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 2021 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.
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.
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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 have been prioritized
for the treatment and management of the outbreak. Consequently, there have been
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. 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, 2022, Compared to Three Months Ended September
30, 2021
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Selling, general and administrative expense of $221,000 for the third quarter of
2022 was 17% lower than the $268,000 incurred during the comparable period in
2021, due mostly to lower accounting and professional fees during the nine
months ended September 30, 2022.
The Company incurred no interest expense in the third quarter of 2022 or in the
comparable period in 2021.
During the three months ended September 30, 2022, the Company recognized a
$156,000 loss from its investment in unconsolidated entities compared to a
$77,000 loss during the same period in 2021. The higher current quarter loss is
primarily due to advances made to CBOP and MOP.
During the three months ended September 30, 2022, the Company recognized an
income tax expense of $1,000 compared to an income tax provision of $16,000
during the same period in 2021. The higher income tax charge in 2021 was due to
the recognition of insurance proceeds and corresponding gain on the sale of the
gamma knife.
For the three months ended September 30, 2022, the Company reported a net loss
of $378,000 as compared to $352,000 for the same period a year earlier. The net
loss was primarily due to the write off of advances to unconsolidated entities.
Nine months ended September 30, 2022, Compared to Nine Months Ended September
30, 2021
Patient revenue for the nine months ended September 30, 2022, and 2021 was $0
and $1,061,000, 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, 2022, were $0 as
compared to $86,000 reported for the comparable period in the previous year,
primarily due to the effects of the NYU contract ending in March 2021.
Selling, general and administrative expense of $878,000 for the nine months
ended September 2022, was 8% higher than the $815,000 incurred during the
comparable period in 2021, mainly due to due higher accounting and professional
fees in 2022, 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 no interest expense in the first nine months of 2022 and
$3,000 in the comparable period in 2021 related to finance leases.
The Company earned no interest income during the nine months ended September
302022, and $8,000 of interest income from its investment in a sales-type
sublease for the nine months ended September 30, 2021.
During the nine months ended September 30, 2022, the Company recognized a
$1,287,000 loss from its investment in unconsolidated entities compared to a
$350,000 loss during the same period in 2021. The higher current year loss is
primarily due to due to the write off of advances to CBOP in 2022.
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During the nine months ended September 30, 2022, the Company recognized an
income tax expense of $2,000 compared to an income tax provision of $500,000
during the same period in 2021. The higher income tax charge in 2021 was due to
the recognition of insurance proceeds and corresponding gain on the sale of the
gamma knife.
For the nine months ended September 30, 2022, the Company reported a net loss of
$2,167,000 as compared to $677,000 for the same period a year earlier. The
higher net loss was primarily due to due to the write off of advances to
unconsolidated entities and the cessation of the NYU contract in March 2021.
Liquidity and Capital Resources
At September 30, 2022, the Company had working capital of $367,000 as compared
to $1,617,000 at December 31, 2021. Cash and cash equivalents at September 30,
2022 were $651,000 as compared to $2,178,000 at December 31, 2021.
Net cash used in operating activities for the nine months ended September 30,
2022, was $1,141,000 as compared to $442,000 provided by operating activities
for the same period a year earlier. This change is primarily due to the
termination of the NYU contract and the Company using cash reserves for day to
day expenses. During the first nine months of 2022, the Company received $11,000
of distributed earnings from unconsolidated entities with no corresponding cash
receipts in the first nine months of 2021.
With respect to investing activities, the Company made $496,000 of advances to
unconsolidated entities during the nine months ended September 30, 2022,
compared with $374,000 of loans and advances in the same period a year earlier
to NP, CGK, CBOP, and MOP to assist with business operations and working capital
requirements. The Company also received $532,000 in principal payments under the
NYU sales-type sublease in 2021, compared to $0 during the first nine months of
2022.
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 paid $89,000 towards its finance lease obligations during the nine
months ended September 30, 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.
Risk Factors
We desire to take advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. The factors listed under the caption
"Risk Factors" in Annual Report on our Form 10-K for the fiscal year ended
December 31, 2021, 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.
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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.
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