U.S. NeuroSurgical Holdings, Inc. - Quarter Report: 2021 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| ☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended September 30, 2021
or
| ☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
|
For the transition period from to .
Commission file number: 0-15586
U.S. NeuroSurgical Holdings, Inc.
(Exact name of registrant as specified in its charter)
|
Delaware
|
47-5370333
|
|
|
(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
|
2400 Research Blvd, Suite 325, Rockville, Maryland 20850
(Address of principal executive offices)
(301) 208-8998
(Registrant’s telephone number)
Indicate by check mark whether the registrant (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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”
“accelerated filer,” “smaller reporting company, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
|
Large accelerated filer ☐
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Accelerated filer ☐
|
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Non-accelerated filer ☐
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Smaller reporting company ☒
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(do not check if a smaller reporting company)
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Emerging Growth Company ☐
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of
the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No ☒
The number of shares of the registrant’s common stock, $0.01 par value, outstanding as of September 30, 2021 was 7,792,185.
U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES
|
September 30,
2021
(Unaudited)
|
December 31,
2020
|
|||||||
|
ASSETS
|
||||||||
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Current assets:
|
||||||||
|
Cash and cash equivalents
|
$
|
2,567,000
|
$
|
2,030,000
|
||||
|
Accounts receivable
|
-
|
346,000
|
||||||
|
Investment in sales-type sublease - current
|
-
|
532,000
|
||||||
|
Other current assets
|
67,000
|
99,000
|
||||||
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Total current assets
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2,634,000
|
3,007,000
|
||||||
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Other assets:
|
||||||||
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Due from related parties
|
918,000
|
912,000
|
||||||
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Investments in unconsolidated entities
|
152,000
|
160,000
|
||||||
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Total other assets
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1,070,000
|
1,072,000
|
||||||
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Property and equipment:
|
||||||||
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Operating lease right-of-use asset
|
68,000
|
94,000
|
||||||
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Total property and equipment
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68,000
|
94,000
|
||||||
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TOTAL ASSETS
|
$
|
3,772,000
|
$
|
4,173,000
|
||||
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LIABILITIES
|
||||||||
|
Current liabilities:
|
||||||||
|
Obligations under finance lease - current portion
|
$
|
-
|
$
|
89,000
|
||||
|
Operating lease right-of-use liability - current portion
|
42,000
|
40,000
|
||||||
|
Accounts payable and accrued expenses
|
180,000
|
170,000
|
||||||
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Income taxes payable
|
197,000
|
111,000
|
||||||
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Total current liabilities
|
419,000
|
410,000
|
||||||
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Operating lease right-of-use liability - net of current portion
|
34,000
|
66,000
|
||||||
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Guarantee liability
|
11,000
|
11,000
|
||||||
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Total liabilities
|
464,000
|
487,000
|
||||||
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STOCKHOLDERS’ EQUITY
|
||||||||
|
Common stock - par value $0.01; 25,000,000 shares authorized; 7,792,185
shares issued and outstanding at September 30, 2021 and December 31, 2020.
|
|
78,000
|
78,000
|
|||||
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Additional paid-in capital
|
3,100,000
|
3,100,000
|
||||||
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Retained earnings
|
130,000
|
508,000
|
||||||
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Total stockholders’ equity
|
3,308,000
|
3,686,000
|
||||||
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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$
|
3,772,000
|
$
|
4,173,000
|
||||
The accompanying notes to condensed consolidated financial statements are an integral part hereof.
U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES
(UNAUDITED)
|
Three Months Ended
September 30,
|
||||||||
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2021
|
2020
|
|||||||
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Revenue
|
$
|
-
|
$
|
662,000
|
||||
|
Costs and expenses:
|
||||||||
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Patient expenses
|
-
|
81,000
|
||||||
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Selling, general and administrative
|
268,000
|
297,000
|
||||||
|
Total
|
268,000
|
378,000
|
||||||
|
Operating (deficit) income
|
(268,000
|
)
|
284,000
|
|||||
|
Interest expense
|
-
|
(5,000
|
)
|
|||||
|
Interest income - sales-type sublease
|
-
|
16,000
|
||||||
| Other income | 9,000 | - | ||||||
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Loss from investments in unconsolidated entities, net
|
(77,000
|
)
|
(56,000
|
)
|
||||
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(Loss) income before income taxes
|
(336,000
|
)
|
239,000
|
|||||
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Provision for income taxes
|
(8,000
|
)
|
(75,000
|
)
|
||||
|
Net (loss) income
|
$
|
(344,000
|
)
|
$
|
164,000
|
|||
|
Basic and diluted net (loss) income per share
|
$
|
(0.04
|
)
|
$
|
0.02
|
|||
|
Weighted average common shares outstanding
|
7,792,185
|
7,792,185
|
||||||
The accompanying notes to condensed consolidated financial statements are an integral part hereof.
U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
Nine Months Ended
September 30,
|
||||||||
|
2021
|
2020
|
|||||||
|
Revenue
|
$
|
1,061,000
|
$
|
2,005,000
|
||||
|
Costs and expenses:
|
||||||||
|
Patient expenses
|
86,000
|
276,000
|
||||||
|
Selling, general and administrative
|
815,000
|
941,000
|
||||||
|
Total
|
901,000
|
1,217,000
|
||||||
|
Operating income
|
160,000
|
788,000
|
||||||
|
Interest expense
|
(3,000
|
)
|
(24,000
|
)
|
||||
|
Interest income - sales-type sublease
|
8,000
|
60,000
|
||||||
| Other income | 9,000 | - | ||||||
|
Loss from investments in unconsolidated entities, net
|
(350,000
|
)
|
(292,000
|
)
|
||||
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(Loss) income before income taxes
|
(176,000
|
)
|
532,000
|
|||||
|
Provision for income taxes
|
(202,000
|
)
|
(148,000
|
)
|
||||
|
Net (loss) income
|
$
|
(378,000
|
)
|
$
|
384,000
|
|||
|
Basic and diluted net (loss) income per share
|
$
|
(0.05
|
)
|
$
|
0.05
|
|||
|
Weighted average common shares outstanding
|
7,792,185
|
7,792,185
|
||||||
The accompanying notes to condensed consolidated financial statements are an integral part hereof.
U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES
(UNAUDITED)
|
Nine Months ended
September 30,
|
||||||||
|
2021
|
2020
|
|||||||
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Cash flows from operating activities:
|
||||||||
|
Net (loss) income
|
$
|
(378,000
|
)
|
$
|
384,000
|
|||
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
|
||||||||
|
Amortization of operating lease right-of-use asset
|
26,000
|
25,000
|
||||||
|
Loss from investments in unconsolidated entities, net
|
350,000
|
292,000
|
||||||
|
Distributed earnings from unconsolidated entities
|
-
|
63,000
|
||||||
|
Deferred income taxes
|
86,000
|
(109,000
|
)
|
|||||
|
Changes in:
|
||||||||
|
Accounts receivable
|
346,000
|
11,000
|
||||||
|
Income taxes payable
|
-
|
(148,000
|
)
|
|||||
|
Other current assets
|
32,000
|
8,000
|
||||||
|
Accounts payable and accrued expenses
|
10,000
|
(47,000
|
)
|
|||||
|
Deferred revenue
|
-
|
69,000
|
||||||
|
Operating lease right-of-use liability
|
(30,000
|
)
|
(26,000
|
)
|
||||
|
Net cash provided by operating activities
|
442,000
|
522,000
|
||||||
|
Cash flows from investing activities:
|
||||||||
|
Advances to unconsolidated entities
|
(374,000
|
)
|
(337,000
|
)
|
||||
|
Repayments from loans to unconsolidated entities
|
26,000
|
170,000
|
||||||
|
Capital contributions to unconsolidated entities
|
-
|
(36,000
|
)
|
|||||
|
Principal payments received under sales-type sublease
|
532,000
|
660,000
|
||||||
|
Net cash provided by investing activities
|
184,000
|
457,000
|
||||||
|
Cash flows from financing activities:
|
||||||||
|
Repayment of finance lease obligations
|
(89,000
|
)
|
(814,000
|
)
|
||||
|
Net cash used in financing activities
|
(89,000
|
)
|
(814,000
|
)
|
||||
|
Net change in cash and cash equivalents
|
537,000
|
165,000
|
||||||
|
Cash and cash equivalents - beginning of period
|
2,030,000
|
1,335,000
|
||||||
|
Cash and cash equivalents - end of period
|
$
|
2,567,000
|
$
|
1,500,000
|
||||
|
Supplemental disclosures of cash flow information:
|
||||||||
|
Cash paid for:
|
||||||||
|
Interest
|
$
|
3,000
|
$
|
22,000
|
||||
| Income taxes |
$ | 158,000 | $ | 407,000 | ||||
The accompanying notes to condensed consolidated financial statements are an integral part hereof.
U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES
Note A - Basis of Preparation
The accompanying Condensed Consolidated Financial
Statements of U.S. NeuroSurgical Holdings, Inc. and Subsidiaries (the “Company”) as of September 30, 2021, and 2020, are unaudited. However, in the opinion of management, such statements include all adjustments necessary for a fair
statement of the information presented therein. The Consolidated Balance Sheet at December 31, 2020 has been derived from the audited Consolidated Financial Statements at that date appearing in the Company’s Annual Report on Form 10-K.
Pursuant to accounting requirements of the Securities
and Exchange Commission applicable to quarterly reports on Form 10-Q, the accompanying Condensed Consolidated Financial Statements and notes do not include all disclosures required by accounting principles generally accepted in the United
States of America for complete financial statements. Accordingly, these statements should be read in conjunction with the Company’s most recent annual Consolidated Financial Statements.
Consolidated results of operations for interim
periods are not necessarily indicative of those to be achieved for full fiscal years. The only change to the Company’s equity in the nine months ended September 30, 2021 and 2020 was net income or loss for the periods.
In May 2014, the Financial Accounting Standards Board
(the “FASB”) issued ASU 2014-09, Revenue from Contracts with Customers (“Topic 606”), amending existing revenue recognition guidance and requiring more detailed disclosures to enable users of financial statements to understand the nature,
amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Topic 606 defines a five-step process to accomplish this objective, including identifying the contract with the customer and the performance
obligations within the contract, determining the transaction price including estimates of any variable consideration, allocating the transaction price to each separate performance obligation, and recognizing revenue as the company
satisfies the performance obligation. We adopted the provisions of Topic 606 as of January 1, 2018, on a modified retrospective basis and applied it to the Company’s sole contract at the date of adoption. We concluded that the impact to
the manner in which we recognize revenue is immaterial. Our revenue is primarily generated from a leasing arrangement with New York University (“NYU”), which is not within the scope of Topic 606, and from the sale of maintenance services
with a single performance obligation, under which revenue is recognized in a similar manner as compared to the method under the prior revenue standards. The Company recognizes maintenance income ratably over time as patient procedures are
performed.
Prior to October 2018, the Company’s agreement with
NYU primarily consisted of an operating lease, and the associated patient revenue from the use of the gamma knife was primarily operating lease income. In October 2018, the agreement was reevaluated to be a sales-type sublease between
the Company, the lessor, and NYU, the lessee. The present value of all fixed future minimum lease payments payable by NYU to the Company were recorded as an investment in sublease effective October 1, 2018. The patient revenue under
the tiered schedule was considered contingent income and had been recognized on a systematic basis using an average fee per procedure.
We adopted the provisions of ASU 2016-02, Leases
(“Topic 842”), as amended, 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 certain right-of-use (“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 will not be applied to periods prior to adoption and the adoption of Topic 842 had no impact on our previously reported results, or on opening equity at January 1, 2019.
The tables below present financial information
associated with our leases.
|
Classification
|
September 30,
|
||||||||
|
Assets
|
2021 |
2020 |
|||||||
|
Current
|
|||||||||
|
Finance lease assets
|
Investment in sales-type sublease - current
|
$
|
-
|
$
|
760,000
|
||||
|
Long-term
|
|||||||||
|
Finance lease assets
|
Investment in sales-type sublease - net of current portion
|
-
|
-
|
||||||
|
Operating lease assets
|
Operating lease right-of-use asset
|
68,000
|
103,000
|
||||||
|
Total leased assets
|
$
|
68,000
|
$
|
863,000
|
|||||
|
Liabilities
|
|||||||||
|
Current
|
|||||||||
|
Finance lease liabilities
|
Obligations under finance lease - current portion
|
$
|
-
|
$
|
176,000
|
||||
|
Operating lease liabilities
|
Operating lease right-of-use liability - current portion
|
42,000
|
39,000
|
||||||
|
Long-term
|
|||||||||
|
Finance lease liabilities
|
Obligations under finance lease - net of current portion
|
-
|
-
|
||||||
|
Operating lease liabilities
|
Operating lease right-of-use liability - net of current portion
|
34,000
|
77,000
|
||||||
|
Total lease liabilities
|
$
|
76,000
|
$
|
292,000
|
|||||
|
Lease Cost
|
|||||||||
|
Operating lease cost
|
Selling, general and administrative
|
$
|
31,000
|
$
|
32,000
|
||||
|
Finance lease cost
|
|||||||||
|
Interest on lease liabilities
|
Interest expense
|
2,000
|
21,000
|
||||||
|
Sublease income
|
Interest income - sales-type sublease
|
8,000
|
60,000
|
||||||
|
Net lease expense (income)
|
$
|
25,000
|
$
|
(7,000
|
)
|
||||
|
Maturity of lease liabilities (as of September 30, 2021)
|
Operating lease
|
|||
|
2021
|
10,000
|
|||
|
2022
|
46,000
|
|||
|
2023
|
24,000
|
|||
|
Total
|
$
|
80,000
|
||
|
Less amount representing interest
|
4,000
|
|||
|
Present value of lease liabilities
|
$
|
76,000
|
||
|
Discount rate
|
5.850
|
%
|
||
Note B – Gamma Knife at
NYU Medical Center
U.S. NeuroSurgical, Inc. (“USN”), a wholly-owned subsidiary of U.S. NeuroSurgical Holdings, Inc., opened a New York gamma knife treatment center in July 1997 on the campus of New York University (“NYU”) Medical Center. The Company’s
contract with NYU, its only customer, ended in March 2021. Upon termination of the NYU contract, the Company recognized a gain of $100,000
relating to previously accrued expenses. This gain was included as a reduction in selling, general and administrative expense in the quarter ended March 31, 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.
Note C – The Southern California Regional Gamma
Knife Center
During 2007, the Company, through a noncontrolling
interest in joint ventures, managed the formation of the Southern California Regional Gamma Knife Center at San Antonio Regional Hospital (“SARH”) in Upland, California. Corona Gamma Knife, LLC (“CGK”) is party to a 14-year agreement with SARH to renovate space in the hospital and install and operate a Leksell PERFEXION gamma knife. CGK leases the gamma
knife from NeuroPartners LLC, which holds the gamma knife equipment. In addition to returns on its ownership interests, USNC expects to receive fees for management services relating to the facility.
USNC is a 20% owner of NeuroPartners LLC and owns 39% of CGK.
USNC was a 20% guarantor on NeuroPartners LLC’s seven-year lease
with respect to the gamma knife equipment and certain leasehold improvements at SARH. In February 2016, NeuroPartners LLC negotiated a new five-year
lease to fund the reloading of cobalt and related construction services. The new lease of $1,663,000 included a balance of $668,000 from the prior lease obligations. This new lease was payable over 60 months. The first payment of $31,000 was paid in April 2016 and
the final payment was paid in March 2021.
Construction of the SARH gamma knife center was
completed in December 2008 and the first patient was treated in January 2009. The project has been funded principally by outside investors. While the Company, through its joint ventures, has led the effort in organizing the business and
overseeing the development and operation of the SARH center, its investment to date in the SARH center has been minimal.
At September 30, 2021 and December 31, 2020, the
Company’s combined recorded investment of NeuroPartners LLC and CGK was $4,000 and $26,000, respectively. For the nine months ended September 30, 2021, the Company’s combined equity in loss of NeuroPartners LLC and CGK was $22,000 compared to combined equity in earnings of $134,000 for the nine months ended September 30, 2020. At September 30, 2021 and December 31, 2020, amounts due from related parties was $0 and $9,000, respectively.
The following tables present the aggregation of
summarized financial information of NeuroPartners LLC and CGK:
NeuroPartners LLC and CGK Condensed
Combined Income Statement Information
|
Nine Months Ended
September 30,
|
||||||||
|
2021
|
2020
|
|||||||
|
Patient Revenue
|
$
|
463,000
|
$
|
944,000
|
||||
|
Net (loss) income
|
$
|
12,000
|
$
|
402,000
|
||||
|
USNC’s equity in (loss) earnings of
NeuroPartners, LLC and CGK
|
$
|
(22,000
|
)
|
$
|
134,000
|
|||
|
Three Months Ended
September 30,
|
||||||||
|
2021
|
2020
|
|||||||
|
Patient Revenue
|
$
|
127,000
|
$
|
274,000
|
||||
|
Net income
|
$
|
(15,000
|
)
|
$
|
70,000
|
|||
|
USNC’s equity in (loss) earnings of
NeuroPartners LLC and CGK
|
$
|
(15,000
|
)
|
$
|
23,000
|
|||
NeuroPartners LLC and CGK Condensed Combined Balance
Sheet Information
|
September 30,
2021
|
December 31,
2020
|
|||||||
|
Current assets
|
$
|
262,000
|
$
|
121,000
|
||||
|
Noncurrent assets
|
358,000
|
551,000
|
||||||
|
Total assets
|
$
|
620,000
|
$
|
672,000
|
||||
|
Current liabilities
|
$
|
570,000
|
$
|
634,000
|
||||
|
Equity
|
50,000
|
38,000
|
||||||
|
Total liabilities and equity
|
$
|
620,000
|
$
|
672,000
|
||||
Note D – Florida Oncology Partners
During 2010, through the formation of a joint
venture, in which it has a noncontrolling interest, the Company expanded its market strategy to include opportunities to develop cancer centers featuring radiation therapy. These centers utilize linear accelerators with Intensity
Modulated Radiation Therapy (“IMRT”) and Image Guided Radiation Therapy (“IGRT”) capabilities. In 2010, the Company formed Florida Oncology Partners, LLC (“FOP”) in partnership with local physicians and other investors. USNC owns a 24% interest in the venture. FOP’s first center was located in Miami, Florida and opened in the second quarter of 2011.
During 2011, FOP entered into a seven-year capital lease with Key Bank for $5,800,000.
Under the terms of the capital lease, USN agreed to guarantee a maximum of $1,433,000, approximately 25% of the original lease obligation in the event of default. USN was a guarantor jointly with most of the other members of FOP. The
guarantee was eliminated upon repayment of the outstanding lease balance in May 2018.
In December 2015, FOP entered into an agreement with
21st Century Oncology for the sale of FOP’s Varian Rapid Arc linear accelerator and other medical equipment at the FOP location. 21st Century Oncology paid FOP $1,000,000 as a down payment for the equipment and agreed to make monthly payments of $172,000 for the equipment and all monthly payments due under the equipment lease with Key Bank. As of this date, 21st Century Oncology has not satisfied all of the terms of the agreement. In May 2017,
21st Century Oncology filed for Chapter 11 bankruptcy protection and FOP was listed as an unsecured creditor. As a result, since June 2017, FOP has not received the agreed rental payments beyond the monthly payments for the equipment
lease. As noted above, the equipment lease was repaid in May 2018 and title to the equipment was transferred to 21st Century Oncology. In December 2018, FOP was awarded 10,820 shares of 21st Century Oncology Holdings Inc. common stock as part of the bankruptcy proceedings. The title to these shares was transferred to USNC during
2020. The market value of these shares is unclear at this time as there is no readily available market for them, and accordingly, no value has been recorded for these shares at September 30, 2021 by USNC. During the year ended December
31, 2020, FOP received a payment of approximately $158,000 from 21st Century Oncology. FOP used these funds to repay $155,000 of previous advances from USNC. FOP will continue to monitor the impact of 21st Century Oncology’s bankruptcy and pursue amounts that
it is owed. However, there can be no assurance that FOP will be successful in these efforts.
Late in 2016, FOP took initial steps toward the
development of a new radiation therapy center in Homestead, Florida. In December 2016, FOP entered into a ten-year lease
agreement for office space located at 20405 Old Cutler Towne Center. FOP had to deliver an $88,000 letter of credit in
conjunction with this office lease which collateral is being held in a restricted certificate of deposit. FOP began incurring architecture costs for planning/refitting the new space. During the first half of 2017, a financing agreement
with BB&T Bank for the medical equipment and leasehold improvements was negotiated and then signed on August 31, 2017. In November 2017, the amounts for the equipment and leasehold improvements costs were finalized and paid under
this financing agreement for a total loan of $4,106,000 to be paid over seven years. Under the terms of the financing agreement, USN agreed to guarantee the amount initially borrowed. USN is the guarantor with several other members of
FOP. The outstanding balance on the financing facility was $2,819,000 at September 30, 2021 and $3,066,000 at December 31, 2020. Effective November 15, 2019, FOP transferred this loan, along with the equipment acquired with the loan
proceeds, to CB Oncology Partners, LLC (“CBOP”.) The Company expects any potential liability from this guarantee to be reduced by the recoveries of the respective collateral. Late in the third quarter of 2017, it was determined that the
business opportunity at this new location should be pursued by a different investor group, and FOP arranged to sell the opportunity to this group. CBOP was organized on September 1, 2017, to acquire the assets and rights in this new
center from FOP.
In June 2017, FOP entered into an agreement with a
third-party owner of a radiation therapy center located in Miami, Florida, whereby FOP took over the operation of the center effective September 22, 2017, for a ten-year initial term, and up to three additional
terms of five years each. This agreement was accounted for as a capital lease and, accordingly, FOP recorded assets and
capital lease liabilities totaling $14,321,000 at September 22, 2017. The lease required monthly payments in the first year of
$160,000, increasing by 2%
each year; currently the payment is $170,000. FOP abandoned its operations at this radiation center on June 28, 2019 due to
continued losses at the site and lack of success in good faith efforts to renegotiate the agreement after several months of discussion. FOP could be considered in default of the agreement and the third-party owner could pursue action
against FOP. Due to the circumstances, FOP derecognized the associated assets and liabilities and calculated a contingent liability equal to the net liabilities derecognized. FOP has not, however, been released from its contractual
obligation to the third-party owner. At September 30, 2021, FOP was obligated to make a further $17.6 million of lease
payments for the period from July 2019 to September 2027, with no payments made since June 2019. Due to abandoning the
operations of the Miami center as well as continued working capital deficits, FOP has filed dissolution papers to permanently cease operations in the state of Florida. In addition, FOP is seeking relief from this obligation due to the
millions of dollars of deficit FOP is carrying.
The Company’s recorded investment in FOP at September
30, 2021 and December 31, 2020 has been reduced to zero due to losses incurred in prior years. No equity in earnings has been recorded by the Company for the nine months ended September 30, 2021, and 2020, due to FOP’s deficit at
September 30, 2021, and September 30, 2020.
During the year ended December 31, 2020, the Company
wrote off all amounts due from FOP and accrued interest thereon. The Company recorded amounts written off and increases in the allowances as a component of loss from investments in unconsolidated entities and as a deduction in interest
income for interest earned.
Because of loans made to FOP, FOP is considered a
variable interest entity of the Company. However, as the Company is not deemed to be the primary beneficiary of FOP, since it does not have the power to direct the operating activities that most significantly affect FOP’s economic
performance, the entity is not consolidated, but certain disclosures are provided herein.
The following tables present the summarized financial
information of FOP:
FOP Condensed Income Statement
Information
|
Nine Months Ended
September 30,
|
||||||||
|
2021
|
2020
|
|||||||
|
Income
|
$
|
-
|
$
|
-
|
||||
|
Net loss
|
$
|
(133,000
|
)
|
$
|
(7,000
|
)
|
||
|
USNC’s equity in loss of FOP
|
$
|
(30,000
|
)
|
$
|
(2,000
|
)
|
||
|
Three Months Ended
September 30,
|
||||||||
|
2021
|
2020
|
|||||||
|
Income
|
$
|
-
|
$
|
-
|
||||
|
Net loss
|
$
|
(44,000
|
)
|
$
|
(44,000
|
)
|
||
|
USNC’s equity in loss of FOP
|
$
|
(9,000
|
)
|
$
|
(11,000
|
)
|
||
FOP Condensed Balance Sheet Information
|
September 30,
2021
|
December 31,
2020
|
|||||||
|
Current assets
|
$
|
5,000
|
$
|
7,000
|
||||
|
Noncurrent assets
|
1,001,000
|
1,091,000
|
||||||
|
Total assets
|
$
|
1,006,000
|
$
|
1,098,000
|
||||
|
Current liabilities
|
$
|
4,211,000
|
$
|
4,068,000
|
||||
|
Noncurrent liabilities
|
870,000
|
969,000
|
||||||
|
Deficit
|
(4,075,000
|
)
|
(3,939,000
|
)
|
||||
|
Total liabilities and deficit
|
$
|
1,006,000
|
$
|
1,098,000
|
||||
Note E – Boca Oncology Partners
During the quarter ended June 30, 2011, the Company,
through the formation of a joint venture, in which it had a noncontrolling interest, participated in the formation of Boca Oncology Partners, LLC (“BOP”), for the purpose of owning and operating a cancer center in Boca Raton, Florida. In
June 2011, Boca Oncology Partners RE, LLC (“BOPRE”,) an affiliated entity, purchased a 20% interest in Boca West IMP, owner of
a medical office building in West Boca, Florida in which BOP operates. BOP occupies 6,000 square feet of the 32,000 square foot building. The Company invested $225,000 initially and had a 22.5% interest in BOP and BOPRE. In
February 2014, the Company and other members sold their interests in BOP.
In June 2012, BOPRE purchased an additional 3.75% of Boca West IMP from another investor bringing its total interest to 23.75%. BOPRE accounts for this investment under the cost method since it does not exercise significant influence over Boca West, IMP.
During the years ended December 31, 2018 and 2017,
several investors relinquished part of their ownership interest in BOPRE, and those interests were distributed among the remaining investors in relationship to their percentages owned. As a result, the Company now holds a 21.22% ownership interest in BOPRE, which it accounts for under the equity method. The Company’s recorded investment in BOPRE is $149,000 and $134,000 at
September 30, 2021 and December 31, 2020, respectively
USNC was a 10% guarantor of 50% of the outstanding balance of
Boca West IMP’s ten-year mortgage. This mortgage had an original balance of $3,000,000 and is secured by the medical office building in which BOP operates. In April 2020, the partners of Boca West IMP refinanced the mortgage in order to
recover some of the cash that was invested before the building was completely occupied and removed USNC as a guarantor.
The following tables present the summarized financial
information of BOPRE:
BOPRE Condensed
Income Statement Information
|
Nine Months Ended
September 30, |
||||||||
|
2021
|
2020
|
|||||||
|
Rental income
|
$
|
-
|
$
|
-
|
||||
|
Net income
|
$
|
75,000
|
$
|
37,000
|
||||
|
USNC’s equity in earnings of BOPRE
|
$
|
16,000
|
$
|
8,000
|
||||
|
Three Months Ended
September 30, |
||||||||
|
2021
|
2020
|
|||||||
|
Rental income
|
$
|
-
|
$
|
-
|
||||
|
Net income
|
$
|
19,000
|
$
|
30,000
|
||||
|
USNC’s equity in earnings of BOPRE
|
$
|
4,000
|
$
|
7,000
|
||||
BOPRE Condensed Balance Sheet Information
|
September 30,
2021
|
December 31,
2020
|
|||||||
|
Current assets
|
$
|
101,000
|
$
|
27,000
|
||||
|
Noncurrent assets
|
757,000
|
757,000
|
||||||
|
Total assets
|
$
|
858,000
|
$
|
784,000
|
||||
|
Current liabilities
|
$
|
-
|
$
|
-
|
||||
|
Noncurrent liabilities
|
-
|
-
|
||||||
|
Equity
|
858,000
|
784,000
|
||||||
|
Total liabilities and equity
|
$
|
858,000
|
$
|
784,000
|
||||
Note F - Medical Oncology Partners
In April 2015, Medical Oncology Partners, LLC
(“MOP”,) was formed in partnership with local physicians and other investors. MOP was established to acquire a 100% equity
interest in United Oncology Medical Associates of Florida, LLC (“UOMA”.) USNC was not a member of MOP at the time of formation as it was not able to participate due to the fact that USNC was not a physician. Nevertheless, USNC wished to
eventually obtain an equity interest in MOP and loaned Dr. Jaime Lozano, the principal investor in MOP and a co-investor in FOP, $173,000.
Dr. Lozano used these funds, along with an equal amount of his own funds (a total of $345,000), to purchase a 76.67% interest in MOP. Other investors paid a further $105,000 for the remaining equity in MOP. MOP used the $450,000 of
financing to acquire a 100% equity interest in UOMA. An application was filed for a waiver to allow USNC to hold an equity
interest notwithstanding the physician requirement and on December 22, 2016, USNC was cleared to become a part owner of MOP. Dr. Lozano agreed to exchange half of his membership interest to USNC in settlement of the note to USNC. USNC
and Dr. Lozano also agreed to share equally in providing a 5% equity interest in MOP to an additional investor as a consulting
fee for services rendered in the administration of MOP and UOMA. At December 22, 2016, USNC owned 35.83% of MOP with an
initial carrying value of $161,000. The Company recorded its share of losses of $12,000 for the period from December 22, 2016 to December 31, 2016, against its investment which resulted in a reduction of its equity investment to $149,000.
Due to increasing costs, continued net losses since
April 2015, and reliance on related party and other debt for operating cash flows, the fair value of UOMA is less than its carrying amount. The Company tested its investment for impairment at December 31, 2016 and determined that the
investment was impaired, and an impairment loss was recorded against the entire equity balance in MOP, as well as loans from USN and USNC to MOP and UOMA. For the nine months ended September 30, 2021 and 2020, the Company’s equity in loss
of MOP was $100,000 and $373,000,
respectively, but was not recorded due to prior losses.
During the year ended December 31, 2020, the Company
wrote off all remaining amounts due from MOP and UOMA and accrued interest thereon, resulting in a $686,000 loss. Increases in
allowances and amounts written off have been recorded as losses from investments in unconsolidated entities. During the nine months ended September 30, 2021, the Company advanced an additional $342,000, all of which has been fully impaired. These allowances and write offs were recorded as losses from investments in unconsolidated entities.
Due to loans made to MOP and UOMA, MOP and UOMA are
considered to be variable interest entities of the Company. However, as the Company is not deemed to be the primary beneficiary of MOP or UOMA, since it does not have the power to direct the operating activities that most significantly
affect MOP’s or UOMA’s economic performance, the entities are not consolidated, but certain disclosures are provided herein.
The following table presents the summarized financial
information of MOP:
MOP Condensed Consolidated Income Statement
Information
|
Nine Months Ended
September 30,
|
||||||||
|
2021
|
2020
|
|||||||
|
Patient revenue
|
$
|
1,601,000
|
$
|
1,473,000
|
||||
|
Net loss
|
$
|
(280,000
|
)
|
$
|
(1,041,000
|
)
|
||
|
USNC’s equity in loss of MOP
|
$
|
(100,000
|
)
|
$
|
(373,000
|
)
|
||
|
Three Months Ended
September 30,
|
||||||||
|
2021
|
2020
|
|||||||
|
Patient revenue
|
$
|
532,000
|
$
|
541,000
|
||||
|
Net loss
|
$
|
(185,000
|
)
|
$
|
(345,000
|
)
|
||
|
USNC’s equity in loss of MOP
|
$
|
(66,000
|
)
|
$
|
(124,000
|
)
|
||
MOP Condensed Consolidated Balance Sheet Information
|
September 30,
2021
|
December 31,
2020
|
|||||||
|
Current assets
|
$
|
284,000
|
$
|
204,000
|
||||
|
Noncurrent assets
|
466,000
|
701,000
|
||||||
|
Total assets
|
$
|
750,000
|
$
|
905,000
|
||||
|
Current liabilities
|
$
|
3,161,000
|
$
|
2,736,000
|
||||
|
Noncurrent liabilities
|
135,000
|
410,000
|
||||||
|
Deficit
|
(2,546,000
|
)
|
(2,241,000
|
)
|
||||
|
Total liabilities and deficit
|
$
|
750,000
|
$
|
905,000
|
||||
Note G - CB Oncology Partners
CBOP was organized September 1, 2017, to acquire the
rights of the new center from FOP. USNC originally had a 24% equity interest in CBOP. Beginning in October of 2017, CBOP
began paying the remainder of the costs associated with opening the center. The medical center opened and treated its first patient in January of 2018.
Effective November 15, 2019, FOP transferred to, and
CBOP assumed, a loan with BB&T bank, that it had entered into in order to finance the purchase of equipment and build out of the new center, as well as the associated property and equipment. In addition, CBOP and BB&T agreed to
reduce the monthly loan repayments for the next nine months, and to extend the term of the loan from November 2024 to July 2025. In July 2020 CBOP and BB&T further agreed to reduce the monthly payments for the life of the loan and
extended the loan to July of 2027.
In June 2020, CBOP made a $500,000 capital call to its members. UNSC converted previously-made advances totaling $121,000 into equity in CBOP to meet its capital requirement, and other members contributed $212,000 in cash. The remaining capital contributions are not expected to be met and, accordingly, the Company’s equity interest in CBOP increased to 28.58% in June 2020.
Amounts due from CBOP at September 30, 2021, total $2,165,000 of outstanding principal, less $1,251,000
of allowances, for a net receivable of $914,000 all of which is included in due from related parties on the accompanying
Condensed Consolidated Balance Sheet. At December 31, 2020, CBOP owed the Company $2,154,000 of which $1,251,000 had been reserved for a net receivable of $903,000 all of which is included in due from related parties on the accompanying Condensed Consolidated Balance Sheet. These balances accrue interest at 6% per annum. Interest earned by the Company from the amounts owed by CBOP totaled $93,000 and $94,000 for the nine months ended September
30, 2021, and 2020, respectively. At September 30, 2021 and December 31, 2020, total accrued interest was $366,000 and $273,000, respectively, all of which has been fully reserved for. The Company records increases in the allowance, when applicable, as a
component of loss from investments in unconsolidated entities and as a deduction in interest income for interest earned.
Due to loans made to CBOP, CBOP is considered to be a
variable interest entity of the Company. However, as the Company is not deemed to be the primary beneficiary of CBOP, since it does not have the power to direct the operating activities that most significantly affect CBOP’s economic
performance, the entity is not consolidated, but certain disclosures are provided herein.
The following table presents the summarized financial
information of CBOP:
CBOP Condensed Income Statement Information
|
Nine Months Ended
September 30,
|
||||||||
|
2021
|
2020
|
|||||||
|
Patient revenue
|
$
|
1,591,000
|
$
|
1,360,000
|
||||
|
Net income (loss)
|
$
|
69,000
|
$
|
(565,000
|
)
|
|||
|
USNC’s equity in earnings (loss) of CBOP
|
$
|
20,000
|
$
|
(148,000
|
)
|
|||
|
Three Months Ended
September 30,
|
||||||||
|
2021
|
2020
|
|||||||
|
Patient revenue
|
$
|
550,000
|
$
|
466,000
|
||||
|
Net loss
|
$
|
(23,000
|
)
|
$
|
(165,000
|
)
|
||
|
USNC’s equity in loss of CBOP
|
$
|
(7,000
|
)
|
$
|
(48,000
|
)
|
||
CBOP Condensed Balance Sheet Information
| September 30,
2021
|
December 31, 2020
|
|||||||
|
Current assets
|
$
|
591,000
|
$
|
385,000
|
||||
|
Noncurrent assets
|
3,818,000
|
4,271,000
|
||||||
|
Total assets
|
$
|
4,409,000
|
$
|
4,656,000
|
||||
|
Current liabilities
|
$
|
3,271,000
|
$
|
3,181,000
|
||||
|
Noncurrent liabilities
|
3,266,000
|
3,684,000
|
||||||
|
Deficit
|
(2,128,000
|
)
|
(2,209,000
|
)
|
||||
|
Total liabilities and deficit
|
$
|
4,409,000
|
$
|
4,656,000
|
||||
Note H – Income Taxes
The Company’s income tax rate, which includes federal and state income taxes, was approximately 115%, for the
nine months ended September 30, 2021, and 28% for the nine months ended September 30, 2020. The Company recorded a tax charge of $202,000 and $148,000 for the nine
months ended September 30, 2021, and 2020, respectively. The higher income tax expense in 2021 is primarily due to the annualized effect of the NYU contract ending in March 2021, including the catch-up tax effects of a cash basis taxpayer with no
operations, and the tax effect of a valuation allowance expected to be necessary for any deferred tax asset at the end of the year.
Note I – Subsequent
Event
Acquisition of Elite Health Plan, Inc. Effective October 1, 2021, USN, the Company’s wholly-owned subsidiary, 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. 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. We are still evaluating the impacts from this transaction to our consolidated financial statements.
| Item 2. |
Management Discussion and Analysis of Financial Condition and Results of Operations.
|
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.
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.
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.
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.
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.
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.
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.
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk.
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Not applicable.
| Item 4. |
Controls and Procedures
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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 Company’s reports under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the SEC’s 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 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 Company’s 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 Company’s 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, the Company’s Chief Executive Officer concluded that the Company’s disclosure controls and procedures were not 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 Commission’s rules and forms, due to the material weakness in internal control over financial reporting described below.
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 accounting principles generally accepted in the United States of America. The Company’s internal control over financial reporting includes those policies and procedures that:
(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;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United
States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the
financial statements.
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.
Our management assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, 2021. A material weakness is a control deficiency, or a combination of
control deficiencies in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. In
connection with the assessment described above, management identified the following material weakness as of September 30, 2021: The Company did not maintain sufficient qualified personnel with the appropriate level of knowledge, experience and
training in the application of accounting principles generally accepted in the United States of America and in internal controls over financial reporting commensurate with its financial reporting requirements. Specifically, effective controls were
not designed and in place to ensure that the Company maintained, or had access to, appropriate resources with adequate experience and expertise in the area of financial reporting for transactions such as investments in unconsolidated entities,
related party receivables, impairments and income taxes, and to properly assess the application of new accounting pronouncements. The Company is in the process of developing efficient approaches to remediate this material weakness. To do this in a
cost-effective manner, considering the current extent of the Company’s operations, management is making arrangements with consultants and advisors to assist on an as-needed basis.
Changes in Internal Control over Financial Reporting
While there have not been any changes in the Company’s 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 September 30, 2021, management is in the process of developing plans to remediate the material weakness identified above.
| Item 1. |
Legal Proceedings
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None
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds
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Not applicable.
| Item 3. |
Defaults Upon Senior Securities
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Not applicable.
| Item 4. |
Submission of Matters to a Vote of Security Holders
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Not applicable.
| Item 5. |
Other Information
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Not applicable.
| Item 6. |
Exhibits
|
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Certification of President and Chief Executive Officer (Principal Executive Officer and Principal Financial Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
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|
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Certification of President and Chief Executive Officer (Principal Executive Officer and Principal Financial Officer) pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
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101
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Interactive Data Files providing financial information from the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 in XBRL (eXtensible Business Reporting Language). Pursuant
to Regulation 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the
Securities Exchange Act of 1934, as amended, and are otherwise not subject to liability.
|
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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U.S. NeuroSurgical Holdings, Inc.
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(Registrant)
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Date: November 19, 2021
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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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29