U.S. NeuroSurgical Holdings, Inc. - Quarter Report: 2005 June (Form 10-Q)
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 June 30, 2005 |
Commission file number 0-15586 |
U.S. NEUROSURGICAL,
INC.
(Exact name of Registrant as specified in its charter)
| Delaware (State of other jurisdiction of incorporation or organization) |
52-1842411 (I.R.S. Employer 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 o
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, 2005 | ||||
|---|---|---|---|---|---|
| Common Stock, $.01 par value | 7,697,185 Shares | ||||
PART I
FINANCIAL INFORMATION
U.S.
NEUROSURGICAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
| June 30, 2005 |
December 31, 2004 |
|||||||
|---|---|---|---|---|---|---|---|---|
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 411,000 | $ | 511,000 | ||||
| Accounts receivable (net of allowance for doubtful | ||||||||
| accounts of $36,000 in 2005 and 2004) | 413,000 | 404,000 | ||||||
| Accounts receivable-stockholder | 102,000 | 57,000 | ||||||
| Other current assets | 177,000 | 199,000 | ||||||
| Total current assets | $ | 1,103,000 | $ | 1,171,000 | ||||
| Gamma Knife (net of accumulated depreciation of | ||||||||
| $3,681,000 in 2005 and $7,147,000 in 2004) | 3,287,000 | 965,000 | ||||||
| Leasehold improvements (net of accumulated | ||||||||
| amortization of $1,575,000 in 2005 and $1,545,000 in 2004) | 467,000 | 497,000 | ||||||
| Total property and equipment | 3,754,000 | 1,462,000 | ||||||
| Progress payments - RMC Gamma Knife | — | 1,282,000 | ||||||
| Deferred tax asset | 180,000 | 180,000 | ||||||
| Cash held in escrow | 107,000 | 106,000 | ||||||
| TOTAL | $ | 5,144,000 | $ | 4,201,000 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 48,000 | $ | 39,000 | ||||
| Obligations under capital lease | ||||||||
| and loans payable- current portion | 726,000 | 467,000 | ||||||
| Due to stockholder | 300,000 | 300,000 | ||||||
| Deferred tax liability | 240,000 | 240,000 | ||||||
| Other current liabilities | 39,000 | 39,000 | ||||||
| Total current liabilities | 1,353,000 | 1,085,000 | ||||||
| Obligations under capital lease and loans payable-net | ||||||||
| of current portion | 2,319,000 | 1,452,000 | ||||||
| Asset retirement obligations | 200,000 | 200,000 | ||||||
| 3,872,000 | 2,737,000 | |||||||
| Stockholders’ equity: | ||||||||
| Common stock | 77,000 | 77,000 | ||||||
| Additional paid-in capital | 2,797,000 | 2,797,000 | ||||||
| Accumulated deficit | (1,602,000 | ) | (1,410,000 | ) | ||||
| Total stockholders’ equity | $ | 1,272,000 | $ | 1,464,000 | ||||
| TOTAL | $ | 5,144,000 | $ | 4,201,000 | ||||
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 June 30, |
||||||||
|---|---|---|---|---|---|---|---|---|
| 2005 | 2004 | |||||||
| Revenue: | ||||||||
| Patient Revenue | $ | 664,000 | $ | 774,000 | ||||
| Expenses: | ||||||||
| Patient Expenses | $ | 209,000 | $ | 161,000 | ||||
| Selling, General and Administrative | 414,000 | 367,000 | ||||||
| Total | 623,000 | 528,000 | ||||||
| Operating Income | $ | 41,000 | $ | 246,000 | ||||
| Interest expense | (85,000 | ) | (24,000 | ) | ||||
| Interest Income | 3,000 | — | ||||||
| (Loss) income before income taxes | (41,000 | ) | 222,000 | |||||
| Income tax provision | — | 91,000 | ||||||
| Net (Loss) income | (41,000 | ) | 131,000 | |||||
| Proforma basic and diluted (loss) income per share | $ | (.01 | ) | $ | .02 | |||
| Proforma weighted average shares outstanding | 7,697,185 | 7,856,185 | ||||||
The accompanying notes to financial statements are an integral part hereof.
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U.S. NEUROSURGICAL,
INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
| Six Months Ended June 30, |
||||||||
|---|---|---|---|---|---|---|---|---|
| 2005 | 2004 | |||||||
| Revenue: | ||||||||
| Patient Revenue | $ | 1,140,000 | $ | 1,303,000 | ||||
| Expenses: | ||||||||
| Patient Expenses | 416,000 | 333,000 | ||||||
| Selling, General and Administrative | 802,000 | 684,000 | ||||||
| Total | 1,218,000 | 1,017,000 | ||||||
| Operating (Loss) income | (78,000 | ) | 286,000 | |||||
| Interest expense | (119,000 | ) | (33,000 | ) | ||||
| Interest income | 5,000 | |||||||
| Other Income | — | 24,000 | ||||||
| (Loss) income before income taxes | (192,000 | ) | 277,000 | |||||
| Income tax provision | — | 113,000 | ||||||
| Net (Loss) income | (192,000 | ) | 164,000 | |||||
| Proforma basic and diluted income per share | $ | (.03 | ) | $ | .02 | |||
| Proforma weighted average shares outstanding | 7,697,185 | 7,861,516 | ||||||
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
| Six Months Ended June 30, |
||||||||
|---|---|---|---|---|---|---|---|---|
| 2005 | 2004 | |||||||
| Cash flows from operating activities: | ||||||||
| (Loss) income from continuing operations | $ | (192,000 | ) | $ | 164,000 | |||
| Adjustments to reconcile net income to net cash (used in) provided by | ||||||||
| operating activities: | ||||||||
| Depreciation and amortization | 309,000 | 244,000 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| (Increase) in receivables | (54,000 | ) | (70,000 | ) | ||||
| Decrease (increase) in other current assets | 22,000 | (2,000 | ) | |||||
| Increase in deferred tax asset | — | (62,000 | ) | |||||
| Increase (decrease) in payables and other current liabilities | ||||||||
| and deferred tax liability | 9,000 | (13,000 | ) | |||||
| Net cash provided by operating activities | 94,000 | 261,000 | ||||||
| Cash flows from investing activities: | ||||||||
| RMC Gamma Knife | (2,601,000 | ) | — | |||||
| Progress payments- RMC Gamma Knife | 1,282,000 | — | ||||||
| (Increase) decrease in cash held in escrow | (1,000 | ) | 211,000 | |||||
| Net cash (used in) provided by investing activities | (1,320,000 | ) | 211,000 | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from capital lease obligations and loans payable | 1,319,000 | 625,000 | ||||||
| Repayment of capital lease obligations and loans payable | (193,000 | ) | (781,000 | ) | ||||
| Net cash provide by (used in) financing activities | 1,126,000 | (156,000 | ) | |||||
| Net (decrease) increase in cash and cash equivalents | (100,000 | ) | 316,000 | |||||
| Cash and cash equivalents - beginning of period | 511,000 | 89,000 | ||||||
| CASH AND CASH EQUIVALENTS - END OF PERIOD | $ | 411,000 | $ | 405,000 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for | ||||||||
| Interest | $ | 119,000 | $ | 33,000 | ||||
| Taxes | — | 41,000 | ||||||
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, 2005, and for the three and six months ended June 30, 2005 and 2004, 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, 2004 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 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 2004 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 2005 Compared to Second Quarter 2004 and Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004
Results of Operations
Patient revenue decreased 14% to $664,000 in the quarter ended June 30, 2005 from $774,000 for the quarter ended June 30, 2004. The decrease was due to decreased revenues at both centers. Patient expenses increased 30% to $209,000 for the quarter compared to $161,000 in the year ago period. The increase was due to increased depreciation on the knives. Selling, general and administrative expense increased 13% to $414,000 from $367,000, for the quarter ended June 30, 2005. The increase was due to increases in insurance and professional fees. Interest expense increased to $85,000 from $24,000 in the same period a year earlier. This was due to the new lease on the RMC Gamma Knife. For the quarter ended June 30, 2005, the net loss was $41,000 as compared to income of 131,000 for the same period a year earlier. The loss was due to decreased revenues and the related costs of the new RMC Gamma Knife.
For the six months ended June 30, 2005 revenue decreased 12% to $1,140,000 compared to $1,303,000 in the same period a year earlier. The decrease was due to decreased revenues at both facilities. Patient expenses increased 25% to $416,000 in 2005 from $333,000 in the same period in 2004. The increase was all for depreciation. S,G & A increased 17% to $802,000 as compared to $684,000 in the same period a year earlier. The reason for the increase is the same as above. Interest expense increased to $119,000 from $33,000 in the same period a year ago. The reason for the increase was due to the lease on the new RMC Gamma Knife. As a result, the net loss was $192,000 for the six months ended June 30, as compared to income of $164,000 for the six months ended June 30, 2004.
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Liquidity and Capital Resources
At June 30, 2005 the Company had a working capital deficit of $250,000 as compared to a surplus of $86,000 at December 31, 2004. Cash and cash equivalents at June 30, 2005 were $411,000 as compared with $511,000 at December 31, 2004.
Net cash provided by operating activities was $94,000 as compared to net cash provided by of $261,000 for the same period, a year earlier. Net loss was $192,000 as compared to net income of $164,000 in the same period, a year earlier. Depreciation and amortization was $309,000 for the six months ended June 30, 2005 as compared to $244,000 in the same period, one year earlier. There was an increase in accounts receivables of $54,000 as compared to an increase of $70,000 in the same period in 2004.
During the first quarter the Company completed a replacement to the RMC Gamma Knife. The cost was $2,601,000. The lease has payments of $46,600 for 72 months at 8.8 percent. 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 lease has payments of $23,000 for 36 months at 8.8 percent.
Net cash provided by financing activities was $1,126,000 as compared to net cash used in of $156,000 for the same period a year earlier. The cost of new Gamma Knife was $2,601,000. The Company paid $193,000 towards its capital lease obligations and loans payable as compared to $781,000 in the year ago period. 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
8
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 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
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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 1, 2005 | By | /s/ Alan Gold Alan Gold Director and President Chief Executive Officer |
| |
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| Date August 1, 2005 | By | /s/ Howard Grunfeld Howard Grunfeld Vice President of Finance |
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