Critical Accounting Policies
The Condensed Consolidated Financial Statements of U.S. NeuroSurgical Holdings,
Inc. and subsidiaries (the "Company") have been prepared in accordance with
accounting principles generally accepted in the United States of America. As
such, some accounting policies have a significant impact on amounts reported in
the Condensed Consolidated Financial Statements. A summary of those significant
accounting policies can be found in Note B to the Consolidated Financial
Statements, in our 2020 Annual Report on Form 10-K. In particular, judgment is
used in areas such as determining and assessing possible asset impairments,
including investments in, and advances, to unconsolidated entities.
We adopted the provisions of Topic 842 as of January 1, 2019. The adoption of
Topic 842 had a material impact on the Company's Consolidated Balance Sheets due
to the recognition of the ROU assets and lease liabilities. Although a
significant amount of our revenue is now accounted for under Topic 842, this
guidance did not have a material impact on our Consolidated Statements of
Operations or Cash Flows. Because of the transition method we used to adopt
Topic 842, Topic 842 was not applied to periods prior to adoption and the
adoption of Topic 842 had no impact on our previously reported results.
The following discussion and analysis provides information which the Company's
management believes is relevant to an assessment and understanding of the
Company's results of operations and financial condition. This discussion should
be read in conjunction with the Condensed Consolidated Financial Statements and
notes thereto appearing elsewhere herein.
19
--------------------------------------------------------------------------------
Table of Contents
Recent events
The recent outbreak of the novel coronavirus COVID-19 has spread across the
globe and has been declared a public health emergency by the World Health
Organization and a National Emergency by the President of the United States.
Most states and municipalities in the U.S., including California, and Florida,
have taken aggressive measures to reduce the spread of the disease, including
limiting non-essential gatherings of people, ceasing all non-essential travel,
ordering certain businesses and government agencies to cease non-essential
operations at physical locations and issuing "shelter-in-place" orders, which
direct individuals to shelter at their places of residence (subject to limited
exceptions). Across the healthcare industry, resources are being prioritized
for the treatment and management of the outbreak. Consequently, there are
delays in delivering radiation therapy treatments. In addition, the COVID-19
pandemic poses the risk that the Company and its employees, contractors,
customers, government and third party payors and others may be prevented from
conducting business activities for an indefinite period of time, including due
to spread of the disease within these groups or due to shutdowns that have been
and may continue to be requested or mandated by governmental authorities.
While the healthcare treatments that are provided by the Company are generally
critical to the well-being of the patients it serves, a sustained COVID-19
pandemic, and continued measures by the government and industry to contain the
pandemic, could negatively impact results for the following reasons: (i)
operations at medical facilities, including those operated by the Company, could
be subject to reduced operation or prolonged closure; (ii) medical facilities
may defer Gamma Knife and other cancer therapy treatments for non-urgent patient
cases in order to allocate resources to the care of patients with COVID-19;
(iii) patients may defer or cancel treatments due to real or perceived concerns
about the potential spread of COVID-19 in a medical facility setting; (iv) the
outbreak could materially impact operations for a sustained period of time due
to the current travel bans and restrictions, quarantines, shelter-in-place
orders and shutdowns; and/or (v) members of the Company's workforce may become
ill or have family members who are ill and are absent as a result, or they may
elect not to come to work due to the illness affecting others in our office or
facilities.
The occurrence of any of the foregoing events could have a material adverse
effect on our business, financial condition and results of operations. The
COVID-19 outbreak and mitigation measures have had and may continue to have an
adverse impact on global economic conditions which could have an adverse effect
on our business and financial condition. The extent to which the COVID-19
outbreak impacts our results will depend on future developments that are highly
uncertain and cannot be predicted, including new information that may emerge
concerning the severity of the virus and the actions to contain its impact.
Although the Company's contract with its only customer ended in March 2021, the
Company is actively seeking new business ventures and believes that its cash
reserves, which approximate $2.6 million at September 30, 2021, will allow the
Company the opportunity do so. Such plans include possible new operations or
extensions of its activities in Florida and California, where it has established
working relationships with physician groups, hospitals and other organizations.
In addition to these activities, the Company has been exploring possible
combinations with other existing businesses that would create a larger operating
entity that would better justify the expenses involved in continuing as an
independent publicly traded company.
20
--------------------------------------------------------------------------------
Table of Contents
Results of Operations
Three Months Ended September 30, 2021, Compared to Three Months Ended September
30, 2020
Patient revenue for the three months ended September 30, 2021, and 2020 was $0
and $662,000, respectively. Prior to the termination of the Company's contract
with NYU in March 2021, the Company's Gamma Knife facility at NYU Medical Center
represented all of the Company's patient revenue.
Patient expenses for the three months ended September 30, 2021, were $0, as
compared to $81,000 reported for the comparable period in the previous year,
primarily due to the annualized effects of the NYU contract ending in March
2021.
Selling, general and administrative expense of $268,000 for the third quarter of
2021 was 10% lower than the $297,000 incurred during the comparable period in
2020, due to audit-related fees during the three months ended September 30, 2021
and 2020.
The Company incurred $0 interest expense in the third quarter of 2021 and $5,000
in the comparable period in 2020 related to finance leases. Interest expense
decreased due to repayment of principal balances on the gamma knife, ICON unit,
and Cobalt reload leases prior to April 1, 2021.
The Company earned $0 and $16,000 of interest income from its investment in a
sales-type sublease for the three months ended September 30, 2021 and 2020,
respectively.
During the three months ended September 30, 2021, the Company recognized a
$77,000 loss from its investment in unconsolidated entities compared to a
$56,000 loss during the same period in 2020. The higher current quarter loss is
primarily due to an increase of advances made to its unconsolidated entities and
associated allowances.
During the three months ended September 30, 2021, the Company recognized an
income tax provision of $8,000 compared to an income tax provision of $75,000
during the same period in 2020. The lower tax expense is primarily due to the
effects of the NYU contract ending in March 2021 and those impacts were
recognized earlier in the year.
For the three months ended September 30, 2021, the Company reported a net loss
of $344,000 as compared to net income of $164,000 for the same period a year
earlier. The lower net income was primarily due to the lack of revenues due to
the sale of the NYU gamma knife in 2021.
Nine Months Ended September 30, 2021, Compared to Nine Months Ended September
30, 2020
Patient revenue for the nine months ended September 30, 2021, and 2020 was
$1,061,000 and $2,005,000, respectively. Prior to the termination of the
Company's contract with NYU in March 2021, the Company's Gamma Knife facility at
NYU Medical Center represented all of the Company's patient revenue.
21
--------------------------------------------------------------------------------
Table of Contents
Patient expenses for the nine months ended September 30, 2021, were $86,000 as
compared to $276,000 reported for the comparable period in the previous year,
primarily due to the annualized effects of the NYU contract ending in March
2021.
Selling, general and administrative expense of $815,000 for the first nine
months of 2021 was 13% lower than the $941,000 incurred during the comparable
period in 2020, offset by a $100,000 gain on termination of the NYU contract and
the cancellation of the flood insurance policy for the NYU facility at March 31,
2021.
The Company incurred $3,000 of interest expense for the nine months ended of
2021 and $24,000 in the comparable period in 2020 related to finance leases.
Interest expense decreased due to lower principal balances on the gamma knife,
ICON unit, and Cobalt reload leases.
The Company earned $8,000 and $60,000 of interest income from its investment in
a sales-type sublease for the nine months ended September 30, 2021, and 2020,
respectively.
During the nine months ended September 30, 2021, the Company recognized a
$350,000 loss from its investment in unconsolidated entities compared to a
$292,000 loss during the same period in 2020. The higher current year loss is
primarily due to an increase of advances made to its unconsolidated entities and
associated allowances.
During the nine months ended September 30, 2021, the Company recognized an
income tax provision of $202,000 compared to an income tax provision of $148,000
during the same period in 2020. The higher tax expense in 2021 is primarily due
to the annualized effects of the NYU contract ending in March 2021, forecasted
taxable losses for the rest of the year, and the tax effect of a valuation
allowance expected to be necessary for any deferred tax asset at the end of the
year.
For the nine months ended September 30, 2021, the Company reported a net loss of
$378,000 as compared to net income of $384,000 for the same period a year
earlier. The lower net income was primarily due to the lack of revenues due to
the sale of the NYU gamma knife in 2021, and higher income tax expense.
Liquidity and Capital Resources
At September 30, 2021, the Company had working capital of $2,214,000 as compared
to $2,597,000 at December 31, 2020. Cash and cash equivalents at September 30,
2021 were $2,567,000 as compared to $2,030,000 at December 31, 2020.
Net cash provided by operating activities for the nine months ended September
30, 2021, was $442,000 as compared to $522,000 in the same period a year
earlier. The $80,000 lower net cash inflow in 2021 was primarily due the NYU
contract ending in March 2021.
22
--------------------------------------------------------------------------------
Table of Contents
With respect to investing activities, the Company made $374,000 of advances to
unconsolidated entities during the nine months ended September 30, 2021,
compared with $337,000 of loans and advances in the same period a year earlier
to FOP, CBOP, and MOP to assist with business operations and working capital
requirements. During the first nine months of 2020, the Company made $36,000 of
capital contributions to unconsolidated entities with no corresponding payments
in the first nine months of 2021. The Company also received $532,000 in
principal payments under the NYU sales-type sublease in 2021, compared to
$660,000 during the first nine months of 2020.
With respect to financing activities, the Company's contract with the NYU
Medical Center ended in March 2021 along with all related lease arrangements.
The Company had been receiving fixed monthly payments of $50,000 through
February 2021, and $30,000 through March 2021, as well as a final payment of
$350,000 in March 2021. The Company is actively seeking new business ventures
that could require investment beyond its current cash reserves. Such plans
include possible new operations or extensions of its activities in Florida and
California, where it has established working relationships with physician
groups, hospitals and other organizations.
Recent Acquisition
As reported on October 6, 2021, U.S. NeuroSurgical, Inc.("USN"), a wholly-owned
subsidiary of the Company, acquired all of the outstanding shares of capital
stock of Elite Health Plan, Inc., a California corporation ("Elite Health") and,
in exchange therefor, the former holders of Elite Health were issued
newly-issued shares of USN, which following the transaction represent 15% of the
outstanding shares of USN. USN currently holds substantially all of the assets
and operations of the Company. The Company agreed with the former Elite Health
shareholders that if there is no trading market for the shares of USN after six
months from the closing of the transaction, such holders may request that the
Company take steps that would give such holders access to the public trading
market, which could be accomplished at the Company's election through an
exchange of such holders' shares of USN for shares of the Company.
Elite Health is a private company with limited operating history. It was formed
in 2017 with the purpose of establishing a managed care organization that will
operate as a Medicare Advantage Plan for seniors. It is expected that Elite
Health will operate in California - initially San Bernadino, Riverside, and
Orange Counties, with the objective of addressing the growing number of Medicare
eligible seniors in those markets. Because of the collective experience of its
founders and affiliates as physicians, software executives, and health plan
administrators, we believe that Elite Health will be positioned to bring to
southern California a comprehensive and cost-effective solution for these
communities.
Elite Health is in the process of applying for a Knox Keene license to operate a
Medicare Advantage Plan in California, and has taken preliminary steps toward
identifying a network of providers who are well-versed in the healthcare needs
of seniors in the communities in which they practice. Elite Health founders and
affiliates also have considerable experience with healthcare record based
software and the proposed will endeavor to utilize the latest advances in
information systems, including Artificial Intelligence (AI) and data analytics,
in its processes to enhance each patient experience and control medical costs.
23
--------------------------------------------------------------------------------
Table of Contents
The Company and Elite Health understand that the keys to success with a managed
care organization are delivering comprehensive patient care and containing
costs. In addition to developing a plan to obtain necessary approvals, gaining
access to a competent network of providers and enrolling a critical level of
subscribers, it will be necessary for the plan to provide high quality patient
care efficiently and cost effectively. There can be no assurance that the
Company and Elite Health will be effective in doing so.
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 Annual Report on our Form
10-K for the fiscal year ended December 31, 2020, 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.
Termination of Business Activity at the New York University Gamma Knife Center.
While it is the Company's objective to expand activities to additional cancer
centers that rely on a broad range of diagnostic and radiation treatments, the
Company had relied on the NYU gamma knife for substantially all of its revenue.
In recent periods, services provided at NYU have represented over 90% of the
Company's revenues. The Company's lease with NYU ended in March 2021, and it has
transferred ownership of its gamma knife to NYU. The future of the Company will
depend on whether it is able to achieve success with other existing and new
operations, and this will depend to a significant degree on whether it is able
to identify and secure new business opportunities and achieve profitable
operations at those businesses in the near term.
Plans for Development and Growth of Elite Health. The Company recently acquired
all of the outstanding stock of Elite Health in exchange for shares of USN,
which holds substantially all of the Company's assets and operations. Elite
Health currently has no revenue and will not be in a position to generate
revenue for an indefinite period while it seeks to obtain a license to operate a
Medicare Advantage Plan in California. The plan for the development and growth
of Elite Health will require the investment of significant time and financial
resources. The success of Elite Health will depend on obtaining all necessary
approvals and gaining access to a competent network of providers and enrolling a
critical level of subscribers. Furthermore, to be financially successful, it
will be necessary for the Elite Health's operation to provide high quality
patient care efficiently and cost effectively. There can be no assurance that
the Company and Elite Health will be successful in accomplishing these
objectives.
Availability of Working Capital. To date, we have earned sufficient income from
operations to fund periodic operating losses and support efforts to pursue new
gamma knife or other types of cancer treatment centers.
24
--------------------------------------------------------------------------------
Table of Contents
Disclosure Regarding Forward Looking Statements
The Securities and Exchange Commission encourages companies to disclose forward
looking information so that investors can better understand a company's future
prospects and make informed investment decisions. This document contains such
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, particularly statements anticipating future
growth in revenues and cash flow. Words such as "anticipates," "estimates,"
"expects," "projects," "targets," "intends," "plans," "believes," "will be,"
"will continue," "will likely result," and words and terms of similar substance
used in connection with any discussion of future operating or financial
performance identify such forward-looking statements. Those forward-looking
statements are based on management's present expectations about future events.
As with any projection or forecast, they are inherently susceptible to
uncertainty and changes in circumstances, and the Company is under no obligation
to (and expressly disclaims any such obligation to) update or alter its
forward-looking statements whether as a result of such changes, new information,
future events or otherwise.
The Company operates in a highly competitive and rapidly changing environment
and in businesses that are dependent on our ability to: achieve profitability;
increase revenues; sustain our current level of operations; maintain
satisfactory relations with business partners; attract and retain key personnel;
maintain and expand our strategic alliances; and protect our intellectual
property. The Company's actual results could differ materially from
management's expectations because of changes in such factors. New risk factors
can arise and it is not possible for management to predict all such risk
factors, nor can it assess the impact of all such risk factors on the Company's
business or the extent to which any factor, or combination of factors, may cause
actual results to differ materially from those contained in any forward-looking
statements. Given these risks and uncertainties, investors should not place
undue reliance on forward-looking statements as a prediction of actual results.
Investors should also be aware that while the Company might, from time to time,
communicate with securities analysts, it is against the Company's policy to
disclose to them any material non-public information or other confidential
commercial information. Accordingly, investors should not assume that the
Company agrees with any statement or report issued by any analyst irrespective
of the content of the statement or report. Furthermore, the Company has a policy
against issuing or confirming financial forecasts or projections issued by
others. Thus, to the extent that reports issued by securities analysts or
others contain any projections, forecasts or opinions, such reports are not the
responsibility of the Company.
In addition, the Company's overall financial strategy, including growth in
operations, maintaining financial ratios and strengthening the balance sheet,
could be adversely affected by increased interest rates, construction delays or
other transactions, economic slowdowns and changes in the Company's plans,
strategies and intentions.
© Edgar Online, source Glimpses
U.S. NEUROSURGICAL HOLDINGS, INC. 
