Net
cash provided by operating activities for the three months ended March 31, 2008
was $135,000 as compared to $81,000 for the same period a year earlier.
Depreciation and amortization was $158,000 for the three months ended March 31,
2008, as compared with $177,000 the first three months of 2007.
The
Company paid $105,000 towards its lease obligations during the three months
ended March 31, 2008 as compared to $165,000 in the same period a year ago.
With our current cash position, and continued collection on our accounts
receivable, the Company believes that its cash position will be sufficient to
support operations for at least the next twelve months.
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-KSB for the
fiscal year ended December 31, 2007, 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.
Operating
Losses
. We have experienced significant operating
losses in recent periods and may continue to do so in the future. We reported a
net after tax loss of $335,000 for the year ended December 31, 2007. While the
Company is taking steps to improve profitability, and did report a profit in
the current quarter, it is possible that the Company will experience losses in
the future periods.
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 centers. If losses continue, 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 companys
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 managements present expectations about future events. As with any
projection or forecast, they are inherently susceptible to uncertainty and
changes in
9
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
business segments that are dependent on our ability to: achieve profitability;
increase revenues; sustain our current level of operation; introduce on a
timely basis new products; maintain satisfactory relations with our customers;
attract and retain key personnel; maintain and expand our strategic alliances;
and protect our know-how. The Companys actual results could differ materially
from managements 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
Companys 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 Companys 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 Companys overall financial strategy, including growth in
operations, maintaining financial ratios and strengthening the balance sheet,
could be adversely affected by increased interest rates, failure to meet
earnings expectations, significant acquisitions or other transactions, economic
slowdowns and changes in the Companys plans, strategies and intentions.
I
tem 3. Controls and
Procedures
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 Companys reports under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the SECs 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
10
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 Companys 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
Companys 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 (including
an evaluation of the updated procedures described above) the Companys Chief
Executive Officer concluded that the Companys disclosure controls and
procedures were 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 Commissions rules and forms.
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 generally
accepted accounting principles. The Companys internal control over financial
reporting includes those policies and procedures that:
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(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;
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(ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with U.S. generally
accepted accounting principles, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of management
and directors of the Company; and
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(iii)
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Companys assets that
could have a material effect on the financial statements.
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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.
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Changes in Internal Control over Financial Reporting
As
described in Item 8A(T) of our Form 10-KSB for the fiscal year ended December
31, 2007, management has identified the following material weaknesses in the
Companys internal control over financial reporting as of December 31, 2007:
(1) the Company did not maintain a sufficient complement of personnel with the
appropriate level of knowledge, experience and training in the application of
GAAP and in internal controls over financial reporting commensurate with its
financial reporting requirements, (2) the Company did not maintain effective
controls over the determination and reporting of its income tax payable,
deferred income tax assets and liabilities, the related valuation allowances
and income tax expenses. Specifically, effective controls were not designed and
in place to ensure that management maintained the appropriate level of
personnel resources with an adequate experience and expertise in the area of
GAAP accounting for income taxes. These material weaknesses contributed to
control deficiencies, as well as audit adjustments to the 2007 annual
consolidated financial statements in the financial reporting and close process.
As described in Item 8A(T) of our Form 10-KSB for the fiscal year ended
December 31, 2007, management has begun to take steps to remediate the control
deficiencies noted above through the use of additional outside contractors with
the requisite experience and expertise in GAAP accounting.
Other
than as described above, there have not been any changes in the Companys
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
December 31, 2007 that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.
12
P
ART II - OTHER INFORMATION
I
tem 1. Legal Proceedings
During
2007, USN instituted a lawsuit against Midwest Division RMC LLC, in the
Circuit Court of Jackson County, Missouri seeking damages against the defendant
as successor to USNs agreement with RMC relating to the Kansas City Gamma
Knife center. USN is seeking damages arising out of the agreement with RMC,
executed in December 1993. In the course of an audit, USN discovered that the
defendant had failed to make proper payments to USN under that agreement. USN
is now seeking damages for underpayments.
Management
is aggressively seeking the payments that it believes the Company is due under
the agreement with RMC. However, the Company is unable to assess the prospects
for recovery. There has been no counterclaim by the defendant, so if there is
an unfavorable outcome, at the present time it appears that USN would not
suffer material damages. Patients continue to receive treatment at the Kansas
City center, but payments for those treatments are being calculated by RMC
according to the method that USN has contested, and which is the subject of the
lawsuit. Management believes that the only issue is whether USN will benefit from
any recovery through this lawsuit with respect to prior periods.
Although
patients continue to be treated in Kansas City, it is not clear how the
presence of the lawsuit will impact the Companys working relationship with
RMC. RMC is a unit of HCA, Inc., a very large health services organization
which has substantially greater resources than are available to USN.
Nevertheless, USN has made a substantial investment in Kansas City to build its
business and provide quality healthcare to patients in the Kansas City
community in reliance on the RMCs performance under their agreement, and thus
USN intends to pursue its rights aggressively in an effort to protect that
business.
I
tem 2. Unregistered Sales of
Equity Securities and Use of Proceeds
Not
applicable.
I
tem 3. Defaults Upon Senior
Securities
Not
applicable.
I
tem 4. Submission of Matters
to a Vote of Security Holders
Not
applicable.
13
I
tem 5. Other Information
Not
applicable.
I
tem
6. Exhibits
14
S
IGNATURES
In
accordance with the requirements of the Exchange Act, 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.
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(Registrant)
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Date: May
12, 2008
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By :
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/s/ Alan
Gold
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Alan Gold
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Director,
President and
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Chief
Executive Officer
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and
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Principal
Financial Officer
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of the
Registrant
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15