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
September 30, 2000 0-26575
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 November 3, 2000
----- -------------------------------
Common Stock, $.01 par value 7,316,685 Shares
<PAGE>
PART I
FINANCIAL INFORMATION
U.S. NEUROSURGICAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 115,000 $ 464,000
Accounts receivable (net of reserve for doubtful accounts 445,000 300,000
of $150,000 at September 30, 2000)
Deferred tax asset 83,000 83,000
Other current assets 54,000 26,000
----------- -----------
Total current assets 697,000 873,000
----------- -----------
Gamma Knife (net of accumulated depreciation of
$4,176,000 in 2000 and $3,483,000 in 1999) 2,290,000 2,983,000
Leasehold improvements (net of accumulated
amortization of $740,000 in 2000 and $592,000 in 1999) 1,101,000 1,249,000
Office furniture and computers (net of accumulated
depreciation of 44,000 in 2000 and $24,000 in 1999) 62,000 82,000
----------- -----------
Total property and equipment 3,453,000 4,314,000
----------- -----------
Cash held in escrow 100,000 96,000
----------- -----------
TOTAL $ 4,250,000 $ 5,283,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 72,000 $ 148,000
Accrued litigation settlement 150,000 100,000
Obligations under capital lease
and loans payable- current portion 793,000 1,043,000
Due to Allen and Company 300,000 300,000
Other current liabilities 44,000 24,000
----------- -----------
Total current liabilities 1,359,000 1,651,000
Accrued litigation settlement 200,000 350,000
Deferred tax liability 416,000 416,000
Obligations under capital lease and loans payable
Net of current portion 1,099,000 1,751,000
----------- -----------
3,074,000 4,132,000
Stockholders' equity:
Common stock 73,000 73,000
Additional paid-in capital 2,789,000 2,789,000
Accumulated deficit (1,686,000) (1,711,000)
----------- -----------
Total stockholders' equity (deficiency) 1,176,000 1,151,000
----------- -----------
TOTAL $ 4,250,000 $ 5,283,000
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
2
<PAGE>
U.S. NEUROSURGICAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------
2000 1999
--------- ---------
<S> <C> <C>
Revenue:
Patient Revenue $ 653,000 $ 808,000
--------- ---------
Expenses:
Patient Expenses 304,000 298,000
Selling, General and Administrative 404,000 339,000
--------- ---------
Total 708,000 637,000
--------- ---------
(Loss) income from operations (55,000) 171,000
Interest expense (62,000) (95,000)
Interest income 2,000 6,000
--------- ---------
(Loss) income from continuing operations (115,000) 82,000
before income tax
Income tax (benefit) provision (40,000) 29,000
--------- ---------
(Loss) income from Continuing operations (75,000) 53,000
Income from Discontinued Operations (less applicable 22,000 --
Income tax of $ 10,000)
--------- ---------
Net (Loss) income $ (53,000) $ 53,000
========= =========
Earnings per share from continuing operations $ (.01) $ .01
========= =========
Earnings per share from discontinued operations -- --
Earnings per share $ (.01) $ .01
========= =========
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
3
<PAGE>
U.S. NEUROSURGICAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------
2000 1999
----------- -----------
<S> <C> <C>
Revenue:
Patient Revenue $ 1,924,000 $ 2,503,000
----------- -----------
Expenses:
Patient Expenses 860,000 957,000
Selling, General and Administrative 967,000 950,000
----------- -----------
Total 1,827,000 1,907,000
----------- -----------
Income from operations 97,000 596,000
Interest expense (235,000) (318,000)
Interest income 10,000 12,000
----------- -----------
(Loss) income from continuing operations (128,000) 290,000
before income tax
Income tax (benefit) provision (44,000) 110,000
----------- -----------
(Loss) income from continuing operations (84,000) 180,000
Income from Discontinued Operations (less applicable 109,000 --
Income tax of $ 61,000)
----------- -----------
Net Income $ 25,000 $ 180,000
=========== ===========
Earnings per share from continuing operations $ (.01) $ .02
=========== ===========
Earnings per share from discontinued operations $ .01 $ --
=========== ===========
Earnings per share $ -- $ .02
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
4
<PAGE>
U.S. NEUROSURGICAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30
-----------------
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ 25,000 $ 180,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for doubtful accounts 150,000 --
Depreciation and amortization: 861,000 845,000
Changes in operating assets and liabilities:
Increase in receivables (295,000) (187,000)
Increase in other assets (28,000) (18,000)
(Decrease) increase in payable and other current liabilities (56,000) 316,000
Deferred tax benefit -- 70,000
----------- -----------
Net cash provided by operating activities 657,000 1,203,000
----------- -----------
Cash flows from investing activities :
Increase in cash held in escrow (4,000) (3,000)
----------- -----------
Net cash(used in investing activities (4,000) (3,000)
----------- -----------
Cash flows from financing activities:
Cash received from GHS, Inc. -- 525,000
Repayment of note payable (100,000) --
Payment of capital lease obligations (902,000) (1,047,000)
----------- -----------
Net cash used in financing activities (1,002,000) (522,000)
----------- -----------
Net (decrease) increase in cash and cash equivalents (349,000) 681,000
Cash and cash equivalents - beginning of period 464,000 21,000
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD 115,000 $ 702,000
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid for
Interest 235,000 318,000
Income Taxes 5,000 7,000
Contribution of amount formerly due to GHS, Inc. to capital -- 2,078,000
Contribution of fixed assets of GHS, Inc. -- 51,000
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
5
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Note A - Basis of Preparation
The accompanying financial statements at September 30, 2000, and for the
three and nine months ended September 30, 2000 and 1999, 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, 1999 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
generally accepted accounting principles 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.
6
<PAGE>
U.S. NEUROSURGICAL, INC. AND SUBSIDIARY
MANAGEMENT DISCUSSION AND
ANALYSIS OF OPERATIONS
AND FINANCIAL CONDITION
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
thereto appearing elsewhere herein.
Third Quarter 2000 Compared to Third Quarter 1999 and Nine Months Ended
September 30, 2000 Compared to Nine Months Ended September 30, 1999
Results of Operations
Patient revenue decreased 19% to $653,000 in the quarter ended September
30, 2000 from $808,000 for the quarter ended September 30, 1999. The decrease
was due to a decrease in patient treatments as well as decreased reimbursements.
The decreases in patient treatments occurred primarily at the RMC site in Kansas
City. In addition, at the end of the quarter, the Company began to reload the
cobalt in the Gamma Knife at the RMC site, resulting in a closure to the center
for three weeks. This is a normal occurrence that needs to be done every seven
years. Patient expenses increased 2% to $304,000 from $298,000 in the same
period from a year earlier. Selling, general and administrative expense for the
quarter ended September 30 increased 19% to $404,000 from $339,000 a year ago.
The Company established a reserve of approximately $150,000 during the quarter
to cover a potential deduction to its accounts receivable caused by a
retroactive reduction in fees paid by NYU. Some of the increase was offset by a
decrease in professional fees incurred in the previous year for the spin-off of
USN from GHS, Inc. Interest expense decreased 35% to $62,000 from $95,000 in the
same period a year earlier. The decrease was due to increased principal payments
on USN's Gamma Knife capital leases. For the quarter ended September 30, 2000,
the net loss from continuing operations was $75,000 as compared to income of
$53,000 for the same period a year earlier. The Company received $32,000 from
collection on a sale from discontinued operations during this quarter.
For the nine months ended September 30, revenue decreased 23% to
$1,924,000 from $2,503,000 in the same period a year earlier. The decrease is
due the decrease in patient treatments, as described above. Patient expenses
decreased 10% to $860,000 in 2000 from $957,000 in the same period in 1999.
Selling, general and administrative expenses increased to $967,000 as compared
to $950,000 in the same period, a year earlier. Interest expense decreased 26%
to $235,000 from $318,000 in the same period a year ago due to paydown of
principal on the Gamma Knife capital leases. Loss from continuing operations was
$84,000 for the nine months ended September 30, 2000 as compared to income of
$180,000 for the nine months ended September 30, 1999. The Company received
$170,000 from collection on a sale from discontinued operations during nine
months ended September 30 2000.
7
<PAGE>
Liquidity and Capital Resources
At September 30, 2000 the Company had a working capital deficit of
$662,000 as compared to a deficit of $778,000 at December 31, 1999. Cash and
cash equivalents at September 30, 2000 were $115,000 as compared with $464,000
at December 31, 1999. The decrease was due to paydown of capital leases as well
as a delay in payment from the NYU site.
Net cash provided by operating activities was $657,000 for the nine months
ended September 30, 2000 as compared with $1,203,000 for the same period, a year
earlier. Depreciation and amortization was $861,000 for the nine month period
ended September 30, 2000 and was 845,000 in the 1999 period. There was an
increase in gross accounts receivable of $295,000 in 2000 and $187,000 during
the nine months ended September 30, 1999.
Payables and accrued expenses decreased $56,000 for the nine months ended
September 30, 2000 as compared to an increase of $316,000 for the same period in
1999.
Net cash used in financing activities was $1,002,000 for the nine months
ended September 30, 2000 as compared to $522,000 for the same period a year ago.
The Company paid $902,000 towards its capital lease obligations for the nine
months ended September 30, 2000 as compared to $1,047,000 in the same period in
1999. During the current quarter the company completed payment on its RMC Gamma
Knife lease. The company will be financing approximately $1,000,000 in the
fourth quarter to pay for the reload of the cobalt in Kansas City. Notes payable
decreased by $100,000 in 2000. USN received a $525,000 contribution from GHS in
1999.
Disclosure Regarding Forward Looking Statements
Statements contained in this Information Statement that are not historical facts
may be deemed to be forward-looking statements. Investors are cautioned that
forward-looking statements are inherently uncertain. Actual performance and
results may differ materially from that projected or suggested herein due to
certain risks and uncertainties including, without limitation, the payment,
timing and ultimate collectability of accounts receivable for Gamma Knife
procedures from different payor groups such as Medicare and private payors;
competition; technological obsolescence; government regulation; and malpractice
liability. Additional information concerning certain risks and uncertainties
that could cause actual results to differ materially from that projected or
suggested may be identified from time to time in USN's filings with the
Securities and Exchange Commission (SEC) and USN's public announcements, copies
of which are available from the SEC or from the Company upon request.
8
<PAGE>
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 November 10, 2000 By /s/ Alan Gold
--------------------------------------
Alan Gold
Director and President
Chief Executive Officer
Date November 10, 2000 By /s/ Howard Grunfeld
-------------------------------------
Howard Grunfeld
Chief Financial Officer
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