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, 2004 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, 2004
----- --------------------------------
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,
2004 2003
---- ----
Current assets:
Cash and cash equivalents $ 61,000 $ 89,000
Accounts receivable 517,000 372,000
Accounts receivable-stockholder 101,000 96,000
Cash held in escow -- 211,000
Other current assets 182,000 144,000
----------- ------------
Total current assets $ 861,000 $ 912,000
----------- ------------
Gamma Knife (net of accumulated depreciation of
$6,750,000 in 2004 and $6,645,000 in 2003) 1,362,000 1,467,000
Leasehold improvements (net of accumulated
amortization of $1,498,000 in 2004 and $1,483,000 in 2003) 544,000 559,000
Office furniture and computers (net of accumulated
Depreciation of $106,000 in 2004 and $105,000 in 2003) 1,000 2,000
----------- ------------
Total property and equipment 1,907,000 2,028,000
----------- ------------
Deferred tax asset 175,000 104,000
Cash held in escrow 106,000 106,000
----------- ------------
TOTAL $ 3,049,000 $ 3,150,000
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 169,000 $ 198,000
Obligations under capital lease
and loans payable- current portion 401,000 581,000
Due to stockholder 300,000 300,000
Deferred tax liability 243,000 150,000
Other current liabilities 32,000 42,000
----------- ------------
Total current liabilities 1,145,000 1,271,000
Obligations under capital lease and loans payable-net
of current portion 334,000 342,000
Asset retirement obligations 200,000 200,000
----------- ------------
1,679,000 1,813,000
----------- ------------
Stockholders' equity:
Common stock 79,000 79,000
Additional paid-in capital 2,808,000 2,808,000
Accumulated deficit (1,500,000) (1,533,000)
Treasury stock, at cost (17,000) (17,000)
----------- ------------
Total stockholders' equity $ 1,370,000 $ 1,337,000
----------- ------------
TOTAL $ 3,049,000 $ 3,150,000
=========== ============
The accompanying notes to financial statements are an integral part hereof.
2
U.S. NEUROSURGICAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
---------
2004 2003
---- ----
Revenue:
Patient Revenue $ 529,000 $ 835,000
----------- -----------
Expenses:
Patient Expenses $ 172,000 $ 217,000
Selling, General and Administrative 317,000 361,000
----------- -----------
Total 489,000 578,000
----------- -----------
Operating Income (loss) $ 40,000 $ 257,000
Interest expense (9,000) (29,000)
Other Income 24,000 --
----------- -----------
Income (loss) before income taxes 55,000 228,000
Income tax provision (benefit) 22,000 92,000
----------- -----------
Net Income (loss) 33,000 136,000
=========== ===========
Proforma basic and diluted income (loss) per share $ -- .02
----------- -----------
Proforma weighted average shares outstanding 7,866,185 7,866,185
The accompanying notes to financial statements are an integral part hereof.
3
U.S. NEUROSURGICAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31
--------
2004 2003
---- ----
Cash flows from operating activities:
Income (loss) from continuing operations $ 33,000 $ 136,000
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization: 121,000 222,000
Changes in operating assets and liabilities:
Decrease (increase) in receivables (150,000) 87,000
Decrease (increase) in other current assets (38,000) 54,000
Increase in deferred tax asset (71,000) (71,000)
Increase (decrease) in payables and other current liabilities
And deferred tax liability 54,000 74,000
--------- ---------
Net cash (used in) provided by operating activities (51,000) 502,000
--------- ---------
Cash flows from investing activities :
Decrease in cash held in escrow 211,000 --
--------- ---------
Net cash provided by investing activities 211,000 --
Cash flows from financing activities:
Purchase of treasury stock -- (2,000)
Payment of capital lease obligations (188,000) (267,000)
--------- ---------
Net cash used in financing activities (188,000) (269,000)
Net (decrease) increase in cash and cash equivalents (28,000) 233,000
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 89,000 88,000
--------- ---------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 61,000 $ 321,000
========= =========
Supplemental disclosures of cash flow information:
Cash paid for
Interest $ 9,000 $ 29,000
Taxes 38,000 3,000
The accompanying notes to financial statements are an integral part hereof.
4
U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Note A - Basis of Preparation
The accompanying financial statements at March 31, 2004, and for the three
months ended March 31, 2004 and 2003, 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, 2003 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.
5
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 2003 Annual Report on Form 10-K, filed on February 4, 2004, and
March 22, 2004 with respect to Note D, 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 2004 Compared to First Quarter 2003
Results of Operations
Patient revenue decreased 37% to $529,000 in the quarter ended March 31,
2004 from $835,000 for the quarter ended March 31, 2003. The decrease was due to
decreased revenue at the RMC Center. Patient expenses decreased 21% to $172,000
from $217,000 in the year ago period. Selling, general and administrative
expense decreased 12% to $317,000 from $361,000 for the quarter ended March 31,
2004. The decrease in both of the expense categories comes due to a change in
the depreciation and amortization of some of its properties. Interest expense
decreased 69% to $9,000 from $29,000 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 2004, net income was $33,000 as compared to income of
$136,000 for the same period a year earlier. The decrease in net income is
largely attributable to the decreased revenues from RMC.
6
Liquidity and Capital Resources
At March 31, 2004 the Company had a working capital deficit of $284,000 as
compared to $359,000 at December 31, 2003. Cash and cash equivalents at March
31, 2004 were $61,000 as compared with $89,000 at December 31, 2003.
Net cash used in operating activities was $51,000 as compared to net cash
provided by of $502,000 for the same period, a year earlier. Net income was
$33,000 as compared to $136,000 in the same period, a year earlier. Depreciation
and amortization was $121,000 for the quarter ended March 31, 2004 as compared
to $222,000 in the same period, one year earlier. The decrease was a result of
the contract extension with NYU which increased the useful value of the
equipment. There was an increase in receivables of $150,000 as compared to a
decrease of $87,000 in the same period in 2003. The receivable due from NYU,
which can vary significantly from period to period, increased in the most recent
quarter. Payables decreased $40,000 compared to an increase of $74,000 in 2003.
The $211,000 that was held in escrow at December 31, 2003 was paid to US
Bank Corp. and Elekta Instruments in March 2004. The reason for the escrow was a
lease that had been underfunded by DVI in August 2003. DVI filed for protection
under Chapter 11 of the U.S. Bankcruptcy Code in August 2003. USN began making
all lease payments into an escrow account and continued to negotiate with the
successor. The Company has secured new financing from SMT Leasing to pay off the
existing obligations.
Net cash used in financing activities was $188,000 as compared to $269,000
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;
7
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 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-15e 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, 2004 By /s/ Alan Gold
------------------------------------
Alan Gold
Director and President
Chief Executive Officer
Date May 12, 2004 By /s/ Howard Grunfeld
------------------------------------
Howard Grunfeld
Vice President of Finance
9