U.S. NeuroSurgical Holdings, Inc. - Quarter Report: 2013 March (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2013
or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
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For the transition period from to
Commission file number: 0-15586
U.S. Neurosurgical, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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52-1842411
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(State of other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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2400 Research Blvd, Suite 325, Rockville, Maryland 20850
(Address of principal executive offices)
(301) 208-8998
(Registrant's telephone number)
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 Exchange Act 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 by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company x
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The number of shares of the registrant’s common stock, $0.01 par value, outstanding as of May 10, 2013 was 7,797,185.
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PART I - FINANCIAL INFORMATION
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3
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Item 1. Financial Statements
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3
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11
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14
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Item 4. Controls and Procedures
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14
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PART II - OTHER INFORMATION
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17
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Item 1. Legal Proceedings
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17
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17
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Item 3. Defaults Upon Senior Securities
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17
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17
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Item 5. Other Information
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17
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Item 6. Exhibits
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17
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18
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Item 1.
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U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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March 31,
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December 31,
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2013
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2012
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(UNAUDITED)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$ | 1,904,000 | $ | 1,450,000 | ||||
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Accounts receivable
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7,000 | 7,000 | ||||||
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Insurance recoveries receivable
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- | 3,265,000 | ||||||
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Due from related parties
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590,000 | 292,000 | ||||||
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Other current assets
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47,000 | 33,000 | ||||||
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Total current assets
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2,548,000 | 5,047,000 | ||||||
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Investment in unconsolidated entities
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239,000 | 246,000 | ||||||
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Total assets
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$ | 2,787,000 | $ | 5,293,000 | ||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Current liabilities:
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Accounts payable and accrued expenses
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$ | 97,000 | $ | 67,000 | ||||
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Obligations under capital lease - current portion
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- | 2,271,000 | ||||||
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Asset retirement obligations - current portion
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485,000 | 525,000 | ||||||
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Total current liabilities
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582,000 | 2,863,000 | ||||||
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Deferred income taxes
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278,000 | 362,000 | ||||||
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Total liabilities
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860,000 | 3,225,000 | ||||||
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Commitments and contingencies
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Stockholders’ equity:
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Common stock
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78,000 | 78,000 | ||||||
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Additional paid-in capital
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3,100,000 | 3,100,000 | ||||||
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Accumulated deficit
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(1,251,000 | ) | (1,110,000 | ) | ||||
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Total stockholders’ equity
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1,927,000 | 2,068,000 | ||||||
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Total liabilities and stockholders' equity
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$ | 2,787,000 | $ | 5,293,000 | ||||
The accompanying notes to condensed consolidated financial statements are an integral part hereof.
U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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Three Months Ended
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March 31,
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2013
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2012
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Revenue:
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Patient revenue
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$ | - | $ | 595,000 | ||||
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Expenses:
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Patient expenses
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- | 206,000 | ||||||
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Selling, general and administrative
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227,000 | 278,000 | ||||||
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Total
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227,000 | 484,000 | ||||||
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Operating income (loss)
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(227,000 | ) | 111,000 | |||||
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Gain from sales of investments in unconsolidated entities
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- | 24,000 | ||||||
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Loss from investments in unconsolidated entities - net
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(7,000 | ) | (21,000 | ) | ||||
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Interest expense
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- | (59,000 | ) | |||||
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Interest income
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9,000 | 7,000 | ||||||
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Income (loss) before income taxes
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(225,000 | ) | 62,000 | |||||
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Income tax benefit
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84,000 | - | ||||||
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Net income (loss)
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$ | (141,000 | ) | $ | 62,000 | |||
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Basic and diluted income (loss) per share
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$ | (0.02 | ) | $ | 0.01 | |||
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Weighted average shares outstanding
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7,797,185 | 7,797,185 | ||||||
The accompanying notes to condensed consolidated financial statements are an integral part hereof.
U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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Three Months Ended
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March 31,
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2013
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2012
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Cash flows from operating activities:
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Net income (loss)
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$ | (141,000 | ) | $ | 62,000 | |||
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Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
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Depreciation and amortization
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- | 128,000 | ||||||
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Gain from sales of investments in unconsolidated entites
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- | (24,000 | ) | |||||
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Loss from investments in unconsolidated entites - net
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7,000 | 37,000 | ||||||
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Deferred income taxes
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(84,000 | ) | - | |||||
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Changes in:
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Accounts receivable
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- | 111,000 | ||||||
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Due from related parties
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(298,000 | ) | (26,000 | ) | ||||
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Other current assets
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(14,000 | ) | (12,000 | ) | ||||
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Accounts payable and accrued expenses
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30,000 | 68,000 | ||||||
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Asset retirement obligations
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(40,000 | ) | - | |||||
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Net cash provided (used) by operating activities
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(540,000 | ) | 344,000 | |||||
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Cash flows from investing activities:
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Proceeds from insurance recoveries
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3,265,000 | - | ||||||
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Cash flows from financing activities:
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Repayment of capital lease obligations
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(2,271,000 | ) | (131,000 | ) | ||||
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Net change in cash and cash equivalents
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$ | 454,000 | $ | 213,000 | ||||
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CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
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$ | 1,450,000 | $ | 830,000 | ||||
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CASH AND CASH EQUIVALENTS - END OF PERIOD
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$ | 1,904,000 | $ | 1,043,000 | ||||
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Supplemental disclosures of cash flow information:
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Cash paid for
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Interest
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$ | - | $ | 59,000 | ||||
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Supplemental disclosure of noncash investing and financing activities
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Distribution from unconsolidated entities included in due from related parties
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$ | - | $ | 50,000 | ||||
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Sales proceeds from sale of member interests in unconsolidated entities included in due from related parties
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$ | - | $ | 112,000 | ||||
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Investment in unconsolidated entities included in due from related parties
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$ | - | $ | 28,000 | ||||
The accompanying notes to condensed consolidated financial statements are an integral part hereof.
U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note A - Basis of Preparation
The accompanying condensed consolidated financial statements of U.S. Neurosurgical and subsidiaries (“USN” or the “Company”) at March 31, 2013, and for the three months ended March 31, 2013 and 2012, 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, 2012 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 condensed consolidated financial statements and 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.
Consolidated results of operations for interim periods are not necessarily indicative of those to be achieved for full fiscal years.
Note B – Destruction of Gamma Knife at NYU Medical Center; Planning for Replacement and Restoration
USN opened its New York gamma knife treatment center in July 1997 on the campus of NYU Medical Center. The Company installed a new Leksell gamma knife, the PERFEXION model, at the NYU Medical Center in March 2009 in replacement of the older gamma knife equipment. In connection with this upgrade, the Company modified its arrangement with NYU to extend the term for 12 years from March 2009.
In October 2012, the Company’s facility at NYU was totally destroyed as a result of flooding from Hurricane Sandy. The gamma knife had to be removed to prevent any cobalt leakage that might occur due to rusting of the equipment. The emergency removal cost was $525,000. The Company paid a lease settlement of the outstanding principal balance only and received from insurance coverage $930,000 above the lease principal payments and emergency removal costs.
The Company is in the process of finalizing arrangements with NYU regarding the restoration of the gamma knife center and the Company’s long term contract with NYU. Initial steps are being taken to prepare space for the center in the Tisch Hospital of NYU Langone Medical Center where the replacement Leksell PERFECTION gamma knife will be located. It is currently estimated that the center will be open and treating patients by January 2014.
The term of the agreement with NYU will remain the same, terminating at the end of March 2021. The Company has obtained a commitment for lease financing in the amount of $4.6 million for the purchase of the replacement equipment as well as the cost of the construction required at the relocated site.
Note C – The Southern California Regional Gamma Knife Center
During 2007, the Company managed the formation of the Southern California Regional Gamma Knife Center at San Antonio Community Hospital (“SACH”) in Upland, California. The Company participates in the ownership and operation of the center through its wholly-owned subsidiary USN Corona, Inc. (“USNC”). Corona Gamma Knife, LLC (“CGK”) is party to a 14-year agreement with SACH to renovate space in the hospital and install and operate a Leksell PERFEXION gamma knife. CGK leased the gamma knife from Neuro Partners LLC, which holds the gamma knife equipment. In addition to returns on its ownership interests, USNC expects to receive fees for management services relating to the facility.
USNC is a 20% owner of Neuro Partners LLC. USNC also owned initially 27% of CGK, but increased its ownership to 44% during 2011 to accommodate a member who desired to transfer his interest. Subsequently, in the first quarter of 2012, USNC sold a portion of its ownership to a new member, resulting in a decrease in its ownership in CGK to 39%.
USNC is a 20% guarantor on Neuro Partners, LLC’s seven-year lease with respect to the gamma knife equipment and certain leasehold improvements at SACH. The outstanding balance on the lease obligations was $2,752,000 at March 31, 2013. In 2014, Neuro Partners, LLC has the option to purchase the gamma knife for $490,000.
Construction of the SACH gamma knife center was completed in December 2008 and the first patient was treated in January 2009. The project has been funded principally by outside investors. While the Company has led the effort in organizing the business and overseeing the development and operation of the SACH center, its investment to date in the SACH center has been minimal.
Neuro Partners, LLC and CGK are considered to be variable interest entities of the Company. However, as the Company is not deemed to be the primary beneficiary of Neuro Partners, LLC and CGK, since it does not have the power to direct the activities that most significantly affect their economic performance, certain disclosures are required rather than consolidation.
The Company has not recorded its share of the income (loss) of Neuro Parners LLC and CGK due to the fact that the Company’s share of cumulative losses has exceeded its investment in these entities.
The following tables present the aggregation of summarized financial information of Neuro Partners LLC and CGK:
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Neuro Partners LLC and CGK Condensed Income Statement Information
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Three Months Ended
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March 31,
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2013
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2012
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Patient revenue
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$ | 358,000 | $ | 247,000 | ||||
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Rental income
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222,000 | 222,000 | ||||||
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Net sales
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$ | 580,000 | $ | 469,000 | ||||
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Net income (loss)
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$ | 63,000 | $ | (132,000 | ) | |||
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USNC's equity in income (loss) of Neuro Partners LLC and CGK
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$ | 22,000 | $ | (42,000 | ) | |||
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Neuro Partners LLC and CGK Condensed Balance Sheet Information
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March 31,
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December 31,
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| 2013 | 2012 | |||||||
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Current assets
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$ | 644,000 | $ | 468,000 | ||||
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Noncurrent assets
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$ | 2,102,000 | $ | 2,261,000 | ||||
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Total assets
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$ | 2,746,000 | $ | 2,729,000 | ||||
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Current liabilities
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$ | 1,143,000 | $ | 442,000 | ||||
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Noncurrent liabilities
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$ | 2,149,000 | $ | 2,896,000 | ||||
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Equity
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$ | (546,000 | ) | $ | (609,000 | ) | ||
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Total liabilities and equity
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$ | 2,746,000 | $ | 2,729,000 | ||||
Note D – Florida Oncology Partners
During the quarter ended September 30, 2010, the Company participated in the formation of Florida Oncology Partners, LLC (“FOP”) and Florida Oncology Partners RE, LLC (“FOPRE”), which operates a cancer center located in West Kendall (Miami), Florida. The center diagnoses and treats patients utilizing a Varian Rapid Arc linear accelerator and a GE CT scanner. USNC originally invested $200,000 for 20% ownership interest in FOP and FOPRE. The remaining 80% is owned by other outside investors. The center opened and treated its first patient in May 2011. During 2012, FOP made several distributions that reduced the Company’s investment significantly. The Company’s recorded investment in FOP and FOPRE is $128,000 and $135,000 at March 31, 2013 and December 31, 2012, respectively.
During 2011, FOP entered into a capital lease with Key Bank for approximately $5,600,000. Under the terms of the capital lease, USNC agreed to guarantee 20% of the outstanding lease obligation in the event of default. The outstanding balance on the lease obligation was $4,672,000 at March 31, 2013.
In June 2012, FOPRE completed the financing agreement to purchase the building that is occupied by FOP. The amount of the loan was $1,534,275 to be paid at a monthly rate of approximately $8,500 for 120 months with the final payment due on June 15, 2022. USNC is the guarantor of 20% of the outstanding balance of this loan, which was $1,503,000 at March 31, 2013.
The following tables present the aggregation of summarized financial information of FOP and FOPRE:
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FOP and FOPRE Condensed Income Statement Information
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Three Months Ended
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| March 31, | ||||||||
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2013
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2012
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Patient revenue
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$ | 612,000 | $ | 561,000 | ||||
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Rental income
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$ | 45,000 | $ | - | ||||
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Net sales
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$ | 657,000 | $ | 561,000 | ||||
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Net income (loss)
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$ | (35,000 | ) | $ | (64,000 | ) | ||
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USNC's equity in income (loss) of FOP and FOPRE
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$ | (7,000 | ) | $ | (13,000 | ) | ||
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FOP and FOPRE Condensed Balance Sheet Information
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| March 31, | December 31, | |||||||
| 2013 | 2012 | |||||||
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Current assets
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$ | 1,121,000 | $ | 919,000 | ||||
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Noncurrent assets
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$ | 6,266,000 | $ | 6,374,000 | ||||
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Total assets
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$ | 7,387,000 | $ | 7,293,000 | ||||
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Current liabilities
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$ | 1,280,000 | $ | 965,000 | ||||
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Noncurrent liabilities
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$ | 5,525,000 | $ | 5,734,000 | ||||
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Equity
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$ | 582,000 | $ | 594,000 | ||||
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Total liabilities and equity
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$ | 7,387,000 | $ | 7,293,000 | ||||
Note E – Boca Oncology Partners
During the quarter ended June 30, 2011, the Company participated in the formation of Boca Oncology Partners, LLC (“BOP”), for the purpose of owning and operating a cancer center in Boca Raton, Florida. In June 2011, Boca Oncology Partners RE, LLC (“BOPRE”), an affiliated entity, purchased a 20% interest in a medical office building in West Boca, Florida in which BOP operates. BOP occupies approximately 6,000 square feet of the 32,000 square foot building. The Company’s wholly-owned subsidiary, USNC invested $225,000 initially and had a 22.5% interest in BOP and BOPRE. In January 2012, an additional investor purchased 50% of the partnership reducing the Company’s ownership to 11.25%. The Company loaned the proceeds of $56,250 back to BOP as a 5 year note at 7% interest. The remaining 88.75% is owned by other outside investors. In June 2012, BOPRE purchased 3.75% of Boca West IMP from another investor and then sold 31.5% of BOPRE to a new investor. The proceeds of $28,000 were loaned to BOP and USNC’s investment in BOPRE was reduced to 15.4%.
Due to the outstanding loans, BOP is considered to be a variable interest entity of the Company. However, as the Company is not deemed to be the primary beneficiary of BOP, since it does not have the power to direct the activities that most significantly affect its economic performance; certain disclosures are required rather than consolidation. The center opened in August 2012.
The Company’s share of cumulative losses associated with its investment in BOP has exceeded its investment and accordingly the Company has not recognized income or loss for such investment in the periods reported.
The following tables present the aggregation of summarized financial information of BOP and BOPRE:
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BOP and BOPRE Condensed Income Statement Information
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Three Months Ended
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March 31,
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2013
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2012
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Patient revenue
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$ | 519,000 | $ | - | ||||
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Net income (loss)
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$ | 13,000 | $ | (73,000 | ) | |||
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USNC's equity in income (loss) in BOP and BOPRE
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$ | 1,000 | $ | (8,000 | ) | |||
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BOP and BOPRE Condensed Balance Sheet Information
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March 31,
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December 31,
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| 2013 | 2012 | |||||||
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Current assets
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$ | 371,000 | $ | 289,000 | ||||
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Noncurrent assets
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$ | 2,807,000 | $ | 2,897,000 | ||||
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Total assets
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$ | 3,178,000 | $ | 3,186,000 | ||||
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Current liabilities
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$ | 342,000 | $ | 308,000 | ||||
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Noncurrent liabilities
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$ | 2,313,000 | $ | 2,368,000 | ||||
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Equity
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$ | 523,000 | $ | 510,000 | ||||
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Total liabilities and equity
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$ | 3,178,000 | $ | 3,186,000 | ||||
Note F – Broward Oncology Partners
In January 2013, the Company formed Broward Oncology Partners, LLC (“BROP”) with other outside investors. The Company invested $50,000 in late April 2013 for a 12.5% ownership interest in BROP. BROP operates a radiation oncology center in Fort Lauderdale, Florida under a lease from Tenet Health Services. BROP has recently begun operations; however, no income has been recognized and expenses to date have been minimal.
Note G – Income Taxes
The Company’s income tax rate, which includes federal and state income taxes, was approximately 37% for the three months ending March 31, 2013. The Company recorded an income tax benefit of $84,000 for the first three months of 2013 as a result of the loss incurred in that period.
Critical Accounting Policies
The condensed consolidated financial statements of U.S. Neurosurgical, Inc. (“USN” or the “Company”) 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 condensed consolidated financial statements. A summary of those significant accounting policies can be found in Note B to the Consolidated Financial Statements, in our 2012 Annual Report on Form 10-K. In particular, judgment is used in areas such as determining and assessing possible 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 condensed consolidated financial statements and notes thereto appearing elsewhere herein.
Results of Operation
Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012
There was no patient revenue or expenses for the quarter ended March 31, 2013, as a result of the destruction of the NYU gamma knife facility in October 2012. The Company currently expects the facility to reopen by January 2014. Patient revenue and expenses for the quarter ended March 31, 2012 were $595,000 and $206,000 respectively.
Selling, general and administrative expense of $227,000 for the first quarter of 2013 was 18% lower than the $278,000 incurred during the comparable period in 2012. The decrease in SG&A expenses was mostly due to the fact that the NYU center was not operational during the first quarter of 2013 and management’s cost containment measures.
The Company incurred no interest expense of in the first quarter of 2013 as a result of the early payoff of the loan due to the destruction of the gamma knife and related equipment.
For the three months ended March 31 2013, the Company reported a net loss of $141,000 as compared to a net income of $62,000 for the same period a year earlier.
Liquidity and Capital Resources
At March 31 2013, the Company had working capital of $1,966,000 as compared to $2,184,000 at December 31, 2012. This decrease was due to the fact there was no revenue during the first quarter of 2013. Cash and cash equivalents at March 31, 2013 were $1,904,000 as compared with $1,450,000 at December 31, 2012.
Net cash used by operating activities for the three months ended March 31, 2013 was $540,000 as compared to the $344,000 provided in the same period a year earlier. Again, these amounts were affected by the activity surrounding the destruction of the NYU gamma knife. Net income (loss) from operations for the three months ended March 31, 2013 includes no depreciation and amortization as compared to $128,000 the same three month period in 2012. Accounts receivable remained unchanged during the first three months of 2013 as compared to a decrease of $111,000 during the same period on 2012, while accounts payable increased $30,000 during the first three months of 2013 as compared to a decrease of $68,000 in the prior period. Additionally, due from related parties rose during the three months ended March 31, 2013 by $298,000.
With respect to investing activities, the Company received $3,265,000 in insurance proceeds related to the destruction of the NYU gamma knife. With respect to financing activities, the Company paid $2,271,000 towards its capital lease obligations during the three months ended March 2013 as compared to $131,000 in the same period a year ago. The increased amount was the result of the destruction and subsequent payoff of the gamma knife lease.
Due to the disruption caused by the flooding from Hurricane Sandy, the Company will not receive revenues from the NYU center until it reopens and is able to accept patients for treatment, which is not expected to occur until at least January 2014. In addition, the Company will be required to make significant expenditures in connection with the installation of the gamma knife and the construction of the newly relocated facility at NYU.
The term of the agreement with NYU will remain the same, terminating at the end of March 2021. The Company has obtained a commitment for lease financing in the amount of $4.6 million for the purchase of the replacement equipment as well as the cost of the construction required at the relocated site.
Risk Factors
We desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. The following factors, as well as the factors listed under the caption “Risk Factors” in our Form 10-K for the fiscal year ended December 31, 2012, have affected or could affect our actual results and could cause such results to differ materially from those expressed in any forward-looking statements made by us. Investors should carefully consider these risks and speculative factors inherent in and affecting our business and an investment in our common stock.
Reliance on Business of the New York University Gamma Knife Center; Recent Destruction of Equipment and Discontinuation of Business at NYU. While it is the Company’s objective to expand activities to additional cancer centers that rely on a broad range of diagnostic and radiation treatments, the Company has relied on the NYU gamma knife for substantially all of its revenue. In recent periods, services provided at NYU have represented over 90% of the Company’s revenues. Unless and until the Company is successful in building its activities at other centers and at new locations, disruptions at NYU could have a materially adverse effect on the Company.
In October 2012, the Company’s facility at NYU was totally destroyed as a result of flooding from Hurricane Sandy. The gamma knife had to be removed to prevent cobalt leakage that might occur due to rusting of the equipment. While the Company is making progress with NYU regarding the reconstruction of the facility, targeting a reopening by January 2014, there can be no assurance that the facility will reopen in a timely manner. Moreover, even if the Company is successful in reopening the newly relocated center at NYU as currently planned, it may take additional time to achieve the level of patient volume that the center was handling prior to the disruption.
The Company has obtained a commitment for lease financing in the amount of $4.6 million for the purchase of the replacement equipment and for some construction and other costs associated with the damaged machine removal and new machine installation. However, the Company will incur additional costs relating to the reconstruction of the center at NYU, some of which may be substantial and will not be covered by insurance.
The Company anticipates that these factors will result in significant operating losses for the next several quarters.
Availability of Working Capital. To date, we have earned sufficient income from operations to fund periodic operating losses and support efforts to pursue new gamma knife or other types of cancer treatment centers. The Company expects to incur losses for the next several quarters due to the destruction of the NYU Gamma Knife. Should losses continue for an extended period of time, we will be required to seek additional capital to support continued operations and the development of new centers, but we cannot assure you, however, that we will be able to raise such additional capital as and when required.
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 the Company 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.
The Company operates in a highly competitive and rapidly changing environment and in business segments that are dependent on our ability to: achieve profitability; increase revenues; sustain our current level of operations; maintain satisfactory relations with business partners; attract and retain key personnel; maintain and expand our strategic alliances; and protect our intellectual property. The Company'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, the Company’s overall financial strategy, including growth in operations, maintaining financial ratios and strengthening the balance sheet, could be adversely affected by increased interest rates, significant acquisitions or other transactions, economic slowdowns and changes in the Company’s plans, strategies and intentions.
Not applicable.
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Item 4.
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Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's reports under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. We do realize that we are a very small company and as a small company with only the officers and directors participating in the day to day management, with the ability to override controls, each officer and director has multiple positions and responsibilities that would normally be distributed among several employees in larger organizations with adequate segregation of duties to ensure the appropriate checks and balances. Because the Company does not currently have a separate chief financial officer, the Chief Executive Officer performs these functions with the support of one of the Company’s outside directors who assists in the reporting and disclosure process (the “Lead Director”).
Our management evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation the Company’s Chief Executive Officer concluded that the Company’s disclosure controls and procedures were not effective as of the end of the period covered by this report for the information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934, as amended, to be recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, due to the material weakness in internal control over financial reporting described below.
Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. The Company’s internal control over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.
Our management assessed the effectiveness of the Company’s internal control over financial reporting as of March 31, 2013. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. A material weakness is a control deficiency, or a combination of control deficiencies in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. In connection with the assessment described above, management identified the following material weakness as of March 31, 2013: the Company did not maintain sufficient qualified personnel with the appropriate level of knowledge, experience and training in the application of accounting principles generally accepted in the United States of America and in internal controls over financial reporting commensurate with its financial reporting requirements. Specifically, effective controls were not designed and in place to ensure that the Company maintained, or had access to, appropriate resources with adequate experience and expertise in the area of financial reporting for transactions such as investments in unconsolidated entities and income taxes. The Company is in the process of considering steps to remediate this material weakness.
Changes in Internal Control over Financial Reporting
While there have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended March 31, 2013, management is in the process of developing plans to remediate the material weakness identified above.
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Item 1.
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None
Not applicable.
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Item 3.
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Not applicable.
Not applicable.
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Item 5.
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Not applicable.
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Item 6.
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31.1 Certification of President and Chief Executive Officer (Principal Executive Officer and Principal Financial Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
32.1 Certification of President and Chief Executive Officer (Principal Executive Officer and Principal Financial Officer) pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
101 Interactive Data Files providing financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 in XBRL (eXtensible Business Reporting Language). Pursuant to Regulation 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, and are otherwise not subject to liability.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| U.S. Neurosurgical, Inc. | |||
| (Registrant) | |||
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Date: May 13, 2013
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By: |
/s/ Alan Gold
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Alan Gold
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Director, President and
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Chief Executive Officer and
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Principal Financial Officer of the Registrant
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