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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
June 30, 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 August 3, 2003
----- -----------------------------
Common Stock, $.01 par value 7,866,185 Shares
PART I
FINANCIAL INFORMATION
U.S. NEUROSURGICAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30, December 31,
2003 2002
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 234,000 $ 88,000
Accounts receivable 577,000 623,000
Other current assets 63,000 118,000
----------- -----------
Total current assets $ 874,000 $ 829,000
----------- -----------
Gamma Knife (net of accumulated depreciation of
$6,374,000 in 2003 and $5,714,000 in 2002) 935,000 1,594,000
Leasehold improvements (net of accumulated
amortization of $1,285,000 in 2003 and $1,501,000 in 2002) 557,000 341,000
Office furniture and computers (net of accumulated
Depreciation of $104,000 in 2003 and $99,000 in 2002) 3,000 8,000
----------- -----------
Total property and equipment 1,495,000 1,943,000
----------- -----------
Deferred tax asset 156,000 85,000
Cash held in escrow 106,000 106,000
----------- -----------
TOTAL $ 2,631,000 $ 2,963,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 131,000 $ 119,000
Note payable - litigation settlement -- 100,000
Obligations under capital lease
and loans payable- current portion 376,000 790,000
Due to stockholder 300,000 300,000
Deferred tax liability 101,000 146,000
Other current liabilities 162,000 39,000
----------- -----------
Total current liabilities 1,070,000 1,494,000
Obligations under capital lease and loans payable-net
of current portion 101,000 101,000
----------- -----------
1,171,000 1,595,000
----------- -----------
Stockholders' equity:
Common stock 79,000 79,000
Additional paid-in capital 2,808,000 2,808,000
Accumulated deficit (1,416,000) (1,510,000)
Treasury stock, at cost (11,000) (9,000)
----------- -----------
Total stockholders' equity $ 1,460,000 $ 1,368,000
----------- -----------
TOTAL $ 2,631,000 $ 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
(Unaudited)
Three Months Ended
June 30,
--------
2003 2002
---- ----
Revenue:
Patient Revenue $ 550,000 $ 638,000
----------- -----------
Expenses:
Patient Expenses $ 246,000 $ 242,000
Selling, General and Administrative 358,000 327,000
----------- -----------
Total 604,000 569,000
----------- -----------
Operating (Loss) income $ (54,000) $ 69,000
Interest expense (18,000) (49,000)
Interest income -- --
----------- -----------
(Loss) income before income taxes (72,000) 20,000
Income tax (benefit) provision (31,000) 5,000
----------- -----------
Net (Loss) income (41,000) 15,000
=========== ===========
Proforma basic and diluted (Loss) income per share $ (.01) $ --
----------- -----------
Proforma weighted average shares outstanding 7,841,185 7,866,185
The accompanying notes to financial statements are an integral part hereof.
3
U.S. NEUROSURGICAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended
June 30,
--------
2003 2002
---- ----
Revenue:
Patient Revenue $ 1,385,000 $ 1,384,000
----------- -----------
Expenses:
Patient Expenses 463,000 456,000
Selling, General and Administrative 720,000 663,000
----------- -----------
Total 1,183,000 1,119,000
----------- -----------
Operating Income 202,000 265,000
Interest expense (47,000) (99,000)
Interest income 1,000 1,000
----------- -----------
Income before income taxes 156,000 167,000
Income tax provision 62,000 68,000
----------- -----------
Net Income 94,000 99,000
=========== ===========
Proforma basic and diluted income per share $ .01 $ .01
----------- -----------
Proforma weighted average shares outstanding 7,841,185 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
(unaudited)
Six Months Ended
June 30,
--------
2003 2002
---- ----
Cash flows from operating activities:
Income (loss) from continuing operations $ 94,000 $ 99,000
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization: 448,000 451,000
Changes in operating assets and liabilities:
Decrease (increase) in receivables 46,000 (208,000)
(Increase) in other current assets (16,000) (40,000)
Increase in payables and other current liabilities 90,000 56,000
--------- ---------
Net cash provided by operating activities 662,000 358,000
--------- ---------
Cash flows from financing activities:
Proceeds from loan 137,000 --
Repayment of note payable (100,000) (100,000)
Purchase of treasury stock (2,000) (8,000)
Payment of capital lease obligations (551,000) (432,000)
--------- ---------
Net cash used in financing activities (516,000) (540,000)
Net increase (decrease) in cash and cash equivalents 146,000 (182,000)
Cash and cash equivalents - beginning of period 88,000 311,000
--------- ---------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 234,000 $ 129,000
========= =========
Supplemental disclosures of cash flow information:
Cash paid for
Interest $ 47,000 $ 99,000
Taxes 3,000 102,000
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 June 30, 2003, and for the three
and six months ended June 30, 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.
6
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, 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.
Second Quarter 2003 Compared to Second Quarter 2002 and Six Months Ended June
30, 2003 Compared to Six Months Ended June 30, 2002
Results of Operations
Patient revenue decreased 14% to $550,000 in the quarter ended June 30,
2003 from $638,000 for the quarter ended June 30, 2002. The decrease was due to
a retroactive adjustment to revenues at the RMC. Patient expenses were $246,000
for the quarter compared to $242,000 in the year ago period. Selling, general
and administrative expense increased 9% to $358,000 from $327,000 because of due
to higher insurance costs, for the quarter ended June 30, 2003. Interest expense
decreased to $18,000 from $49,000 in the same period a year earlier. For the
quarter ended June 30, 2003, the net loss was $41,000 as compared to income of
$15,000 for the same period a year earlier. The lease payments for the NYU
equipment were completed in July 2003. In August 2003 the NYU machine will have
its cobalt reloaded. The cost is $800,000, 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 $265,000 at 9% interest over 40 months. The financing of
the Kansas City Cobalt reload requires annual payments of $300,000. These
payments will be completed in 2004. 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 of $100,000 was paid
during the second quarter.
For the six months ended June 30, 2003 revenue was $1,385,000 compared to
$1,384,000 in the same period a year earlier. Patient expenses increased 2% to
$463,000 in 2002 from $456,000 in the same period in 2002. S,G & A increased 9%
to $720,000 as compared to $663,000 in the same period a year earlier. The
increase was due to an increase in insurance costs. Interest expense decreased
approximately 53% to $47,000 from $99,000 in the same period a year ago. The
reason for the decrease was due to a reduction of the lease balances on the
Gamma Knife properties. Income from operations
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was $94,000 for the six months ended June 30, as compared to income of $99,000
for the six months ended June 30, 2002.
Liquidity and Capital Resources
At June 30, 2003 the Company had a working capital deficit of $196,000 as
compared to a deficit of $665,000 at December 31, 2002. Cash and cash
equivalents at June 30, 2003 were $234,000 as compared with $88,000 at December
31, 2002.
Net cash provided by operating activities was $662,000 as compared to net
cash provided by of $358,000 for the same period, a year earlier. Net income was
$94,000 as compared to $99,000 in the same period, a year earlier. Depreciation
and amortization was $448,000 for the six months ended June 30, 2003 as compared
to $451,000 in the same period, one year earlier. There was a decrease in
accounts receivables of $46,000 as compared to an increase of $208,000 in the
same period in 2002, as NYU reduced their outstanding receivable. Accounts
payables increase $90,000 compared to an increase of $56,000 in 2002.
Net cash used in financing activities was $516,000 as compared to $540,000
for the same period a year earlier. This is primarily due to paying down of the
principal amounts on its capitalized leases. During the quarter the company
borrowed $137,000 from DVI to meet operating expenses. 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
8
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 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
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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 August 7, 2003 By /s/ Alan Gold
----------------------------------
Alan Gold
Director and President
Chief Executive Officer
Date August 7, 2003 By /s/ Howard Grunfeld
----------------------------------
Howard Grunfeld
Vice President of Finance
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