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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission file number
March 31, 2003 0-15586
U.S. NEUROSURGICAL, INC.
(Exact name of Registrant as specified in its charter)
Delaware 52-1842411
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2400 Research Blvd, Suite 325, Rockville, Maryland 20850
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (301) 208-8998
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 3, 2003
----- --------------------------
Common Stock, $.01 par value 7,866,185 Shares
PART I
FINANCIAL INFORMATION
U.S. NEUROSURGICAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS March 31, December 31,
2003 2002
---- ----
Current assets:
Cash and cash equivalents $ 321,000 $ 88,000
Accounts receivable 427,000 514,000
Accounts receivable-stockholder 109,000 109,000
Other current assets 64,000 118,000
----------- -----------
Total current assets $ 921,000 $ 829,000
----------- -----------
Gamma Knife (net of accumulated depreciation of
$5,883,000 in 2003 and $5,714,000 in 2002) 1,425,000 1,594,000
Leasehold improvements (net of accumulated
amortization of $1,550,000 in 2003 and $1,501,000 in 2002) 292,000 341,000
Office furniture and computers (net of accumulated
Depreciation of $103,000 in 2003 and $99,000 in 2002) 4,000 8,000
----------- -----------
Total property and equipment 1,721,000 1,943,000
----------- -----------
Deferred tax asset 156,000 85,000
Cash held in escrow 106,000 106,000
----------- -----------
TOTAL $ 2,904,000 $ 2,963,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 80,000 $ 119,000
Note payable - litigation settlement 100,000 100,000
Obligations under capital lease
and loans payable- current portion 585,000 790,000
Due to stockholder 300,000 300,000
Deferred tax liability 101,000 146,000
Other current liabilities 197,000 39,000
----------- -----------
Total current liabilities 1,363,000 1,494,000
Obligations under capital lease and loans payable-net
of current portion 39,000 101,000
----------- -----------
1,402,000 1,595,000
----------- -----------
Stockholders' equity:
Common stock 79,000 79,000
Additional paid-in capital 2,808,000 2,808,000
Accumulated deficit (1,374,000) (1,510,000)
Treasury stock, at cost (11,000) (9,000)
----------- -----------
Total stockholders' equity $ 1,502,000 $ 1,368,000
----------- -----------
TOTAL $ 2,904,000 $ 2,963,000
=========== ===========
The accompanying notes to financial statements are an integral part hereof.
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U.S. NEUROSURGICAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
---------
2003 2002
---- ----
Revenue:
Patient Revenue $ 835,000 $ 746,000
----------- -----------
Expenses:
Patient Expenses $ 217,000 $ 214,000
Selling, General and Administrative 361,000 336,000
----------- -----------
Total 578,000 550,000
----------- -----------
Operating Income (loss) $ 257,000 $ 196,000
Interest expense (29,000) (50,000)
Interest income -- 1,000
-----------
Income (loss) before income taxes 228,000 147,000
Income tax provision (benefit) 92,000 63,000
----------- -----------
Net Income (loss) 136,000 84,000
=========== ===========
Proforma basic and diluted income (loss) per share $ .02 $ .01
----------- -----------
Proforma weighted average shares outstanding 7,866,185 7,866,185
The accompanying notes to financial statements are an integral part hereof.
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U.S. NEUROSURGICAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31
--------
2003 2002
---- ----
Cash flows from operating activities:
Income (loss) from continuing operations $ 136,000 $ 84,000
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization: 222,000 226,000
Changes in operating assets and liabilities:
Decrease (increase) in receivables 87,000 (309,000)
Decrease (increase) in other current assets 54,000 (5,000)
Increase in deferred tax asset (71,000) --
Increase (decrease) in payables and other current liabilities
And deferred tax liability 74,000 (4,000)
--------- ---------
Net cash provided by (used in) operating activities 502,000 (8,000)
--------- ---------
Cash flows from investing activities :
Net cash used in investing activities -- --
Cash flows from financing activities:
Purchase of treasury stock (2,000) (3,000)
Payment of capital lease obligations (267,000) (183,000)
--------- ---------
Net cash used in financing activities (269,000) (186,000)
Net increase (decrease) in cash and cash equivalents 233,000 (194,000)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 88,000 311,000
--------- ---------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 321,000 $ 117,000
========= =========
Supplemental disclosures of cash flow information:
Cash paid for
Interest $ 29,000 $ 50,000
Taxes 3,000 100,000
The accompanying notes to financial statements are an integral part hereof.
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U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Note A - Basis of Preparation
The accompanying financial statements at March 31, 2003, and for the three
months ended March 31, 2003 and 2002, are unaudited. However, in the opinion of
management, such statements include all adjustments necessary for a fair
statement of the information presented therein. The balance sheet at December
31, 2002 has been derived from the audited financial statements at that date
appearing in the Company's Annual Report on Form 10-K.
Pursuant to accounting requirements of the Securities and Exchange
Commission applicable to quarterly reports on Form 10-Q, the accompanying
financial statements and these notes do not include all disclosures required by
accounting principles generally accepted in the United States of America for
complete financial statements. Accordingly, these statements should be read in
conjunction with the Company's most recent annual financial statements.
Results of operations for interim periods are not necessarily indicative
of those to be achieved for full fiscal years.
Note B - Treasury Stock
During 2003, the Company purchased as part of its buyback program, 25,000
shares of its own common stock at a cost of $2,000.
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U.S. NEUROSURGICAL, INC. AND SUBSIDIARY
MANAGEMENT DISCUSSION AND
ANALYSIS OF OPERATIONS
AND FINANCIAL CONDITION
Critical Accounting Policies
Our condensed financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America. As
such, some accounting policies have a significant impact on amounts reported in
the financial statements. A summary of those significant accounting policies can
be found in our 2001 Annual Report on Form 10-K, filed on January 25, 2002, in
the Notes to the Financial Statements, Note A. In particular, judgment is used
in areas such as determining the allowance for doubtful accounts, and asset
impairments.
The following discussion and analysis provides information which the Company's
management believes is relevant to an assessment and understanding of the
Company's results of operations and financial condition. This discussion should
be read in conjunction with the consolidated financial statements and notes
there to appearing elsewhere herein.
First Quarter 2003 Compared to First Quarter 2002
Results of Operations
Patient revenue increased 12% to $835,000 in the quarter ended March 31,
2003 from $746,000 for the quarter ended March 31, 2002. The increase was due to
increased revenue at the RMC Center. Patient expenses were $217,000 for the
quarter compared to $214,000 in the year ago period. Selling, general and
administrative expense increased 7% to $361,000 from $336,000 for the quarter
ended March 31, 2003. Interest expense decreased 42% to $29,000 from $50,000 in
the same period a year earlier. The decrease was due to increased principal
payments on the Gamma Knives. For the quarter ended March 31 2003, net income
was $136,000 as compared to income of $84,000 for the same period a year
earlier. The leases for the NYU equipment was a six year lease. This lease will
be complete in July 2003. In August 2003 the NYU machine will have its cobalt
reloaded. The cost is estimated to be $950,000, which includes the cost of the
cobalt and related installation. This will be financed by DVI, Inc. and is
expected to have annual payments of $300,000 over 40 months. The financing of
the Kansas City Cobalt reload has annual payments of $300,000. In addition, as
part of the settlement of litigation involving GHS and USN in May 1999, USN
issued promissory notes in the aggregate amount of $450,000, bearing interest at
the rate of 6% per annum, and payable over a four-year period. The remaining
liability as of March 31, 2003 is $100,000.
Liquidity and Capital Resources
At March 31, 2003 the Company had a working capital deficit of $442,000 as
compared to $665,000 at December 31, 2002. Cash and cash equivalents at March
31, 2003 were $321,000 as compared with $88,000 at December 31, 2002.
Net cash provided by operating activities was $502,000 as compared to net
cash used in of $8,000 for the same period, a year earlier. Net income was
$136,000 as
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compared to $84,000 in the same period, a year earlier. Depreciation and
amortization was $222,000 for the quarter ended March 31, 2003 as compared to
$226,000 in the same period, one year earlier. There was a decrease in
receivables of $87,000 as compared to an increase of $309,000 in the same period
in 2002. NYU reduced their outstanding receivable. Payables increase $74,000
compared to a decline of $4,000 in 2002.
Net cash used in financing activities was $267,000 as compared to $186,000
for the same period a year earlier. This is due to paying down the principal on
its capitalized leases. We anticipate that with our current cash position, and
collection on our accounts receivable, the Company believes that the cash
position is sufficient for the next twelve months.
Disclosure Regarding Forward Looking Statements
The Securities and Exchange Commission encourages companies to disclose
forward-looking information so that investors can better understand a company's
future prospects and make informed investment decisions. This document contains
such "forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, particularly statements anticipating future
growth in revenues and cash flow. Words such as "anticipates," "estimates,"
"expects," "projects," "intends," "plans," "believes," "will be," "will
continue," "will likely result," and words and terms of similar substance used
in connection with any discussion of future operating or financial performance
identify such forward-looking statements. Those forward-looking statements are
based on management's present expectations about future events. As with any
projection or forecast, they are inherently susceptible to uncertainty and
changes in circumstances, and USN is under no obligation to (and expressly
disclaims any such obligation to) update or alter its forward-looking statements
whether as a result of such changes, new information, future events or
otherwise.
USN operates in a highly competitive and rapidly changing environment and
business segments that are dependent on our ability to: achieve profitability;
increase revenues; sustain our current level of operation; introduce on a timely
basis new products; maintain satisfactory relations with our customers; attract
and retain key personnel; maintain and expand our strategic alliances; and
protect our know-how. USN's actual results could differ materially from
management's expectations because of changes in such factors. New risk factors
can arise and it is not possible for management to predict all such risk
factors, nor can it assess the impact of all such risk factors on the company's
business or the extent to which any factor, or combination of factors, may cause
actual results to differ materially from those contained in any forward-looking
statements. Given these risks and uncertainties, investors should not place
undue reliance on forward-looking statements as a prediction of actual results.
Investors should also be aware that while the company might, from time to
time, communicate with securities analysts, it is against the company's policy
to disclose to them any material non-public information or other confidential
commercial information. Accordingly, investors should not assume that the
company agrees with any statement or report issued by any analyst irrespective
of the content of the statement or report. Furthermore, the company has a policy
against issuing or confirming financial forecasts or projections issued by
others. Thus, to the extent that reports issued by securities
7
analysts or others contain any projections, forecasts or opinions, such reports
are not the responsibility of the company.
In addition, USN's overall financial strategy, including growth in operations,
maintaining financial ratios and strengthening the balance sheet, could be
adversely affected by increased interest rates, failure to meet earnings
expectations, significant acquisitions or other transactions, economic slowdowns
and changes in USN's plans, strategies and intentions
ITEM 4. CONTROLS AND PROCEDURES
U.S. Neurosurgical management, including the President and the Chief
Financial Officer, conducted an evaluation of the effectiveness of disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14 within 90 days of
the filing of this report. Based on that evaluation, the President and the Chief
Financial Officer concluded that the disclosure controls and procedures are
effective in ensuring that all material information required to be filed in this
quarterly report has been made known to them in a timely fashion. There have
been no significant changes in internal controls, or in factors that could
significantly affect internal controls, subsequent to the date the President and
the Chief Financial Officer completed their evaluation.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) None
8
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U.S. Neurosurgical, Inc.
Date May 12, 2003 By /s/ Alan Gold
----------------------------
Alan Gold
Director and President
Chief Executive Officer
Date May 12, 2003 By /s/ Howard Grunfeld
----------------------------
Howard Grunfeld
Vice President of Finance
9
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Mr. Alan Gold, certify that:
1. I have reviewed this quarterly report on Form 10-Q of U.S. Neurosurgical,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: May 12, 2003 /s/ Mr. Alan Gold
------------------------
Mr. Alan Gold
President
10
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Mr. Howard Grunfeld, certify that:
1. I have reviewed this quarterly report on Form 10-Q of U.S. Neurosurgical,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: May 12, 2003 /s/ Mr. Howard Grunfeld
-----------------------------
Mr. Howard Grunfeld
Chief Financial Officer
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