**U.S. SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

 

 

**FORM 10-QSB**

 

 

 

**ý****  Quarterly Report under Section13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly periodended March 31, 2002**

** **

**o****  Transition report under Section13 or 15(d) of the Securities Exchange Act of 1934 For the transition periodfrom                to                **

 

 

 

 

**SURGICARE, INC.**

(NAME OF SMALL BUSINESS ISSUER IN ITSCHARTER)

 

** **

| **DELAWARE**                             |   | **58-1597246**                       |
|------------------------------------------|--------|--------------------------------------|
| (STATE OR OTHER JURISDICTION OF          |   | (I.R.S. EMPLOYER IDENTIFICATION NO.) |
| INCORPORATION OR ORGANIZATION)           |   |                                 |
|                                     |   |                                 |
| **12727 KIMBERLEY LN.,  SUITE 200**      |   |                                 |
| **HOUSTON, TEXAS**                       |   | **77024**                            |
| (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) |   | (ZIP CODE)                           |

 

ISSUER’STELEPHONE NUMBER: **(713) 973-6675**

 

 

Checkwhether the Registrant: (1) filed all reports required to be filed bySection13 or 15(d) of the Exchange Act during the past 12 months (or for suchshorterperiod that the Registrant was required to file such reports), and (2)hasbeen subject to such filing requirements for the past 90 days.

 

Yes ý  No o

 

As of May13, 2002, 14,164,320 shares of Common Stock, $0.005 par value per share, wereoutstanding.

 

TransitionalSmall Business Disclosure Format:  Yes o  No ý

 

 

 

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**Table ofContents**

 

 

To jump to a section,double-click on the section name

 

**10 QSBOTHERDOC**

 
| PART I                                      |
|---------------------------------------------|
| ITEM  1.                                    |
| Balance Sheet                               |
| Income Statement                            |
| Cash Flow  Statement                        |
| Notes to  Consolidated Financial Statements |
| ITEM  2.                                    |
| Results of Operations                       |
| PART  II                                    |
| ITEM  1.                                    |
| ITEM  2.                                    |
| ITEM  3.                                    |
| ITEM  4.                                    |
| ITEM  5.                                    |
| ITEM  6.                                    |

 

2

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PART I

FINANCIAL INFORMATION

 

 

Theinformation contained herein contains certain forward looking statementswithinthe meaning of Section 27A of the Securities Act of 1933, as amended andSection21E of the Securities Exchange Act of 1934, as amended, which areintendedto be covered by the safe harbors created thereby. Investors arecautionedthat all forward looking statements involve risks and uncertainty,including,without limitation, the ability of SurgiCare to continue itsexpansionstrategy, changes in federal or state healthcare laws and regulationsorthird party payer practices, SurgiCare’s historical and current compliancewithexisting or future healthcare laws and regulations and third party payerrequirements,changes in costs of supplies, labor and employee benefits, as wellasgeneral market conditions, competition and pricing. Although SurgiCarebelievesthat the assumptions underlying the forward looking statementscontainedherein are reasonable, any of the assumptions could be inaccurate, andtherefore,there can be no assurance that the forward looking statementsincludedin this Form 10-QSB will prove to be accurate. In view of thesignificantuncertainties inherent in the forward looking statements includedherein,the inclusion of such information should not be regarded as arepresentationby SurgiCare or any other person that the objectives and plans ofSurgiCarewill be achieved. SurgiCare undertakes no obligation to update orreviseforward-looking statements to reflect changed assumptions, the occurrenceofunanticipated events or changes to future operating results over time.

 

 

 

ITEM 1.

 

FinancialStatements

 

Theinformation required hereunder is included in this report as set forth in the“Index to Financial Statements”

 
| INDEX TO FINANCIAL STATEMENTS                                                                         |   |   |
|-------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                                                  |   |   |
| Consolidated Balance Sheet  as of December 31 2001, and March 31, 2002                                |   |   |
|                                                                                                  |   |   |
| Consolidated  Income   Statement for the three months ending as of March 31, 2001 and 2002. |   |   |
|                                                                                                  |   |   |
| Consolidated  Statement of Cash Flows for the three months ending as of March 31, 2001 and  2002.     |   |   |
|                                                                                                  |   |   |

 

 

 

3

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SURGICARE, INC.

 

CONSOLIDATEDBALANCE SHEETS

 

 
|                                                                                                                                                       |   | **December 31,** |       | **March 31,** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|------------|---------------|--------|
|                                                                                                                                                       |   | **2001**         |       | **2002**      |   |
|                                                                                                                                                       |   |             |       | (unaudited)   |   |
| ASSETS                                                                                                                                                     |   |             |       |          |   |
|                                                                                                                                                       |   |             |       |          |   |
| Current Assets                                                                                                                                             |   |             |       |          |   |
| Cash and cash equivalents                                                                                                                                  |   | $                | 76,274     |          | $      | 44,299 |   |
| Accounts receivable (less allowance  forcontractual adjustments and doubtful accountsof  $4,851,000 at December 31, 2001 and$6,820,085  at March 31, 2002) |   | 6,222,562        |       | 7,371,558     |   |
| Other receivables                                                                                                                                          |   | 26,643           |       | 38,759        |   |
| Inventory                                                                                                                                                  |   | 583,575          |       | 621,675       |   |
| Prepaid expenses                                                                                                                                           |   | 174,082          |       | 179,757       |   |
| Other current assets                                                                                                                                       |   | 124,996          |       | 532,254       |   |
|                                                                                                                                                       |   |             |       |          |   |
| Total Current Assets                                                                                                                                       |   | 7,208,132        |       | 8,788,302     |   |
|                                                                                                                                                       |   |             |       |          |   |
| Property and Equipment                                                                                                                                     |   |             |       |          |   |
| Office furniture and equipment                                                                                                                             |   | 221,277          |       | 250,146       |   |
| Medical and surgical equipment                                                                                                                             |   | 2,388,879        |       | 2,393,879     |   |
| Leasehold improvements                                                                                                                                     |   | 834,795          |       | 834,795       |   |
| Computer equipment                                                                                                                                         |   | 188,108          |       | 250,172       |   |
| Transportation equipment                                                                                                                                   |   | 49,157           |       | 19,015        |   |
|                                                                                                                                                       |   |             |       |          |   |
|                                                                                                                                                       |   | 3,682,216        |       | 3,748,007     |   |
|                                                                                                                                                       |   |             |       |          |   |
| Less: Accumulated depreciation and  amortization                                                                                                           |   | (1,212,167       | )          | (1,345,135    | )      |
|                                                                                                                                                       |   |             |       |          |   |
| Total Property and Equipment                                                                                                                               |   | 2,470,049        |       | 2,402,872     |   |
|                                                                                                                                                       |   |             |       |          |   |
| Other Assets                                                                                                                                               |   |             |       |          |   |
| Goodwill (net of amortization of  $650,207)                                                                                                                |   | 7,023,433        |       | 7,023,433     |   |
| Loan fees (net of amortization of  $34,470at December 31, 2001 and $41,856 atMarch 31,  2002                                                               |   | 128,030          |       | 120,644       |   |
| Investment in limited partnerships                                                                                                                         |   | 346,325          |       | 448,233       |   |
| Deposits                                                                                                                                                   |   | 136,876          |       | 136,876       |   |
|                                                                                                                                                       |   |             |       |          |   |
| TOTAL ASSETS                                                                                                                                               |   | $                | 17,312,845 |          | $      | 18,920,360 |   |

 

 

4

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SURGICARE, INC.

 

CONSOLIDATED BALANCE SHEETS

 

 
|                                                                                                                                                                  |   | **December 31,** |       | **March 31,** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|------------|---------------|--------|
|                                                                                                                                                                  |   | **2001**         |       | **2002**      |   |
|                                                                                                                                                                  |   |             |       | (unaudited)   |   |
| LIABILITIES                                                                                                                                                           |   |             |       |          |   |
|                                                                                                                                                                  |   |             |       |          |   |
| Current Liabilities                                                                                                                                                   |   |             |       |          |   |
| Current maturities of long-term  debt                                                                                                                                 |   | $                | 1,789,441  |          | $      | 1,203,500 |   |
| Lines of credit                                                                                                                                                       |   | 2,140,546        |       | 2,831,082     |   |
| Current portion of capital leases                                                                                                                                     |   | 124,437          |       | 124,669       |   |
| Accounts payable                                                                                                                                                      |   | 1,177,682        |       | 1,175,956     |   |
| Accrued expenses                                                                                                                                                      |   | 133,232          |       | 32,581        |   |
| Federal income taxes                                                                                                                                                  |   | 1,609,576        |       | 1,883,643     |   |
|                                                                                                                                                                  |   |             |       |          |   |
|                                                                                                                                                                  |   |             |       |          |   |
| Total Current Liabilities                                                                                                                                             |   | 6,974,914        |       | 7,251,431     |   |
|                                                                                                                                                                  |   |             |       |          |   |
| Long-Term Capital Lease Obligations                                                                                                                                   |   | 236,247          |       | 255,859       |   |
|                                                                                                                                                                  |   |             |       |          |   |
| Long-Term Debt                                                                                                                                                        |   | 2,989,865        |       | 3,430,628     |   |
|                                                                                                                                                                  |   |             |       |          |   |
| Minority Interest in Partnership                                                                                                                                      |   | 915,584          |       | 1,181,216     |   |
|                                                                                                                                                                  |   |             |       |          |   |
| Total Liabilities                                                                                                                                                     |   | 11,116,610       |       | 12,119,134    |   |
|                                                                                                                                                                  |   |             |       |          |   |
| SHAREHOLDERS’  EQUITY                                                                                                                                            |   |             |       |          |   |
|                                                                                                                                                                  |   |             |       |          |   |
| Preferred Stock, Series A, par  value$.001, 1,650,000 authorized, 1,316,100 issued and outstanding.                                                                   |   | 1,316            |       | 1,316         |   |
|                                                                                                                                                                  |   |             |       |          |   |
| Common Stock, par value $.005,  50,000,000 sharesauthorized, 14,089,320 and 14,164,320 issued and outstanding  at December 31, 2001 and March 31, 2002, respectively. |   | 70,446           |       | 70,821        |   |
|                                                                                                                                                                  |   |             |       |          |   |
| Additional Paid-In Capital                                                                                                                                            |   | 4,991,301        |       | 5,167,876     |   |
|                                                                                                                                                                  |   |             |       |          |   |
| Retained Earnings                                                                                                                                                     |   | 1,141,422        |       | 1,569,463     |   |
|                                                                                                                                                                  |   |             |       |          |   |
| Less:               Shareholder receivables                                                     |   | (8,250           | )          | (8,250        | )      |
|                                                                                                                                                                  |   |             |       |          |   |
|                        Total Shareholders’ Equity  |   | 6,196,235        |       | 6,801,226     |   |
|                                                                                                                                                                  |   |             |       |          |   |
| TOTAL LIABILITIES AND SHAREHOLDERS’  EQUITY                                                                                                                      |   | $                | 17,312,845 |          | $      | 18,920,360 |   |

 

 

5

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SURGICARE, INC.

 

CONSOLIDATEDINCOME STATEMENT

(unaudited)

 
|                                                  |   | **FOR THE  THREE MONTHS ENDING  March 31,** |      |
|-------------------------------------------------------|--------|---------------------------------------------|-----------|
|                                                  |   |                                        |
|                                                  |   |                                        |
|                                                  |   | **2001**                                    |      | **2002** |   |
|                                                  |   |                                        |      |   |   |
| Revenues, net                                         |   | $                                           | 3,168,317 |   | $ | 3,263,990 |   |
|                                                  |   |                                        |      |   |   |
| Expenses                                              |   |                                        |      |   |   |
| Direct Surgical Expenses                              |   |                                        |      |   |   |
| Surgical Costs                                        |   | 584,166                                     |      | 369,710 |   |
| Clinical salaries and benefits                        |   | 338,544                                     |      | 319,221 |   |
| Other                                                 |   | 126,089                                     |      | 119,374 |   |
|                                                  |   |                                        |      |   |   |
| Total Direct Surgical Expenses                        |   | 1,048,799                                   |      | 808,305 |   |
|                                                  |   |                                        |      |   |   |
| General and Administrative Expenses                   |   |                                        |      |   |   |
| Salaries and benefits                                 |   | 216,253                                     |      | 331,391 |   |
| Professional fees                                     |   | 270,590                                     |      | 292,503 |   |
| Rent                                                  |   | 112,142                                     |      | 132,335 |   |
| Management fees                                       |   | 18,657                                      |      | 24,962 |   |
| Depreciation and amortization                         |   | 252,018                                     |      | 148,894 |   |
| Consulting fees                                       |   | 35,000                                      |      |   |   |
| Other operating expenses                              |   | 149,515                                     |      | 200,175 |   |
| Taxes                                                 |   | 32,372                                      |      | 10,854 |   |
|                                                  |   |                                        |      |   |   |
| Total General and Administrative  Expenses            |   | 1,086,547                                   |      | 1,141,114 |   |
|                                                  |   |                                        |      |   |   |
| Total Expenses                                        |   | 2,135,346                                   |      | 1,949,419 |   |
| Operating Income                                      |   | 1,032,971                                   |      | 1,314,571 |   |
|                                                  |   |                                        |      |   |   |
| Other Income (Expense)                                |   |                                        |      |   |   |
| Gain (Loss) on sale of asset                          |   |                                        |      | (2,118 | ) |
| Miscellaneous income                                  |   | 57                                          |      | 79 |   |
| Equity and Earnings of Limited  Partnership           |   | 38,653                                      |      | 39,293 |   |
| Interest Expense                                      |   | (167,303                                    | )         | (224,083 | ) |
|                                                  |   |                                        |      |   |   |
| Total Other Income (Expense)                          |   | (128,593                                    | )         | (186,829 | ) |
|                                                  |   |                                        |      |   |   |
| Minority Interest in Earnings of  Partnership         |   | (302,319                                    | )         | (425,632 | ) |
|                                                  |   |                                        |      |   |   |
| Earnings Before Federal Income Tax  Expense           |   | 602,059                                     |      | 702,108 |   |
|                                                  |   |                                        |      |   |   |
| Federal Income Taxes                                  |   | 234,996                                     |      | 274,067 |   |
| Net Earnings                                          |   | $                                           | 367,063   |   | $ | 428,041 |   |
|                                                  |   |                                        |      |   |   |
|                                                  |   |                                        |      |   |   |
| Pro forma earnings per share — basic and diluted |   | $                                           | .02       |   | $ | .03 |   |

 

 

6

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SURGICARE, INC.

 

CONSOLIDATEDSTATEMENTS OF CASH FLOWS

(unaudited)

 
|                                                                      |   | **FOR THE  THREE MONTHS ENDING********March 31,** |    |
|---------------------------------------------------------------------------|--------|---------------------------------------------------|---------|
|                                                                      |   |                                              |
|                                                                      |   |                                              |
|                                                                      |   | **2001**                                          |    | **2002** |   |
| Cash Flows From Operating  Activities                                     |   |                                              |    |   |   |
| Net earnings                                                              |   | $                                                 | 367,063 |   | $ | 428,041 |   |
| Adjustments to reconcile net  earnings tonet cash provided by operations: |   |                                              |    |   |   |
| Equity in Earnings of Limited  Partnerships                               |   | (39,644                                           | )       | (39,293 | ) |
| Minority Interest in Earnings of  Partnership                             |   | 302,319                                           |    | 425,632 |   |
| Depreciation and amortization                                             |   | 252,019                                           |    | 148,894 |   |
| Loss on sale of asset                                                     |   |                                              |    | 2,118 |   |
| Non-cash consulting expense                                               |   | 35,000                                            |    |   |   |
| Deferred federal income tax                                               |   | (11,900                                           | )       |   |   |
| Management company termination fee

 (Increase)  Decrease in:        |   |                                              |    |   |   |
| Accounts receivable                                                       |   | (1,444,102                                        | )       | (1,161,112 | ) |
| Inventory                                                                 |   | 55,124                                            |    | (38,100 | ) |
| Prepaid expenses                                                          |   | 6,132                                             |    | 5,675 |   |
| Other current assets                                                      |   | (109,861                                          | )       | (346,059 | ) |
| Increase (Decrease) in:                                                   |   |                                              |    |   |   |
| Accounts payable                                                          |   | 257,636                                           |    | 39,274 |   |
| Accrued expenses                                                          |   | (5,758                                            | )       | (100,651 | ) |
| Federal income tax                                                        |   | 120,102                                           |    | 274,067 |   |
|                                                                      |   |                                              |    |   |   |
| Net Cash Used by Operating  Activities                                    |   | (215,870                                          | )       | (372,864 | ) |
|                                                                      |   |                                              |    |   |   |
|                                                                      |   |                                              |    |   |   |
| Cash Flows From Investing  Activities                                     |   |                                              |    |   |   |
| Capital expenditures                                                      |   | (8,324                                            | )       | (28,901 | ) |
| Investment in limited partnerships                                        |   |                                              |    | (14,865 | ) |
| Distributions from partnerships                                           |   |                                              |    | 27,000 |   |
|                                                                      |   |                                              |    |   |   |
| Net Cash Used by InvestingActivities                                      |   | (8,324                                            | )       | (16,766 | ) |
|                                                                      |   |                                              |    |   |   |
| Cash Flows From Financing  Activities                                     |   |                                              |    |   |   |
| Proceeds from notes payable                                               |   |                                              |    | 532,000 |   |
| Net proceeds from lines of credit                                         |   | 637,186                                           |    | 690,536 |   |
| Payments on notes payable                                                 |   | (296,470                                          | )       | (657,693 | ) |
| Payments on capital leases                                                |   | (19,722                                           | )       | (47,189 | ) |
| Collections on shareholder  receivable                                    |   | 2,000                                             |    |   |   |
| Proceeds from sale of preferred  stock                                    |   | 9,500                                             |    |   |   |
| Distributions to limited partners                                         |   |                                              |    | (160,000 | ) |
|                                                                      |   |                                              |    |   |   |
| Net Cash Provided by FinancingActivities                                  |   | 332,494                                           |    | 357,657 |   |
|                                                                      |   |                                              |    |   |   |
| Net Increase (Decrease) in Cash and  Cash Equivalents                     |   | 108,300                                           |    | (31,975 | ) |
|                                                                      |   |                                              |    |   |   |
| Cash and Cash Equivalents —  Beginning of Period                     |   | 21,666                                            |    | 76,274 |   |
|                                                                      |   |                                              |    |   |   |
| Cash and Cash Equivalents — End of  Period                           |   | $                                                 | 129,966 |   | $ | 44,299 |   |
|                                                                      |   |                                              |    |   |   |   |   |
| Supplemental Schedule of Non-Cash  Investing And Financing Activities     |   |                                              |    |   |   |   |   |
|                                                                      |   |                                              |    |   |   |   |   |
| Common Stock Issued for the  Following:                                   |   |                                              |    |   |   |   |   |
|                                                                      |   |                                              |    |   |   |   |   |
| Deposit for Equity Financing Costs                                        |   |                                              |    |   |   | 61,200 |   |
| Investment in Limited Partnerships                                        |   |                                              |    |   |   | 74,750 |   |
| Accounts Payable                                                          |   |                                              |    |   |   | 41,000 |   |
|                                                                      |   |                                              |    |   |   | 176,950 |   |
|                                                                      |   |                                              |    |   |   |   |   |
| Equipment Acquired Through Capital  Lease                                 |   |                                              |    |   |   | 67,032 |   |

 

7

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SURGICARE, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 1 —Basis of Presentation

 

     In the opinion of the SurgiCare’smanagement, the accompanying unauditedcondensed,consolidated financial statements include all adjustments consistingofonly normal recurring adjustments necessary for a fair presentation ofSurgiCare’sfinancial position at March 31, 2002 and the results of operationsandcash flows for the three months ended March 31, 2002 and 2001, respectively.

 

         Although the Company believes thatthe disclosures in these financialstatementsare adequate to make the information presented not misleading,certaininformation normally included in financial statements prepared inaccordancewith generally accepted accounting principles has been condensed oromittedpursuant to the rules and regulations of the Securities and ExchangeCommission.Results of operations for the three months ending March 31, 2002 arenotnecessarily indicative of results of operations to be expected for the yearendingDecember 31, 2002. Refer to the Company’s financial statements on Form10K-SBfor the year ended December 31, 2001 for additional information.

 

 

Note 2 —Accounting Policies

 

         SurgiCare, Inc. (the Company)maintains its accounts on the accrualmethod ofaccounting in accordance with generally accepted accountingprinciples.Accounting principles followed by the Company and the methods ofapplyingthose principles which materially affect the determination of financialposition,results of operations and cash flows are summarized below:

 

   Principles of Consolidation

 

            These consolidated financial statementsinclude the accounts of the Company, its wholly owned subsidiary, BellaireSurgiCare,   Inc. and it’s 60% ownership inSurgiCare Memorial Village, L.P. All material intercompany balances andtransactions have been   eliminated in consolidation.

 

   Cash and Cash Equivalents

 

            The Company considers allshort-term investments with an original maturity of three months or less to becash equivalents.

 

   Revenue Recognition

 

            Revenue is recognized on the datethe procedures are performed, andaccountsreceivable are recorded at that time. Revenues   are reported at theestimatedrealizable amounts from patients and third-party payers. Revenuesarecharged with a provision for    contractual adjustments and doubtfulaccountsbased on fee schedules, contracts with third-party payers and collectionexperience.   Contractual adjustments and accountsdeemed uncollectible are applied against the allowance account.

 

   Inventory

 

            Inventory consists of medical andpharmaceutical supplies which arestated atthe lower of cost or market. Cost is determined   under the first-in,first-outmethod.

 

 

8

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   Property and Equipment

 

            Property and equipment arepresented at cost. Medical and surgicalequipment,of approximately $287,044, under capital lease   is recorded at thepresentvalue of future minimum lease payments. Depreciation and amortizationarecomputed at rates considered   sufficient to amortize the cost oftheassets, using the straight-line method over their estimateduseful lives asfollows:

 
| Office  furniture and equipment | 7 | years |
|---------------------------------|---|-------|
| Medical  and surgical equipment | 5 | years |
| Leasehold  improvements         | 5 | years |
| Computer  equipment             | 5 | years |

 

   Goodwill

 

            Goodwill arises from the acquisition of assets at an amount inexcessof their fair market value. Amortization, for 2001, iscomputed by thestraight-line method over 15 years. In accordance with FASB 142,amortization of goodwill, for 2002, is no longerrequired to be charged. Under FASB 142, the value of certain intangible assetsare determined annually, and if the valuationdetermines that an impairment of the goodwill exists, the asset will beadjusted to reflect its current value. Management does notbelieve that an impairment has occurred.

 

   Federal Income Taxes

 

            Effective July 1, 1999, theCompany elected to be taxedas a C corporation under the InternalRevenue Code.   Taxes on income areprovidedbased upon Statement of Financial Accounting Standards No. 109,“Accountingfor Income Taxes,”   which requires an asset and liabilityapproachto financial accounting and reporting for income taxes. Deferredincome taxassets and   liabilities are computed fordifferences between the financialstatementand tax bases of assets and liabilities that will result in   taxableordeductible amounts in the future. Such deferred income tax asset andliabilitycomputations are based on enacted tax laws   and rates applicable toperiodsin which the differences are expected to affect taxable income.

 

   Use of Estimates

 

            The preparation of financialstatements in conformity with generallyacceptedaccounting principles requires management to   make estimates andassumptionsthat affect the reported amounts of assets and liabilities anddisclosureof contingent assets and   liabilities at the date of thefinancialstatements and the reported amounts of revenues and expensesduring thereporting period.   Actual results could differ fromthose estimates.

 

Note 3 —Earnings Per Share

 

Basic earnings per share are calculated on the basis of the weightedaverage number of shares outstanding. Diluted earnings per share, in additionto the weighted average determined for basic earnings per share, include commonstock equivalents which would arise from the exercise of stock options andwarrants using the treasury stock method, and assumes the conversion of theCompany's preferred stock for the period outstanding, since their issuance.

 

9

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|                                                                           |   | **For the Three  Months Ended  March 31,  (Unaudited)** |    |
|--------------------------------------------------------------------------------|--------|---------------------------------------------------------|---------|
|                                                                           |   |                                                    |
|                                                                           |   |                                                    |
|                                                                           |   |                                                    |
|                                                                           |   | **2001**                                                |    | **2002** |   |
|                                                                           |   |                                                    |    |   |   |
| Basic Earnings Per Share:                                                      |   |                                                    |    |   |   |
| Net earnings                                                                   |   | $                                                       | 367,063 |   | 428,041 |   |
| Weighted average shares outstanding                                            |   | 13,954,320                                              |    | 14,144,320 |   |
| Dilutive stock options and warrants                                            |   | 187,129                                                 |    | 211,996 |   |
| Conversion of preferred shares                                                 |   | 1,316,100                                               |    | 1,316,100 |   |
| Weighted average  common shares outstanding for diluted net earnings per share |   | 15,407,445                                              |    | 15,672,316 |   |
|                                                                           |   |                                                    |    |   |   |
| Net earnings per share — Basic                                            |   | $                                                       | .02     |   | $ | .03 |   |
| Net earnings per share — Diluted                                          |   | $                                                       | .02     |   | $ | .03 |   |

 

Note 4 — Preferred Stock Earnings Per Share

 

         The Series A preferred stock isconvertible at a rate of one share ofpreferredstock into one share of $.005 par value common stock. The Company canredeemthe stock at $5 per share.  Holders ofSeries A preferred stock are entitled to onevote foreach share of Series A preferred stock held. 

 

ITEM 2.

 

       Management’s Discussion and Analysis ofFinancial Condition and Results of Operation.

 

     SurgiCare’s  principal  business  strategies are to (i) increase revenues and profits  from  cases and procedures  being  performed in existing  facilities,   (ii) pursue strategic acquisitions of existing surgery centers, and (iii) develop new,physician-owned ambulatory surgical centers.

 

 

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     SurgiCare is  constantly  working toachieve  increased  profits fromexisting  revenues. Surgical  supply  costs are the  singlelargest  costcomponentof any ambulatory surgical center.  Assuch, SurgiCare is alwayslooking  for  ways to  decrease the  costsof  surgical  supplies.  Throughparticipation  in national  buying  groups, SurgiCare  has  been able  tonegotiate  discounts onmost  of the  commonly  used  surgical supplies.SurgiCare has also implemented a “Just in Time” approach toinventory. Thisallows the center to minimize the amount of supplies that it is required tokeepin inventory. SurgiCare is also always looking fornew distributors ofits surgical  suppliesthat have the  capability to deliver themajority ofits surgical supplies  “Just in Time”,and provide  quality  service, atreduced  prices.  SurgiCare has found that the purchasing  policies  thatgovern  the acquisitionof  surgical  equipment  is an  important key tomaximize a centers profit.  Therefore, all equipmentis purchased at thecorporatelevel, in order to insures that the equipment is purchased at the lowestpossible price.

 

    SurgiCare's growth mode includes acquisitions as Surgicare iscontinually in the  process  of identifying  ambulatory  surgicalcenters aspotential acquisition targets.

 

 

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FINANCIAL CONDITION AND RESULTS OFOPERATION

 

 

RESULTS OF OPERATION

 

Thefollowing table sets forth, for the periods indicated, the number of surgicalcases performed and the average revenues generated per case.

 

 

 
|                                         |   | **For the********Three Months Ended  March 31,** |      |
|----------------------------------------------|--------|--------------------------------------------------|-----------|
|                                         |   |                                             |
|                                         |   |                                             |
|                                         |   | **2001**                                         |      | **2002** |   |
|                                         |   |                                             |      |   |   |
| Total Number of Cases                        |   | 1,343                                            |      | 1,261 |   |
|                                         |   |                                             |      |   |   |
| Total Revenues Generated                     |   | $                                                | 3,168,317 |   | $ | 3,263,990 |   |
|                                         |   |                                             |      |   |   |
| Revenue Generated per Case                   |   | $                                                | 2,359     |   | $ | 2,609 |   |
|                                         |   |                                             |      |   |   |
| Earnings Before Federal Income Tax  per Case |   | $                                                | 449       |   | $ | 558 |   |

 

 

THREEMONTHS ENDING MARCH 31, 2002 vs THREE MONTHS ENDING MARCH 31, 2001

 

       SurgiCare is continuing to make aconcerted effort to  increase  bothrevenues  and profits.  One of the tools thatSurgiCare has used to achieveincreased revenues and profits, is aprogram that involves constantly monitoringtheprofitability of specific procedures and services. The information is thenusedto decrease the number of cases being done in those less profitable, highcost  services, and  increase  the number  of cases  being done in the more profitable, less cost-intensive  services.

 

       SurgiCare performed 1,261 cases for theperiod ending March 31, 2002 compared to 1,343 cases for the same period in2001. Although the number of cases performed decreased slightly, the revenuesgenerated per case increased 11% from $2,359 forthe threemonth period ending March 31, 2001, to $2,609 for the same three monthperiodin 2002.  Revenues for the period endingMarch 31, 2002 increased 3.02% to $3,263,990 from $3,168,317 for the sameperiod in 2001.  The pre-tax earningsgenerated per case increased 24% from $449per casefor the three month period  ending March31, 2001, to $558 for the samethreemonth  period in 2002.  The increased revenues and earnings per caseare the direct result of SurgiCare’s monitoring of procedure mixes and surgicalsupply costs.

 

       Direct Surgical Expenses, as a percentof revenue, decreased from 33.10% for the period ending March 31, 2001 to24.76% for the same period in 2002. This decrease is the direct result ofSurgiCare’s purchasing ability and their continued efforts to maximize the moreprofitable procedures.

 

       General and Administrative expenses, asa percent of revenue, increased slightly for the period ending March 31, 2002to 34.96% from 34.29% for the same period in 2001. The increase is the directresult of SurgiCare’s infrastructure expansion and marketing costs for currentand future acquisitions.

 

       Interest expense, as a percent ofrevenue, increased for the period ending March 31, 2002 to 6.87% from 5.28% forthe same period in 2001. The increase is due primarily to the debt utilized toacquire the Memorial Village Surgery Center, but also the debt incurred tofinance the expansion of SurgiCare’s infrastructure.

 

       Total expenses, as a percent ofrevenue, decreased from 67.40% for the period ending March 31, 2001 to 59.72%for the same period in 2002. The decrease is due to reduced surgical costs andthe $124,527 reduction of amortization of goodwill associated with the MemorialVillage acquisition.

 

       Net Earnings for the period endingMarch 31, 2002 increased to $428,042 from $367,062 for the same period in 2001.As a percent of revenue, this represents an increase of 13.11%.

 

 

LIQUIDITYand CAPTIAL RESOURCES

 

       SurgiCare’s primary sources of workingcapital are advances under lines of credit secured by SurgiCare’s accountsreceivables. Net cash used by operating activities increased from $215,870 forthe period ending March 31, 2001 to $372,865 for the same period in 2002.SurgiCare had working capital of $1,536,871 at March 31, 2002 compared to$233,218 at December 31, 2001. The primary reason for the increase in workingcapital was the increase in accounts receivable, $1,148,996, from December 31,2001 to March 31,2002. SurgiCare continues to make necessary changes to improveits billing and collection efforts and expects to realize the benefits therefrom in 2002.

 

       Net cash used by investing activitiesincreased from $8,324 for the period ending March 31, 2001 to $16,766 for thesame period in 2002. The increased use of cash was primarily for the purchaseof new equipment.

 

       Net cash provided by financingactivities increased from $332,494 for the period ending March 31, 2001 to$357,656 for the same period in 2002. The increase in cash was primarily due toadditional borrowings on SurgiCare’s lines of credit to maintain its expansionand growth strategies.

 

       As SurgiCare continues to grow throughits planned merger and acquisition strategy, equity financing and/or therefinancing of its current debt structure will be required. In addition,management is aggressively exploring sources of financing. There can be noassurance that SurgiCare will be successful in an equity raise or debt refinancing.

 

 

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PART II

 

OTHER INFORMATION

 

ITEM 1.

LegalProceedings

 

                None

 

ITEM 2.

Change inSecurities and Use of Proceeds

 

                None

 

ITEM 3.

DefaultUpon Senior Securities

 

                None

 

 

ITEM 4.

Submissionof Matters to a Vote of Security Holder

 

                None

 

ITEM 5.

OtherInformation

 

                None

 

ITEM 6.

Exhibitsand Reports on Form 8K

 

                None

 

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SIGNATURES

 

 

 

Inaccordance with the requirements of the Exchange Act, the Registrant causedthisReport to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 

 
| Date:  | May  14, 2002               | REGISTRANT:           |
|--------|-----------------------------|-----------------------|
|   |                        |                  |
|   |                        |                  | SurgiCare,  Inc. |
|   |                        |                  |
|   | By:     | /s/  David Blumfield  |
|   |                        | Dr.  David Blumfield  |
|   |                        | President  and Co-CEO |
|   |                        |                  |
|   | By:     | /s/  CHARLES S. COHEN |
|   |                        | Charles  S. Cohen     |
|   |                        | Co-CEO                |

 

 

 

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