Attached files
| file | filename |
|---|---|
| EX-32.1 - EXHIBIT 32.1 - U.S. NeuroSurgical Holdings, Inc. | ex32_1.htm |
| EX-31.1 - EXHIBIT 31.1 - U.S. NeuroSurgical Holdings, Inc. | ex31_1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
(Amendment No. 1)
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x
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2010
or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to .
Commission file number: 0-15586
U.S. Neurosurgical, Inc.
(Name of small business issuer 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,
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Rockville, Maryland
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20850
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(Address of principal executive offices)
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(Zip Code)
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Issuer's telephone number: (301) 208-8998
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Securities registered under Section 12(b) of the Act:
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None
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Securities registered under Section 12(g) of the Act:
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Common Stock, par value $.01 per share
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.
Yes o No x
Indicate by check mark whether the issuer (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 if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
| Large accelerated filer o | Accelerated filer o | |
| Non-accelerated filer o | (Do not check if a smaller reporting company) | Smaller reporting company x |
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
As of March 18, 2011, the aggregate market value of issuer's Common Stock held by non-affiliates was approximately $385,000, based upon the average of the bid and asked prices as reported on the OTC Bulletin Board.
As of March 18, 2011, there were outstanding 7,747,185 shares of the issuer’s Common Stock. $.01 par value.
Documents incorporated by reference: None
EXPLANATORY NOTE
U.S. Neurosurgical, Inc. (the “Company”) is filing this Amendment No. 1 (this “Amendment”) to its Annual Report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2011 (the “Original Report”) to amend the following:
1) Item 15 of Part IV is revised to provide the report of our independent registered public accounting firm which includes the date and indicate the city and state where issued, pursuant to Rule 2-02(a) of Regulation S-X. This information was included in the accounting firm's report to the Company, but was inadvertently omitted from the Original Report.
2) Item 15 of Part IV is also revised to include a corrected Exhibit 31.1, containing the certification wording required by item 601(b) of Regulation S-K, including the introductory language of paragraph 4 and section 4(b) to also address our officers’ responsibility for establishing and maintaining internal control over financial reporting.
No other changes have been made to the Original Report. This Amendment speaks as of the original filing date of the Original Report, does not reflect facts or events that may have occurred subsequent to the filing date of the Original Report, and does not modify or update in any way any other disclosures made in the Original Report, or subsequent to any periods for which disclosure was otherwise provided in the Original Report. Accordingly, this Amendment on Form 10-K/A should be read in conjunction with our filings with the SEC subsequent to the filing date of the Original Report, including any amendments thereto.
PART IV
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Item 15.
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Exhibits, Financial Statement Schedules.
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(a) Financial Statements and Financial Statement Schedules. The following are filed as part of this report:
| Page No. | ||
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Consolidated Financial Statements of the Company
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F-1
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Report of Independent Registered Public Accounting Firm
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F-2
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Consolidated Balance Sheets as of December 31, 2010 and 2009
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F-3
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Consolidated Statements of Operations for the years ended
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December 31, 2010, 2009, and 2008.
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F-4
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Consolidated Statements of Changes in Stockholders' Equity
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for the years ended December 31, 2010, 2009, and 2008 Consolidated Statements of Cash Flows for the year ended
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F-5
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December 31, 2010, 2009, and 2008
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F-6
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Notes to Consolidated Financial Statements
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F-7
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All schedules have been omitted as the conditions requiring their filing are not present or the information required therein has been included in the notes to the financial statements.
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(b)
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Exhibits:
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3.1
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Form of Amended and Restated Certificate of Incorporation of U.S. Neurosurgical, Inc. (“USN”) (incorporated herein by reference to Exhibit 3.1 to our Form 10 Registration Statement as filed July 1, 1999)
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3.2
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Form of Amended and Restated Bylaws of USN (incorporated herein by reference to Exhibit 3.2 to our Form 10 Registration Statement as filed July 1, 1999)
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4.1
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Form of Stock Certificate of Common Stock (incorporated herein by reference to Exhibit 4.1 to our Form 10 Registration Statement as filed July 1, 1999)
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10.1
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Distribution Agreement dated May 27, 1999 between GHS, Inc. (“GHS”) and USN (incorporated herein by reference to Exhibit 10.1 to our Form 10 Registration Statement as filed July 1, 1999)
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10.2
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Tax Matters Agreement dated May 27, 1999 between GHS and USN (incorporated herein by reference to Exhibit 10.2 to our Form 10 Registration Statement as filed July 1, 1999)
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10.3
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Assignment and Assumption Agreement dated May 27, 1999 between GHS and USN (incorporated herein by reference to Exhibit 10.3 to our Form 10 Registration Statement as filed July 1, 1999)
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10.4
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Employment Agreement dated December 14, 1984 between USN and Alan Gold, as amended March 7, 1986 (incorporated by reference to Exhibit 10.3 of GHS’s Registration Statement No. 33-4532-W on form S-18)
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10.5
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Gamma Knife Neuroradiosurgery Equipment Agreement dated August, 1993 between Research Medical Center and USN (incorporated by reference to Exhibit 10h to GHS’s Quarterly Report or Form 10-Q for the quarter ended September 30, 1993)
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10.6
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Ground Lease Agreement dated August, 1993 between Research Medical Center and USN (incorporated by reference to Exhibit 10j to GHS’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1993)
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10.7
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LGK Agreement dated July 12, 1993 between Elekta Instruments, Inc. and USN (incorporated by reference to Exhibit 10k to GHS’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1993)
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10.8
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Agreement dated December 29, 1993 between USN and Elekta Instruments, Inc. (incorporated by reference to 10o to GHS’s 1994 Annual Report on Form 10-K)
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10.9
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Agreement dated August 1, 1996 between USN and DVI, Inc. (incorporated by reference 10j to GHS’s 1997 Annual Report on form 10-K)
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10.10
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Gamma Knife Neuroradiosurgery Equipment dated as of November 26, 1996 between New York University on behalf of New York University Medical Center and USN (incorporated herein by reference to Exhibit 10.10 to our Form 10 Registration Statement as filed July 1, 1999)
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21.1
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List of Subsidiaries (incorporated herein by reference to Exhibit 21.1 to our Form 10 Registration Statement as filed July 1, 1999)
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Certifications of CEO and CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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Certifications of CEO and CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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__________
* Filed herewith
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(c)
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Financial Statement Schedules. None
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SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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U.S. Neurosurgical, Inc.
(Registrant)
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By:
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/s/ Alan Gold | |
| Alan Gold | |||
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President & Chairman of the Board and
Principal Financial Officer
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| Dated: | November 7, 2011 | ||
In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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November 7, 2011
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By:
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/s/ Alan Gold | |
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Alan Gold
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President & Chairman of the Board
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November 7, 2011
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By:
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/s/ William F. Leimkuhler | |
| Name William F. Leimkuhler | |||
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Director
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November 7, 2011
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By:
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/s/ Charles H. Merriman III | |
| Name Charles H. Merriman III | |||
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Director
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U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES
Contents
| Page | ||
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Consolidated Financial Statements
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F-1
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Report of Independent Registered Public Accounting Firm
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F-2
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Consolidated Balance Sheets as of December 31, 2010 and 2009
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F-3
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Consolidated Statements of Operations for the years ended December 31, 2010, 2009, and 2008
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F-4
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Consolidated Statements of Stockholders' Equity for the years ended December 31, 2010, 2009, and 2008
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F-5
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Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009, and 2008
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F-6
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Notes to Consolidated Financial Statements
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F-7
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U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
U.S. NeuroSurgical, Inc.
Rockville, Maryland
We have audited the accompanying consolidated balance sheets of U.S. NeuroSurgical, Inc. and Subsidiaries (Company) as of December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2010. U.S. NeuroSurgical, Inc. and Subsidiaries’ management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis of designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of U.S. NeuroSurgical, Inc. and Subsidiaries as of December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the years ended in the three-year period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.
Goodman and Company, LLP
McLean, Virginia
March 31, 2011
U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
| December 31, | ||||||||
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2010
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2009
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ASSETS
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||||||||
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Current assets:
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||||||||
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Cash and cash equivalents
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$ | 820,000 | $ | 673,000 | ||||
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Accounts receivable (net of allowance for doubtful accounts of $36,000 in 2010 and 2009)
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421,000 | 232,000 | ||||||
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Accounts receivable - stockholder
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- | 48,000 | ||||||
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Other current assets
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89,000 | 57,000 | ||||||
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Total current assets
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1,330,000 | 1,010,000 | ||||||
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Investment in unconsolidated entities
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200,000 | - | ||||||
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Property and equipment:
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||||||||
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Gamma Knives (net of accumulated depreciation of $2,937,000 in 2010 and $2,108,000 in 2009)
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2,864,000 | 3,693,000 | ||||||
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Leasehold improvements (net of accumulated amortization of $807,000 in 2010 and $730,000 in 2009)
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367,000 | 293,000 | ||||||
| 3,231,000 | 3,986,000 | |||||||
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Cash held in escrow
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51,000 | 52,000 | ||||||
| $ | 4,812,000 | $ | 5,048,000 | |||||
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LIABILITIES
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||||||||
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Current liabilities:
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||||||||
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Accounts payable and accrued expenses
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$ | 113,000 | $ | 67,000 | ||||
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Obligations under capital leases and loans payable - current portion
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623,000 | 894,000 | ||||||
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Total current liabilities
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736,000 | 961,000 | ||||||
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Asset retirement obligations
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200,000 | 200,000 | ||||||
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Obligations under capital leases and loans payable - net of current portion
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2,568,000 | 3,048,000 | ||||||
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Total liabilities
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3,504,000 | 4,209,000 | ||||||
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Commitments, litigation and other matters (Notes B[10], D, J, K and L)
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||||||||
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STOCKHOLDERS' EQUITY
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||||||||
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Common stock - par value $.01; 25,000,000 shares authorized; 7,747,185 shares issued and outstanding at December 31, 2010 and 2009
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77,000 | 77,000 | ||||||
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Additional paid-in capital
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3,099,000 | 3,099,000 | ||||||
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Accumulated deficit
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(1,868,000 | ) | (2,337,000 | ) | ||||
| 1,308,000 | 839,000 | |||||||
| $ | 4,812,000 | $ | 5,048,000 | |||||
See notes to consolidated financial statements
U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
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Years Ended December 31,
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||||||||||||
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2010
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2009
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2008
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Revenue (Notes C and D)
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$ | 2,557,000 | $ | 2,261,000 | $ | 1,751,000 | ||||||
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Costs and expenses:
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Patient expenses
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1,092,000 | 901,000 | 671,000 | |||||||||
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Selling, general and administrative
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1,019,000 | 918,000 | 961,000 | |||||||||
| 2,111,000 | 1,819,000 | 1,632,000 | ||||||||||
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Income from operations
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446,000 | 442,000 | 119,000 | |||||||||
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Revenue from litigation activity
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459,000 | - | - | |||||||||
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Interest expense
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(401,000 | ) | (375,000 | ) | (126,000 | ) | ||||||
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Interest income
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5,000 | 5,000 | 11,000 | |||||||||
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Equity in loss of unconsolidated entities
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(40,000 | ) | - | - | ||||||||
| 23,000 | (370,000 | ) | (115,000 | ) | ||||||||
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Income before income taxes
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469,000 | 72,000 | 4,000 | |||||||||
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Provision for income tax expense
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- | - | - | |||||||||
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Net income
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$ | 469,000 | $ | 72,000 | $ | 4,000 | ||||||
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Basic and diluted net income per share
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$ | 0.06 | $ | 0.01 | $ | 0.00 | ||||||
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Weighted average common shares outstanding
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7,747,185 | 7,704,465 | 7,697,185 | |||||||||
See notes to consolidated financial statements
U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
| Common Stock | ||||||||||||||||||||
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Number of Shares
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Amount
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Additional Paid-In Capital
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Accumulated
Deficit
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Total
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||||||||||||||||
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Balance - December 31, 2007
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7,697,185 | 77,000 | 3,097,000 | (2,413,000 | ) | 761,000 | ||||||||||||||
| Net income for the year ended December 31, 2008 | - | - | - | 4,000 | 4,000 | |||||||||||||||
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Balance - December 31, 2008
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7,697,185 | $ | 77,000 | $ | 3,097,000 | $ | (2,409,000 | ) | $ | 765,000 | ||||||||||
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Issuance of common stock as compensation
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50,000 | - | 2,000 | - | 2,000 | |||||||||||||||
| Net income for the year ended December 31, 2009 | - | - | - | 72,000 | 72,000 | |||||||||||||||
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Balance - December 31, 2009
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7,747,185 | $ | 77,000 | $ | 3,099,000 | $ | (2,337,000 | ) | $ | 839,000 | ||||||||||
| Net income for the year ended December 31, 2010 | - | - | - | 469,000 | 469,000 | |||||||||||||||
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Balance - December 31, 2010
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7,747,185 | $ | 77,000 | $ | 3,099,000 | $ | (1,868,000 | ) | $ | 1,308,000 | ||||||||||
See notes to consolidated financial statements
U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
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Years Ended December 31,
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2010
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2009
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2008
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Cash flows from operating activities:
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Net income (loss)
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$ | 469,000 | $ | 72,000 | $ | 4,000 | ||||||
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Adjustments to reconcile to net cash provided by operating activities:
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Depreciation and amortization
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906,000 | 780,000 | 574,000 | |||||||||
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Equity in loss of unconsolidated entities
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40,000 | - | - | |||||||||
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Stock based compensation expense
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- | 2,000 | - | |||||||||
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Interest expense paid through a capital lease obligation
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- | 96,000 | - | |||||||||
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Changes in:
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Accounts receivable
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(189,000 | ) | (228,000 | ) | 93,000 | |||||||
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Accounts receivable - stockholder
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48,000 | (4,000 | ) | - | ||||||||
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Other current assets
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(32,000 | ) | (14,000 | ) | 10,000 | |||||||
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Accounts payable and accrued expenses
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46,000 | 11,000 | (13,000 | ) | ||||||||
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Net cash from operating activities
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1,288,000 | 715,000 | 668,000 | |||||||||
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Cash flows from investing activities:
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Investment in unconsolidated entities
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(240,000 | ) | - | - | ||||||||
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Cash flows from financing activities:
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||||||||||||
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Repayment of capital lease and loan obligations
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(902,000 | ) | (647,000 | ) | (435,000 | ) | ||||||
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Decrease (increase) in cash held in escrow
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1,000 | - | - | |||||||||
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Net cash from financing activities
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(901,000 | ) | (647,000 | ) | (435,000 | ) | ||||||
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Net change in cash and cash equivalents
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147,000 | 68,000 | 233,000 | |||||||||
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Cash and cash equivalents - beginning of year
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673,000 | 605,000 | 372,000 | |||||||||
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Cash and cash equivalents - end of year
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$ | 820,000 | $ | 673,000 | $ | 605,000 | ||||||
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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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$ | 401,000 | $ | 279,000 | $ | 126,000 | ||||||
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Supplemental disclosures of noncash activities:
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||||||||||||
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Equipment and leasehold improvements acquired through a capital lease
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$ | 151,000 | $ | 3,315,000 | $ | - | ||||||
See notes to consolidated financial statements
U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES
Note A – Organization and Business
U.S. NeuroSurgical, Inc. (USN), a Delaware corporation, was organized in July 1993 for the purpose of owning and operating stereotactic radiosurgery centers, utilizing the Gamma Knife technology. USN currently owns and operates two Gamma Knife centers, one on the premises of Research Medical Center (RMC) in Kansas City, Missouri, and one on the premises of New York University Medical Center (NYU) in New York, New York. Management continues to explore opportunities to open additional Gamma Knife centers. USN's business strategy is to provide a mechanism whereby hospitals, physicians, and patients can have access to Gamma Knife treatment capability, a high capital cost item. USN provides the Gamma Knife to medical facilities on a "cost per treatment" basis. USN owns the Gamma Knife units, and is reimbursed by the facility where it is housed, based on utilization.
During the fourth quarter of 2007, USN formed a new wholly owned subsidiary, USN Corona, Inc., which carries investments in Corona Gamma Knife, LLC and NeuroPartners, LLC. Those subsidiaries were formed to develop and manage a Gamma Knife center in California.
During 2010, USN expanded its market strategy to include opportunities to develop cancer centers featuring radiation therapy. These centers will utilize linear accelerators with IMRT and IGRT capabilities. In 2010, the company formed Florida Oncology Partners, LLC in partnership with local physicians and other investors. USN Corona, Inc., USN’s subsidiary, owns a 20% interest in the venture. The center will be located in Miami and will open in the second quarter of 2011. The Company invested $200,000 in connection with its interest.
Note B - The Company and its Significant Accounting Policies
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[1]
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Basis of presentation and consolidation
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The consolidated financial statements include the accounts of USN and its wholly owned subsidiaries, U.S. NeuroSurgical Physics, Inc. and USN Corona, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.
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[2]
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Cash and cash equivalents:
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The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
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[3]
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Revenue recognition:
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Patient revenue is recognized when the Gamma Knife procedure is rendered.
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[4]
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Long-lived assets:
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The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
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[5]
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Depreciation and amortization:
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The Gamma Knives are being depreciated on the straight-line method over an estimated useful life of seven years. The related costs incurred to reload the cobalt are being amortized on a straight-line method over an estimated useful life of five years. Leasehold improvements are being amortized on the straight-line method over 7 to 20 years, the shorter of useful life, or the life of the leases. Office furniture and computers are being depreciated on the straight-line method over their estimated useful lives ranging from 3 to 7 years. Depreciation expense for 2010, 2009, and 2008, was $829,000, $727,000, and $538,000, respectively. Amortization expense for 2010, 2009, and 2008, was $77,000, $53,000 and $36,000, respectively.
U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES
Note B - The Company and its Significant Accounting Policies (continued)
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[6]
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Income taxes:
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Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets or liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce tax assets to amounts more likely than not to be realized.
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[7]
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Earnings per share:
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Earnings per share are computed by dividing earnings available to common stockholders by the weighted average shares outstanding for the period. There were no common stock equivalents during 2010, 2009, and 2008, and therefore, no potential dilution for the periods presented.
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[8]
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Advertising costs:
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The Company follows the policy of charging the costs of advertising to expense as incurred. There were no advertising costs in 2010, 2009, and 2008.
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[9]
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Bad debts:
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The Company evaluates each of its accounts receivable individually and provides a charge to income that is appropriate, in the opinion of management, to absorb probable credit losses.
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[10]
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Estimates and assumptions:
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The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
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[11]
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Fair values of financial instruments:
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The estimated fair value of financial instruments has been determined based on available market information and appropriate valuation methodologies. The carrying amounts of cash, accounts receivable, other current assets and accounts payable approximate fair value at December 31, 2010 and 2009 because of the short maturity of these financial instruments. The carrying values of the obligations under capital leases and loans payable approximate fair value because the interest rates on these instruments approximate the market rates at December 31, 2010 and 2009.
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[12]
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Credit risk:
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At times, the Company may have cash and cash equivalents at a financial institution in excess of insured limits. The Company places its cash and cash equivalents with high credit quality financial institutions whose credit ratings are monitored by management to minimize credit risk. The uninsured portion of cash balances held in one bank totals $409,000 at December 31, 2010. Accounts receivable consist primarily of amounts due from two medical centers. Historically, credit losses on accounts receivable have not been significant.
U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES
Note B - The Company and its Significant Accounting Policies (continued)
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[13]
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Asset retirement obligations:
|
The Company records liabilities for legal obligations associated with the retirement of tangible long-lived assets based on the estimated fair value of such liabilities. The estimated costs of these obligations is capitalized as costs of the assets subject to the retirement obligations and amortized over the lives of the assets.
|
[14]
|
Reclassifications:
|
Certain prior year balances have been reclassified to conform to current year presentation.
|
[15]
|
Recently Issued Accounting Standards:
|
In August 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Updates (“ASU”) 2010-24, “Health Care Entities (Topic 954): Presentation of Insurance Claims and Related Insurance Recoveries,” which clarifies that a health care entity should not net insurance recoveries against a related claim liability. The guidance provided in this ASU is effective for the fiscal years beginning after December 15, 2010. This standard is not expected to have a significant effect on the Company’s consolidated financial statements.
In August 2010, the FASB issued ASU 2010-23, “Health Care Entities (Topic 954): Measuring Charity Care for Disclosure,” which prescribes a specific measurement basis of charity care for disclosure. The guidance provided in this ASU is effective for fiscal years beginning after December 15, 2010. This standard is not expected to have a significant effect on the Company’s consolidated financial statements.
In January 2010, the FASB issued ASU 2010-06, “Improving Disclosures About Fair Value Measurements” . The ASU amends FASB Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures (formerly FASB Statement No. 157, Fair Value Measurements) to add new requirements for disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. It also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. This standard is not expected to have a significant effect on the Company’s consolidated financial statements.
U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES
Note C - Investment in Unconsolidated Entities
The Company’s investment in unconsolidated entities that is accounted for under the equity method of accounting consists of a 20% interest in NeuroPartners, LLC and a 20% interest in Florida Oncology Partners, LLC. NeuroPartners, LLC owns the Gamma Knife at the Southern California Regional Gamma Knife Center at the San Antonio Community Hospital in Upland, California. Florida Oncology Partners, LLC owns and operates a radiation therapy center in West Kendall, Florida. Florida Oncology Partners, LLC has not yet commenced operations. The Company invested $40,000 and $200,000 in NeuroPartners, LLC and Florida Oncology Partners, LLC, respectively, during 2010. The investment in NeuroPartners, LLC was $0 at December 31, 2010 and December 31, 2009. The investment in Florida Oncology Partners, LLC was $200,000 and $0 at December 31, 2010 and December 31, 2009 respectively. Florida Oncology Partners, LLC has $1,000,000 in cash and equity at December 31, 2010.
The results of operations and financial position of the Company’s equity basis investment in
NeuroPartners, LLC is summarized below:
|
NeuroPartners, LLC Condensed Income Statement Information
|
||||||||
|
2010
|
2009
|
|||||||
|
Net Sales
|
$ | 828,000 | $ | 828,000 | ||||
|
Net income (loss)
|
$ | (346,000 | ) | $ | (112,000 | ) | ||
|
USN's equity in loss of
|
$ | (69,000 | ) | $ | (22,000 | ) | ||
|
NeuroPartners, LLC
|
||||||||
| USN is limited to losses in NeuroPartners, LLC equal to the amount of its investment of $40,000. | ||||||||
|
NeuroPartners, LLC Condensed Balance Sheet Information
|
||||||||
| 2010 | 2009 | |||||||
|
Current assets
|
$ | 344,000 | $ | 333,000 | ||||
|
Noncurrent assets
|
$ | 3,532,000 | $ | 4,219,000 | ||||
|
Total assets
|
$ | 3,876,000 | $ | 4,552,000 | ||||
|
Current liabilities
|
$ | 95,000 | $ | 633,000 | ||||
|
Noncurrent liabilities
|
$ | 3,948,000 | $ | 3,764,000 | ||||
|
Equity
|
$ | (167,000 | ) | $ | 155,000 | |||
|
Total liabilities and equity
|
$ | 3,876,000 | $ | 4,552,000 | ||||
U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES
Note D - Agreements With Research Medical Center (RMC)
|
[1]
|
Gamma Knife neuroradiosurgery equipment agreement:
|
USN entered into a neuroradiosurgery equipment agreement (the "equipment agreement") with RMC, a former stockholder of the Company, for a period of 21 years, which commenced with the completion of the neuroradiosurgery facility (the "facility") in September 1994. The equipment agreement, among other matters, requires USN to provide (i) the use of the Gamma Knife equipment (the "equipment") to RMC, (ii) the necessary technical personnel for the proper operation of the equipment, (iii) sufficient supplies for the equipment, (iv) the operation, maintenance and repair of the equipment, (v) all basic hardware and software updates to the equipment and, (vi) an uptime guarantee. In return, RMC pays USN 80% of RMC's fees, subject to adjustments, for the use of the equipment and the facility. The agreement also provides for USN to establish for the benefit of RMC an escrow account funded with an amount equal to one month's average of the compensation payable to USN. USN is the owner of and entitled to the income from the escrow account so long as no event of default has occurred. As of December 31, 2010 and 2009, the escrow account balance was $51,000 and $52,000, respectively. The equipment agreement terminates automatically upon termination of the ground lease agreement (see Note D[2]). The Company derived patient revenue from the RMC center of $641,000, $790,000, and $ 720,000, for 2010, 2009, and 2008, respectively.
In April 2005, the Company purchased and installed a new Gamma Knife at RMC to replace the existing equipment. The cost to purchase and install the new equipment was $2,601,000.
|
[2]
|
Ground lease agreement:
|
USN constructed a facility in Kansas City, Missouri on property which the Company leases from RMC. The lease term is for a period of 21 years commencing September 1994. The lease provides for rent at $3,600 per annum. The terms of the lease include escalation clauses for increases in certain operating expenses and for payment of real estate taxes and utilities. Title to all improvements upon the land vests in RMC.
Note E - Agreement With New York University on Behalf of New York University Medical Center (NYU)
During November 1996, USN entered into a neuroradiosurgery equipment agreement (NYU agreement) with NYU for a period of seven years (the term), with an option for NYU to extend the term for successive three-year periods or to purchase the Gamma Knife equipment at an appraised market value price. USN may negotiate the purchase price and upon failure of the parties to agree may request that the facility be closed. All costs associated with closing and restoring the facility to its original condition are the responsibility of USN. The equipment agreement, among other matters, requires USN to provide (i) the use of the Gamma Knife equipment to NYU, (ii) training necessary for the proper operation of the Gamma Knife equipment, (iii) sufficient supplies for the equipment, (iv) the repair and maintenance of the equipment, (v) all basic hardware and software upgrades to
the equipment and, (vi) an uptime guarantee. In return, NYU pays USN a scheduled fee based on the number of patient procedures performed. The Company derived patient revenue from the NYU center of $1,907,000 $1,464,000, and $1,031,000, for 2010, 2009, and 2008, respectively.
In 2004, the NYU agreement was extended through March 2009. In 2008, the NYU agreement was extended for an additional 12 years through March 2021. To secure this extension, USN agreed to install a new Gamma Knife Perfexion model. The new equipment and certain space improvements, costing approximately $3,466,000 in total, was financed through a seven-year lease arrangement. The amendment provides for a payment to USN of a flat fee for each patient procedure performed.
U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES
Note F - Obligation Under Capital Lease and Loans Payable
In March 2009 the Company installed a Perfexion model Gamma Knife at the NYU center with a seven year lease from Elekta Capital. The amount financed, covering the cost of the new gamma knife equipment and certain space improvements, is approximately $3,466,000 in total. The monthly payment is $63,000 per month, at an implicit interest rate of approximately 11%.
In 2005, the Company purchased a replacement Gamma Knife (Knife 3) at the RMC site and has financed this purchase with a capital lease arrangement with SMT Leasing. The amount financed was approximately $2,601,000. The lease agreement provides that any progress payments made to the Gamma Knife manufacturer bear interest at the 60-day U.S. Treasury note rate. Upon equipment acceptance, the lease obligation repayment begins. Such lease terms require 72 monthly payments of $46,602, at an implicit interest rate of 8.4%. This lease will be paid off in April of 2011.
The obligations under the capital leases and loans payable are as follows:
|
December 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
Capital leases - Gamma Knife
|
$ | 3,191,000 | $ | 3,942,000 | ||||
|
Less current portion
|
(623,000 | ) | (894,000 | ) | ||||
| $ | 2,568,000 | $ | 3,048,000 | |||||
The following is an analysis of the leased assets included in property and equipment:
|
2010
|
2009
|
|||||||
|
Capitalized costs
|
$ | 6,067,000 | $ | 5,915,000 | ||||
|
Less - accumulated depreciation
|
(2,985,000 | ) | (2,119,000 | ) | ||||
|
Capitalized lease equipment and improvements- reported as property and equipment - net
|
$ | 3,082,000 | $ | 3,796,000 | ||||
U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES
Note F - Obligation Under Capital Lease and Loans Payable (continued)
Future payments as of December 31, 2010 on the equipment leases and loans are as follows:
|
Year Ending
December 31,
|
||||
|
2011
|
$
|
944,000
|
||
|
2012
|
758,000
|
|||
|
2013
|
758,000
|
|||
|
2014
|
758,000
|
|||
|
2015
|
758,000
|
|||
|
Thereafter
|
220,000
|
|||
|
4,196,000
|
||||
|
Less interest
|
(1,005,000
|
)
|
||
|
Present value of net minimum obligation
|
$
|
3,191,000
|
||
Note G – Asset Retirement Obligations
During 2003, the Company recorded asset retirement obligations of $200,000 based upon estimated amounts, consisting principally of removal of Gamma Knives and disposal of regulated materials and the restoration of facilities at NYU and RMC. Such liabilities have been measured using current information, current assumptions and current interest rates and have been recorded with a corresponding increase in the carrying value of the Gamma Knives. The Company is amortizing such costs over the lives of the respective useful lives from inception.
No change in the estimate for asset retirement obligations was necessary in conjunction with the 2005 and 2009 Gamma Knife replacements.
Note H - Stock Based Compensation
During 2009, the Company awarded 50,000 shares of its common stock to an employee as additional compensation. The fair value of the total shares was determined by management to be $2,500. Compensation expense of $2,500 (common stock of $500 and additional paid in capital of $2,000) were recorded by the Company to account for this transaction.
Note I - Concentrations
For 2010, 2009, and 2008, the Company derived all of its patient revenue from two hospitals. These two hospitals also accounted for 100% of the accounts receivable at December 31, 2010 and 2009.
The Company has been dependent on one manufacturer who sells, supplies and services the Gamma Knife.
U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES
Note J - Taxes
The components of the income tax provision (benefit) are as follows:
|
Year Ended December 31,
|
||||||||||||
|
2010
|
2009
|
2008
|
||||||||||
|
Current:
|
||||||||||||
|
Federal
|
$ | - | $ | - | $ | - | ||||||
|
State
|
- | - | - | |||||||||
| - | - | - | ||||||||||
|
Deferred:
|
||||||||||||
|
Federal
|
- | - | - | |||||||||
|
State
|
- | - | - | |||||||||
| - | - | - | ||||||||||
| $ | - | $ | - | $ | - | |||||||
A reconciliation of the tax provision (benefit) calculated at the statutory federal income tax rate with amounts reported follows:
|
Year Ended December 31,
|
||||||||||||
|
2010
|
2009
|
2008
|
||||||||||
|
Income tax at the federal statutory rate
|
$ | 173,000 | $ | 25,000 | $ | 2,000 | ||||||
|
State income tax, net of federal taxes
|
17,000 | 4,000 | - | |||||||||
|
Other
|
(30,000 | ) | (16,000 | ) | 40,000 | |||||||
|
Change in valuation allowance
|
(160,000 | ) | (13,000 | ) | (42,000 | ) | ||||||
|
Income tax provision (benefit)
|
$ | - | $ | - | $ | - | ||||||
Items which give rise to deferred tax assets and liabilities are as follows:
|
December 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
Deferred tax asset:
|
||||||||
|
Net operating loss
|
$ | 560,000 | $ | 610,000 | ||||
|
Asset retirement obligation
|
74,000 | 78,000 | ||||||
| 634,000 | 688,000 | |||||||
|
Deferred tax liability:
|
||||||||
|
Excess of book depreciation over tax depreciation
|
(406,000 | ) | (344,000 | ) | ||||
|
Net effect of the conversion from accrual basis of accounting
|
||||||||
|
to cash basis accounting for tax purposes primarily related
|
- | - | ||||||
|
to accounts receivable, prepaid expenses, and accounts payable
|
(146,000 | ) | (102,000 | ) | ||||
| 82,000 | 242,000 | |||||||
|
Valuation allowance
|
(82,000 | ) | (242,000 | ) | ||||
U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES
Note J – Taxes (Continued)
A full valuation allowance has been provided at December 31, 2010 and 2009, due principally to the evidence that it is more likely than not that the deferred tax assets will not be realized. The components of the valuation allowance are as follows:
|
Beginning Balance
|
Additions
|
Deductions
|
Ending Balance
|
|||||||||||||
|
December 31, 2010
|
$ | 242,000 | $ | - | $ | 160,000 | $ | 82,000 | ||||||||
|
December 31, 2009
|
$ | 255,000 | $ | - | $ | 13,000 | $ | 242,000 | ||||||||
On December 31, 2010, the Company had loss carryforwards of $1,500,269, which may be offset against future taxable income. If not used, the carryforwards will expire as follows:
|
2026
|
289,389 | |||
|
2027
|
77,363 | |||
|
2028
|
- | |||
|
2029
|
1,133,517 | |||
| $ | 1,500,269 | |||
The Company adopted the accounting provisions for Accounting for Uncertainty in Income Taxes, effective January 1, 2007. It provides a comprehensive model for how the Company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the Company has taken or expects to take on tax return. The Company had no uncertain material tax positions at December 31, 2010 and 2009.
The Company files income tax returns in the U.S. federal jurisdiction and the State of Maryland. With few possible exceptions, the Company is no longer subject to U.S. or state income tax examinations by tax authorities for years before 2007.
Note K - Litigation
The Company is involved in certain claims and legal actions from time-to-time arising in the ordinary course of business. In the opinion of management, the ultimate disposition of any such matters has not, and is not expected to, have a material adverse effect on the financial position of the Company.
Note L – Commitments and Contingencies
Leases:
The Company leases office space under an operating lease expiring March 2013. The terms of the lease include an escalation clause for a portion of certain operating expenses. At December 31, 2010, the annual future minimum rental payments under the operating lease and the ground lease referred to in Note D(2) are as follows:
|
Year Ending December 31,
|
||||
|
2011
|
$ | 45,000 | ||
|
2012
|
47,000 | |||
|
2013
|
12,000 | |||
| $ | 104,000 | |||
U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES
Note L – Commitments and Contingencies (continued)
Rent expense was approximately $48,000, $36,000, and $45,000, and for 2010, 2009, and 2008 respectively.
Gamma Knives:
In 2005, the Company purchased and installed a new Gamma Knife for $2,601,000 to replace the existing equipment at the RMC site. The Company has obtained lease financing in connection with this purchase of the Gamma Knife.
In 2009, the Company installed a new Gamma Knife Perfexion model at the NYU Medical Center. This new equipment and certain space improvements, costing approximately $3,466,000 in total, was financed through a seven-year lease arrangement.
To maintain efficient operation, the Company is required to reload cobalt for each Gamma Knife every 5 to 10 years. The cobalt at RMC was reloaded in 2000 at a cost of approximately $800,000.
Maintenance Contract:
In September of 2010 the Company entered into a maintenance agreement with Elekta, the supplier of the Gamma Knife Perfexion model, for 5 years. The monthly payment for this maintenance agreement is $20,000.
Guarantee of Lease Obligation:
USN Corona, Inc., the Company’s wholly owned subsidiary that carries the investments in Corona Gamma Knife, LLC and Neuropartners, LLC, is a 20% guarantor on Neuropartners, LLC’s $3.5 million seven-year lease with respect to the Gamma Knife equipment and certain leasehold improvements at the San Antonio Community Hospital (“SACH”) in Upland, California, where the equipment is located. In 2014, Neuropartners, LLC has the option to purchase the Gamma Knife for $490,000.
Product liability:
Although USN does not directly provide medical services, it has obtained professional medical liability insurance, and has general liability insurance as well. USN’s professional medical liability and general liability policies have limits of $3 million each. The Company believes that its insurance is adequate for providing treatment facilities and non-medical services, although there can be no assurance that the coverage limits of such insurance will be adequate or that coverage will not be reduced or become unavailable in the future.
Note M - Employees' 401(k) and IRA Plans
The Company discontinued its 401(k) on December 31, 2006. The Company established a Company IRA covering all employees. The plan allows participants to make pre-tax contributions and the Company may, at its discretion, match certain percentages of the employee contribution. Amounts contributed to the plan are deposited into a trust fund administered by independent trustees. The Company made a discretionary matching IRA contribution for 2010 of $14,000 and no match in 2009.
Note N - Related Party Transactions
The Company and its president are parties to an employment agreement giving either party the option to terminate employment by giving the other party six-months written notice. The president's compensation for 2010, 2009, and 2008, was $300,000 each year.
U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES
Note O – Quarterly Results of Operations (unaudited)
The following is a summary of the unaudited 2010 quarterly results of operations: (in thousands)
|
Three Months Ended
|
||||||||||||||||
|
March 31
|
June 30
|
September 30
|
December 31
|
|||||||||||||
|
2010
|
||||||||||||||||
|
Revenue
|
$ | 532 | $ | 541 | $ | 734 | $ | 750 | ||||||||
|
Income from operations
|
37 | 38 | 155 | 216 | ||||||||||||
|
Net income (loss)
|
(67 | ) | 395 | 55 | 86 | |||||||||||
|
Basic and diluted income (loss) per common share
|
$ | (0.01 | ) | $ | 0.05 | $ | 0.01 | $ | 0.01 | |||||||
|
2009
|
||||||||||||||||
|
Revenue
|
$ | 366 | $ | 693 | $ | 657 | $ | 545 | ||||||||
|
Income (loss) from operations
|
(9 | ) | 202 | 157 | 94 | |||||||||||
|
Net income (loss)
|
(33 | ) | 86 | 40 | (21 | ) | ||||||||||
|
Basic and diluted income (loss) per common share
|
$ | 0.00 | $ | (0.01 | ) | $ | 0.01 | $ | 0.01 | |||||||
|
2008
|
||||||||||||||||
|
Revenue
|
$ | 535 | $ | 390 | $ | 497 | $ | 329 | ||||||||
|
Income (loss) from operations
|
65 | (23 | ) | 110 | (33 | ) | ||||||||||
|
Net income (loss)
|
31 | (51 | ) | 82 | (58 | ) | ||||||||||
|
Basic and diluted income (loss) per common share
|
$ | 0.00 | $ | (0.01 | ) | $ | 0.01 | $ | 0.00 | |||||||
F-17