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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, 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 August 3, 2004
----- -----------------------------
Common Stock, $.01 par value 7,697,185 Shares
PART I
FINANCIAL INFORMATION
U.S. NEUROSURGICAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS June 30, December 31,
2004 2003
----------- ------------
Current assets:
Cash and cash equivalents $ 405,000 $ 89,000
Accounts receivable 443,000 372,000
Accounts receivable-stockholder 95,000 96,000
Cash held in escrow -- 211,000
Other current assets 146,000 144,000
----------- -----------
Total current assets $ 1,089,000 $ 912,000
----------- -----------
Gamma Knife (net of accumulated depreciation of
$6,856,000 in 2004 and $6,645,000 in 2003) 1,256,000 1,467,000
Leasehold improvements (net of accumulated
amortization of $1,514,000 in 2004 and $1,483,000 in 2003) 527,000 559,000
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 1,784,000 2,028,000
----------- -----------
Deferred tax asset 166,000 104,000
Cash held in escrow 106,000 106,000
----------- -----------
TOTAL $ 3,145,000 $ 3,150,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 56,000 $ 198,000
Obligations under capital lease
and loans payable- current portion 267,000 581,000
Due to stockholder 300,000 300,000
Deferred tax liability 243,000 150,000
Other current liabilities 78,000 42,000
----------- -----------
Total current liabilities 944,000 1,271,000
Obligations under capital lease and loans payable-net
of current portion 500,000 342,000
Asset retirement obligations 200,000 200,000
----------- -----------
1,644,000 1,813,000
----------- -----------
Stockholders' equity:
Common stock 77,000 79,000
Additional paid-in capital 2,793,000 2,808,000
Treasury stock, at cost -- (17,000)
Accumulated deficit (1,369,000) (1,533,000)
----------- -----------
Total stockholders' equity $ 1,501,000 $ 1,337,000
----------- -----------
TOTAL $ 3,145,000 $ 3,150,000
=========== ===========
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,
--------
2004 2003
---------- -----------
Revenue:
Patient Revenue $ 774,000 $ 550,000
---------- -----------
Expenses:
Patient Expenses $ 161,000 $ 246,000
Selling, General and Administrative 367,000 358,000
---------- -----------
Total 528,000 604,000
---------- -----------
Operating Income (loss) $ 246,000 $ (54,000)
Interest expense (24,000) (18,000)
Other Income -- --
---------- -----------
Income (loss) before income taxes 222,000 (72,000)
Income tax (benefit) provision 91,000 (31,000)
---------- -----------
Net (Loss) income 131,000 (41,000)
========== ===========
Proforma basic and diluted (Loss) income per share $ .02 $ (.01)
---------- -----------
Proforma weighted average shares outstanding 7,856,899 7,841,185
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,
--------
2004 2003
----------- -----------
Revenue:
Patient Revenue $ 1,303,000 $ 1,385,000
----------- -----------
Expenses:
Patient Expenses 333,000 463,000
Selling, General and Administrative 684,000 720,000
----------- -----------
Total 1,017,000 1,183,000
----------- -----------
Operating Income 286,000 202,000
Interest expense (33,000) (47,000)
Other Income 24,000 1,000
----------- -----------
Income before income taxes 277,000 156,000
Income tax provision 113,000 62,000
----------- -----------
Net Income 164,000 94,000
=========== ===========
Proforma basic and diluted income per share $ .02 $ .01
----------- -----------
Proforma weighted average shares outstanding 7,861,516 7,841,185
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,
--------
2004 2003
--------- ---------
Cash flows from operating activities:
Income (loss) from continuing operations $ 164,000 $ 94,000
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization 244,000 448,000
Changes in operating assets and liabilities:
Decrease (increase) in receivables (70,000) 46,000
Decrease (increase) in other current assets (2,000) (16,000)
Increase in deferred tax asset (62,000) --
(Decrease) increase in payables and other current liabilities
and deferred tax liability (13,000) 90,000
--------- ---------
Net cash provided by operating activities 261,000 662,000
--------- ---------
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:
Proceeds from loan 625,000 137,000
Repayment of note payable (581,000) (100,000)
Purchase of treasury stock -- (2,000)
Payment of capital lease obligations (200,000) (551,000)
--------- ---------
Net cash used in financing activities (156,000) (516,000)
Net increase (decrease) in cash and cash equivalents 316,000 146,000
Cash and cash equivalents - beginning of period 89,000 88,000
--------- ---------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 405,000 $ 234,000
========= =========
Non Cash Investing and financing activities:
Payment of $100,000 directly from SMT Leasing to Elekta Instruments
Supplemental disclosures of cash flow information:
Cash paid for
Interest $ 33,000 $ 47,000
Taxes 41,000 3,000
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, 2004, and for the three
and six months ended June 30, 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.
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.
During June 2004, the Company retired 204,000 shares of its Common Stock.
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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 2003 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 2004 Compared to Second Quarter 2003 and Six Months Ended June
30, 2004 Compared to Six Months Ended June 30, 2003
Results of Operations
Patient revenue increased 41% to $774,000 in the quarter ended June 30,
2004 from $550,000 for the quarter ended June 30, 2003. The increase was due to
increased revenues at both centers. Patient expenses decreased 35% to $161,000
for the quarter compared to $246,000 in the year ago period. The decrease was
due to reduced depreciation and amortization on the knives. Selling, general and
administrative expense increased 3% to $367,000 from $358,000, for the quarter
ended June 30, 2004. Interest expense increased to $24,000 from $18,000 in the
same period a year earlier. For the quarter ended June 30, 2004, the net income
was $131,000 as compared to a loss of $41,000 for the same period a year
earlier. The improvement in net income was due to increased revenue as well as
reduced interest expense. The lease payments for the NYU equipment were
completed in July 2003.
For the six months ended June 30, 2004 revenue decreased 6% to $1,303,000
compared to $1,385,000 in the same period a year earlier. The decrease was due
to decreased revenue at the RMC Center. Patient expenses decreased 28% to
$333,000 in 2004 from $463,000 in the same period in 2003. S,G & A decreased 5%
to $684,000 as compared to $720,000 in the same period a year earlier. 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 approximately 30% to $33,000 from $47,000 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 was $164,000 for the six
months ended June 30, as compared to income of $94,000 for the six months ended
June 30, 2003.
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Liquidity and Capital Resources
At June 30, 2004 the Company had a working capital surplus of $145,000 as
compared to a deficit of $359,000 at December 31, 2003. Cash and cash
equivalents at June 30, 2004 were $405,000 as compared with $89,000 at December
31, 2003.
Net cash provided by operating activities was $261,000 as compared to net
cash provided by of $662,000 for the same period, a year earlier. Net income was
$164,000 as compared to $94,000 in the same period, a year earlier. Depreciation
and amortization was $244,000 for the six months ended June 30, 2004 as compared
to $448,000 in the same period, one year earlier. There was a increase in
accounts receivables of $70,000 as compared to an decrease of $46,000 in the
same period in 2003. Accounts payables decreased $13,000 compared to an increase
of $90,000 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 secured new financing from SMT Leasing to pay off the
obligations. The new lease has payments of $23,000 for 36 months at 8.8 percent.
Net cash used in financing activities was $156,000 as compared to $516,000
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 $725,000 from SMT. 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;
8
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
9
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 12, 2004 By /s/ Alan Gold
--------------- -------------------------------------
Alan Gold
Director and President
Chief Executive Officer
Date August 12, 2004 By /s/ Howard Grunfeld
--------------- -------------------------------------
Howard Grunfeld
Vice President of Finance
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