financial results are forward-looking
statements. In addition, Dynacq, through its management, from time to time
makes forward-looking public statements concerning our expected future
operations and performance and other developments. Such forward-looking
statements are necessarily estimates reflecting our best judgment based upon
current information, involve a number of risks and uncertainties and are made
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. There can be no assurance that other factors will not
affect the accuracy of such forward-looking statements or that our actual
results will not differ materially from the results anticipated in such forward-
looking statements. While it is impossible to identify all such factors,
factors which could cause actual results to differ materially from those
estimated by us include, but are not limited to, changes in the regulation of
the healthcare industry at either or both of the federal and state levels,
changes or delays in reimbursement for our services by third-party payors,
competitive pressures in the healthcare industry and our response thereto, our
ability to obtain and retain favorable arrangements with third-party payors,
general conditions in the economy and capital markets, and other factors which
may be identified from time to time in our Securities and Exchange Commission
filings and other public announcements.
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 15, 2002 BY: /s/ Philip Chan
----------------------------
Philip Chan
VP-Finance/Treasurer &
Chief Financial Officer
Page 12 of 12