UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K/A
(Amendment No. 1)

☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2021
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                     .

Commission file number:  0-15586

U.S. NeuroSurgical Holdings, Inc.
(Name of small business issuer in its charter)

Delaware
  
47-5370333
(State of other jurisdiction of incorporation or organization)
  
(I.R.S. Employer Identification No.)

2400 Research Blvd, Suite 325, Rockville, Maryland
  
20850
(Address of principal executive offices)
  
(Zip Code)

Issuer’s telephone number:          (301) 208-8998

Securities registered under Section 12(b) of the Act:
  
None
     
Securities registered under Section 12(g) of the Act:
   Common Stock, par value $.01 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐     No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.
Yes ☐     No ☒

Indicate by check mark whether the issuer (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 if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K/A or any amendment to this Form 10-K/A.   ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☐ (Do not check if a smaller reporting company)
Smaller reporting company ☒
 
Emerging growth company ☐

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  ☐    No  ☒

As of June 30, 2021 the aggregate market value of issuer’s Common Stock held by non-affiliates was approximately $1,257,000, based upon the closing price as reported on the OTC Pink marketplace for that day.

As of April 15, 2022, there were outstanding 7,792,185 shares of the issuer’s Common Stock. $.01 par value.

Documents incorporated by reference:  None

FORM 10-K/A

U.S. NeuroSurgical Holdings, Inc.
Form 10-K/A for the Fiscal year ended December 31, 2021

Table of Contents

5
 
Item 1.
5
 
Item 1A.
16
 
Item 1B.
20
 
Item 2.
20
 
Item 3.
20
 
Item 4.
20
21
 
Item 5.
21
 
Item 6.
21
 
Item 7.
22
 
Item 7A.
24
 
Item 8.
24
 
Item 9.
 57
 
Item 9A.
 57
 
Item 9B.
 58
59
 
Item 10.
 59
 
Item 11.
 60
 
Item 12.
 61
 
Item 13.
 62
 
Item 14.
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63
 
Item 15.
 63

Table of Contents
EXPLANATORY NOTE

This Amendment No. 1 (“Amendment No. 1”) to the Annual Report on Form 10-K/A amends the Annual Report on Form 10-K of U.S. NeuroSurgical Holdings, Inc. (the “Company”) for the fiscal year ended December 31, 2021, as filed with the Securities and Exchange Commission (the “SEC”) on April 15 , 2022 (the “Original Filing”). The Amendment restates the Company’s previously issued consolidated financial statements as of and for the year ended December 31, 2021. See Note L, Restatement of Previously Issued Consolidated Financial Statements, in Item 8, Financial Statements and Supplementary Data, for additional information. The relevant unaudited interim financial information for each of the quarters during the year ended December 31, 2021 has also been restated. See Note M, Quarterly Results of Operations (Unaudited), in Item 8, Financial Statements and Supplementary Data, for such restated information.

Restatement Background
During the quarter ended March 31, 2022, the Company determined that in March 2021, pursuant to an agreement with New York University (“NYU”), ownership of all of the gamma knife equipment at the NYU Medical Center transferred from the Company to NYU, resulting in the recognition of a gain on the sale and transfer of the gamma knife property on the Company’s December 31, 2021 income tax returns.  The Company previously received insurance proceeds with the Gamma Knife facility, which was destroyed as a result of flooding from Hurricane Sandy.  For tax purposes, the resulting gain becomes taxable when the replacement property is sold or disposed of, which occurred in 2021.  However, this tax liability was not recorded during that period and the Company has corrected the accounting errors in its 2021 consolidated financial statements.

Items Amended in this Form 10-K/A
We are filing this Amendment No. 1 to restate our consolidated financial statements as of December 31, 2021 that were previously reported on the Original Filing. The following items have been amended to reflect the restatements:
 
•     Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
•     Part II, Item 8. Financial Statements and Supplementary Data.
•     Part II, Item 9A. Controls and Procedures.

However, for the convenience of the reader, this Amendment No. 1 sets forth the Original Filing in its entirety, as amended to reflect the restatement.

The Company has not filed, and does not intend to file, amendments to (i) the Quarterly Reports on Form 10-Q for the quarters ended September 30, 2021, June 30, 2021, and March 31, 2021. Accordingly, investors should rely only on the financial information and other disclosures regarding the restated periods in this Form 10-K/A or in future filings with the SEC (as applicable), and not on any previously issued or filed reports, earnings releases or similar communications relating to these periods.

In addition, the Company’s Principal Executive and Principal Financial Officer has provided new certifications dated as of the date of this filing in connection with this Form 10-K/A (Exhibits 31.1 and 32.1).
 
Except as described above, no other information included in the Original Filing is being amended or updated by this Amendment No. 1 and this Amendment No. 1 does not purport to reflect any information or events subsequent to the Original Filing. This Amendment No. 1 continues to describe the conditions as of the date of the Original Filing and, except as expressly contained herein, we have not updated, modified or supplemented the disclosures contained in the Original Filing. Accordingly, this Amendment No. 1 should be read in conjunction with the Original Filing and with our filings with the SEC subsequent to the Original Filing.
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PART I

Item 1.
Business.

U.S. NeuroSurgical Holdings, Inc. owns and operates, through its wholly-owned subsidiaries, stereotactic radiosurgery centers, utilizing gamma knife technology, and holds other interests in radiological treatment facilities.  As used herein, unless the context indicates otherwise, the term “Company”, “Registrant” and “Holdings” means U.S. NeuroSurgical Holdings, Inc. and its wholly-owned subsidiary, U.S. NeuroSurgical, Inc. (“USN”), and the wholly-owned subsidiaries of USN, U.S. NeuroSurgical Physics, Inc., and USN Corona, Inc. , and Elite Health, Inc. from the date of acquisition.

USN, a Delaware corporation, was formed in July 1993.  Until September 1999, USN was a wholly owned subsidiary of GHS, Inc. (“GHS”).  Effective September 17, 1999, GHS distributed its shares of USN to the stockholders of GHS.

On September 3, 2015, pursuant to the Agreement and Plan of Reorganization (the “Merger Agreement”), dated as of September 3, 2015, by and among USN, Holdings and U.S. NeuroSurgical Merger Sub, Inc. (“Merger Sub”), the Company adopted a new holding company organizational structure whereby USN is now a wholly owned subsidiary of Holdings. This structure did not result in any changes to the assets or operations of the Company, but management believes that it will create a more flexible framework for possible future transactions and organizational and operational adjustments.

The holding company organizational structure was effected by a merger (the “Merger”) conducted pursuant to Section 251(g) of the Delaware General Corporation Law (the “DGCL”), which provides for the formation of a holding company structure without a vote of the stockholders of the constituent corporations.  Because the holding company organizational structure occurred at the parent company level, the remainder of the Company’s subsidiaries, operations and customers were not affected by this transaction.

In order to effect the Merger, USN formed Holdings as its wholly owned subsidiary and Holdings formed Merger Sub as its wholly owned subsidiary.  Under the terms of the Merger Agreement, Merger Sub merged with and into USN, with USN surviving the merger and becoming a direct, wholly owned subsidiary of Holdings.   Immediately prior to the Merger, Holdings had no assets, liabilities or operations.

Pursuant to the Merger Agreement, all of the outstanding capital stock of USN was converted, on a share for share basis, into capital stock of Holdings.  As a result, each former stockholder of USN became the owner of an identical number of shares of capital stock of Holdings, evidencing the same proportional interests in Holdings and having the same designations, rights, powers and preferences, qualifications, limitations and restrictions, as those that the stockholder held in USN.

Following the Merger, Holdings’ common stock continued to trade on the over-the-counter market and continued to be quoted on the OTC Pink marketplace under the same symbol, “USNU.”  The conversion of shares of capital stock under the Merger Agreement occurred without an exchange of physical certificates.  Accordingly, physical certificates formerly representing shares of outstanding capital stock of USN are deemed to represent the same number of shares of capital stock of Holdings.

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Pursuant to Section 251(g) of the DGCL, the provisions of the certificate of incorporation and bylaws of Holdings are substantially identical to those of USN prior to the date on which the Merger Agreement took effect.  The authorized capital stock of Holdings, the designations, rights, powers and preferences of such capital stock, and the qualifications, limitations and restrictions thereof are also substantially identical to those of the capital stock of USN immediately prior to the date of the Merger.  Further, the directors and executive officers of Holdings are the same individuals who were directors and executive officers, respectively, of USN immediately prior to the date of the Merger.

The Company’s executive offices are located at 2400 Research Boulevard, Suite 325, Rockville, Maryland 20850, and its telephone number is (301) 208-8998.

Disclosure Regarding Forward Looking Statements

Statements contained in this Annual Report on Form 10-K/A that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Investors are cautioned that forward-looking statements are inherently uncertain.  Actual performance and results may differ materially from that projected or suggested herein due to certain risks and uncertainties including, without limitation, the timing and ultimate collectability of accounts receivable for gamma knife procedures from different payor groups such as Medicare and private payors; competition; technological obsolescence; government regulation and malpractice liability.  Additional information concerning certain risks and uncertainties that could cause actual results to differ materially from that projected or suggested are included in Item 1A, Risk Factors, and may also be identified from time to time in the Company’s filings with the Securities and Exchange Commission (the “SEC”) and the Company’s public announcements, copies of which are available from the SEC or from the Company upon request.

General

The Company and its predecessors have owned and operated stereotactic radiosurgery centers, utilizing gamma knife technology since 1993. From July 1997 through March 2021, the Company held an interest in and operated a gamma knife center on the premises of New York University Medical Center (“NYU”) in New York, New York.  In January 2009, the Company, through its noncontrolling interest in Corona Gamma Knife, LLC, participated in the opening of a new center, the Southern California Regional Gamma Knife Center, at the San Antonio Regional Hospital (“SARH”) in Upland, California.

The Company’s business strategy is to provide cost-effective approaches that allow hospitals, physicians, and patients access to gamma knife treatment capability, a high capital cost item.  The Company provides the gamma knife to medical facilities on a “cost per treatment” basis.  The Company’s business model is to own, or hold an interest in, the gamma knife units, and charge the medical facility, where the unit is housed and maintained, based on utilization. During 2018, the Company’s arrangement with its only customer met the criteria for classification as a sales type lease, and the Company was deemed to have sold its sole gamma knife.

During the fourth quarter of 2007, the Company formed a new wholly owned subsidiary, USN Corona, Inc. (“USNC”), to carry investments in Corona Gamma Knife, LLC and NeuroPartners, LLC.  Those business units were formed to develop and manage the gamma knife center at SARH.

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The Company’s principal target market is medical centers in major health care catchment areas that have physicians experienced with and dedicated to the use of the gamma knife.  As it has with the NYU and SARH gamma knife centers, if circumstances support the opening of additional centers, the Company would seek, through the formation of a joint venture, cooperative ventures with these facilities.

The Company estimates that, as of December 31, 2021, there were approximately 120 gamma knife treatment centers in the U.S.

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 IMRT (Intensity Modulated Radiation Therapy) and IGRT (Image Guided Radiation Therapy) capabilities.  In 2010, the Company formed Florida Oncology Partners, LLC (“FOP”) in partnership with local physicians and other investors.  USNC owned a 24% interest in the venture.  FOP’s first center was located in Miami, Florida and opened in the second quarter of 2011.

In 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 initially a member of MOP as it was legally not able to participate due to the fact that USNC was not a physician. Paperwork was filed for a waiver and on December 22, 2016, USNC was cleared to become a part owner of MOP. USNC currently owns 35.83% of MOP.

Late in 2016, FOP took initial steps toward the development of a new radiation therapy center in Homestead, Florida.  However, 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.  CB Oncology Partners, LLC, (“CBOP”) was organized September 1, 2017 to acquire the rights of the 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. The intent was for FOP to operate the center for at least 10 years, but in June 2019 FOP ceased operations at the center, after continued losses at the site and lack of success in good faith efforts to renegotiate the agreement after several months of discussion. On September 21, 2021, FOP filed Articles of Dissolution with the Florida Department of State and they were recorded on September 22, 2021. On November 24, 2021, the third-party owner filed a Voluntary Motion to Dismiss their lawsuit against FOP, and on December 11, 2021, it was accepted and recorded by the court. FOP is fully dissolved.

The Company, through its noncontrolling interest in joint ventures, is currently exploring other opportunities for the establishment of cancer centers using IMRT and/or IGRT in Florida and other parts of the U.S.

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In addition, the Company has been exploring opportunities to expand to other businesses that could benefit its current operations and relationships.  Effective October 1, 2021, U.S. NeuroSurgical, Inc. (“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 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.

Gamma Knife Technology

The gamma knife is a unique stereotactic radiosurgical device used to treat brain tumors and other malformations of the brain without invasive surgery.  The gamma knife delivers a single, high dose of ionizing radiation emanating from 201 cobalt-60 sources positioned about a hemispherical, precision machined cavity.  The lesion is first targeted with precision accuracy using advanced imaging and three-dimensional treatment planning techniques such as CT Scans, MR Scans, conventional X-rays, or angiography.  Each individual beam is focused on a common target producing an intense concentration of radiation at the target site, destroying the lesion while spreading the entry radiation dose uniformly and harmlessly over the patient’s skull.  The mechanical precision at the target site is +/- 0.1mm (1/10 of 1 millimeter).  Because of the steep fall-off in the radiation intensity surrounding the target, the lesion can be destroyed, while sparing the surrounding tissue.

The procedure, performed in a single treatment, sharply reduces hospital stay times and eliminates post-surgical bleeding and infection.  When compared with conventional neurosurgery, gamma knife treatment is less expensive.  However, not all patients are candidates for radiosurgery since the decision to use the gamma knife depends on the type, size, and location of the lesion.

Linear Accelerators

A linear particle accelerator (LINAC) is a type of particle accelerator that greatly increases the velocity of charged subatomic particles or ions by subjecting the charged particles to a series of oscillating electric potentials along a linear beamline. LINACs accelerate electrons using a tuned-cavity waveguide, in which the RF (radio frequency) power creates a standing wave. Some LINACs have short, vertically mounted waveguides, while higher energy machines tend to have a horizontal, longer waveguide and a bending magnet to turn the beam vertically towards the patient. Medical LINACs use monoenergetic electron beams between 4 and 25 MeV, giving an X-ray output with a spectrum of energies up to and including the electron energy when the electrons are directed at a high-density (such as tungsten) target. The electrons or X-rays can be used to treat both benign and malignant disease.

The intensity of the radiation in IMRT can be changed during treatment to spare more adjoining normal tissue than is spared during conventional radiation therapy. Because of this an increased dose of radiation can be delivered to the tumor using IMRT. IMRT is a type of conformal radiation, which shapes radiation beams to closely approximate the shape of the tumor.

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IGRT is used to help better deliver radiation therapy to cancerous tumors. This is very useful since tumors can move between treatments due to differences in organ filling or movements while breathing. IGRT involves conformal radiation treatment guided by specialized imaging tests, such as CT scans, ultrasound or X-rays. These tests are done in the treatment room just before the patient is to receive his or her daily radiation therapy treatment.

New York Gamma Knife Center

The Company’s New York gamma knife treatment center was opened in July 1997 on the campus of NYU, and the Company held an interest in and operated the center until March 2021.  The Company installed a new Leksell gamma knife, the PERFEXION model, at the NYU Medical Center in March 2009 in replacement of the older gamma knife equipment.

In October 2012, the Company’s facility at NYU was totally destroyed as a result of flooding from Hurricane Sandy. The gamma knife had to be removed to prevent any cobalt leakage that might occur due to rusting of the equipment.

The Company finalized arrangements with NYU regarding the restoration of the gamma knife center and entered into an amendment to the original Gamma Knife Neuroradiosurgery Equipment Agreement (“NYU Agreement”).  The NYU facility was rebuilt and reopened in the Tisch Hospital of NYU Langone Medical Center.   The Company generated revenue from the restored gamma knife center under the NYU contract until March 2021, at which time the NYU contract ended and title to the gamma knife transferred to NYU.

NYU paid the Company a scheduled fee based on the number of patient procedures performed.

In 2016, the Company entered into an agreement with Elekta for the installation of new ICON imaging technology for the NYU Gamma Knife. This ICON technology was installed during the month of July 2016 and the gamma knife center reopened on August 5, 2016. The Company entered into a four-year lease to finance the acquisition of the ICON technology and associated installation costs. The two parties also agreed for USN to receive a fixed monthly payment of $30,000 for the remaining term of the agreement through March 2021.

In September 2017, the Company and NYU entered into an additional amendment to the NYU Agreement, whereby NYU committed to purchase all of the gamma knife equipment at the NYU Medical Center for a purchase price of $2,400,000, with 41 monthly installments of $50,000 from October 2017 through February 2021, and a final payment of $350,000 on March 31, 2021.  Previously, the NYU agreement ended on March 17, 2021 and NYU had an option to purchase the gamma knife equipment at the estimated future value of the equipment at that time.  In June 2017, the Company obtained an independent estimate of $2,570,000 for the fair value of the equipment in March 2021.

With the September 2017 amendment, the Company became obligated to reload the cobalt for the gamma knife at its own expense and bear the cost of site work involved in reloading the cobalt.  In July 2018, the Company entered into an agreement with Elekta for the cobalt reload on the NYU gamma knife. This cobalt reload occurred in July 2018, and the gamma knife center reopened on August 6, 2018. All cobalt related costs were finalized by October 1, 2018. As a result of the Company satisfying its obligation to reload the cobalt, the agreement with NYU met the criteria to be classified as a sales type lease. In addition, the Company is now no longer obligated to restore the NYU facility to its original condition. Accordingly, all related assets and the asset retirement obligation were derecognized effective October 1, 2018.

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All conditions of the agreement were met, and the contract expired on March 31, 2021.

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 on April 1, 2016, and the final payment was paid in March 2021, removing USNC’s guarantee obligation.

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 December 31, 2021 and 2020, the Company’s recorded (loss) investment of NeuroPartners LLC and CGK was ($10,000) and $26,000, respectively.  During the year ended December 31, 2021, and 2020, the Company’s equity in (loss) earnings of NeuroPartners LLC and CGK was ($36,000) and $124,000, respectively.  At December 31, 2021 and 2020, amounts due from these related parties was $6,000 and $9,000, respectively.

Future Gamma Knife Centers

The Company is currently exploring other opportunities for gamma knife centers and centers that provide related healthcare services located near hospitals throughout the United States.  Discussions regarding such centers is preliminary and there can be no assurance that any such discussions will result in the opening of new centers.

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 IMRT and IGRT capabilities.  In 2010, the Company formed FOP in partnership with local physicians and other investors.  USNC owned a 24% interest in the venture.  FOP’s first center was located in Miami, Florida and opened in the second quarter of 2011.

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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 had 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 as of December 31, 2021. 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.

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 was the guarantor with several other members of FOP. Effective November 15, 2019, FOP transferred this loan, along with the equipment acquired with the loan proceeds, to 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.

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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.  Due to the circumstances, FOP derecognized the associated assets and liabilities and calculated a contingent liability equal to the net liabilities derecognized. On November 24, 2021, the third-party owner filed a Voluntary Motion to Dismiss their lawsuit against FOP, and on December 11, 2021, it was accepted and recorded by the court. There can be no guarantee the third-party owner will not reinstitute any future claims against FOP.

The Company’s recorded investment in FOP prior to dissolution had been reduced to zero due to losses incurred in prior years. No equity in earnings had been recorded by the Company for the years ended December 31, 2021 and 2020 due to FOP’s deficit equity.

During the year ended December 31, 2020, the Company wrote off all remaining amounts due from FOP and accrued interest thereon, resulting in a $78,000 loss. During the year ended December 31, 2020, FOP repaid $155,000 of the amounts due to the Company.

On September 21, 2021, FOP filed Articles of Dissolution with the Florida Department of State that were recorded on September 22, 2021. FOP is fully dissolved.

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, LLC, (“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. During 2021 an additional member relinquished its ownership to USNC. As a result, the Company now holds a 22.5% ownership interest in BOPRE, which it accounts for under the equity method. The Company’s recorded investment in BOPRE is $151,000 and $134,000, at December 31, 2021 and 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.

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Medical Oncology Partners

In April 2015 MOP, was formed in partnership with local physicians and other investors. MOP was established to acquire a 100% equity interest in 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 it’s 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. During the year ended December 31, 2020, USNC contributed $125,000 of capital to MOP all of which was written off.  For the years ended December 31, 2021 and 2020, the Company’s equity in loss of MOP was $231,000 and $450,000, respectively, but was not recorded due to prior losses.

During the year ended December 31, 2020, the Company wrote off all amounts due and accrued interest thereon, from MOP and UOMA, resulting in a $686,000 loss. During the year ended December 31, 2021, the Company advanced an additional $461,000, 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.

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. CBOP had no assets at the end of 2017. The medical center opened and treated its first patient in January of 2018.

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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 December 31, 2021, total $2,174,000 of outstanding principal, less $1,251,000 of allowances, for a net receivable of $923,000 all of which is included in due from related parties on the accompanying Consolidated Balance Sheet. Amounts due from CBOP at December 31, 2020, total $2,154,000 of outstanding principal, less $1,251,000 of allowances, for a net receivable of $903,000 all of which is included in due from related parties on the accompanying Consolidated Balance Sheet. These balances accrue interest at 6% per annum. Interest earned by the Company from the amounts owed by CBOP totaled $125,000 for both the years ended December 31, 2021 and 2020.  At December 31, 2021 and 2020, total accrued interest was $398,000 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. For the years ended December 31, 2021 and 2020, the Company’s equity in loss of CBOP was $91,000 and $195,000, respectively, but was not recorded due to prior losses.

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.

Strategy for Participation in Cancer Treatment

As a result of the Company’s experiences over the past few years, the Company, through unconsolidated joint ventures, has expanded its focus to the broader based cancer treatment market.  In order to reduce the risk and broaden its opportunities for profitable growth, the Company, through unconsolidated joint ventures, where possible, has been pursuing partnerships with local investors/providers to develop and operate oncology centers that utilize LINACs to treat cancers in the whole body.  The Company also continues to evaluate opportunities to develop additional gamma knife facilities.  BOP and the Southern California Regional Gamma Knife Center typify this strategy.

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Elite Health Plan

Under the terms of the Share Exchange Agreement that USN, the Company’s wholly-owned subsidiary, entered into with Elite Health and its shareholders, USN acquired all of the outstanding shares of capital stock of Elite Health and, in exchange therefor, the former holders of Elite Health received newly-issued shares of USN, representing 15% of the shares of USN following the transaction.

The transaction with Elite Health was structured as an investment by Elite Health shareholders in USN, and as such did not have an immediate effect on the percentage ownership of the shareholders of the Company.  However, the Company’s interest in USN, which currently holds substantially all of the interest in the Company’s businesses and operations, was effectively diluted by 15% as a result of the issuance of the new USN shares to the former holders of Elite Health.  In addition, 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 for Company shares.

Elite Health is a private company with a 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 will endeavor to utilize the latest advances in information systems, including 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.

Employees

USN has three full-time employees and relies on consultants for certain services as required from time-to-time.  All of its full-time employees are engaged in sales, marketing and administration.

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Item 1A.
Risk Factors.

Regulatory Environment

The levels of revenues and profitability of companies involved in the health services industry, such as the Company, may be affected by the continuing efforts of governmental and third-party payors to contain or reduce the costs of health care through various means.  Although the Company does not believe that its business activities will be materially affected in the foreseeable future, it is not possible to predict the long term effect of recent and future changes in the regulatory environment, or the responses of federal, state or private payors for healthcare goods and services in response to healthcare proposals or legislation.

In March 2010, significant reforms to the healthcare system were adopted in the form of the Patient Protection and Affordable Care Act (the “PPACA”). The PPACA includes provisions that, among other things, reduce and/or limit Medicare reimbursement to certain providers, require all individuals to have health insurance (with limited exceptions) and impose new and/or increased taxes.  The Company cannot predict the effects these changes may have on its business, and no assurance can be given that any such changes will not have a material adverse effect on the Company.

In addition, the provision of medical services in the United States is dependent on the availability of reimbursement to consumers from third party payors, such as government and private insurance companies.  Although patients are ultimately responsible for services rendered, the Company expects that the majority of its revenues will be derived from reimbursements by third party payors.  Medicare has authorized reimbursement for gamma knife and other forms of cancer treatment.  Over the last several years, such third-party payors are increasingly challenging the cost effectiveness of medical products and services and taking other cost containment measures.  Therefore, although treatment costs using the gamma knife compare favorably to traditional invasive brain surgery, it is unclear how this trend among third party payors and future regulatory reforms affecting governmental reimbursement will affect procedures in the higher end of the cost scale.

In the future, the Company may establish additional gamma knife or other types of cancer treatment centers.  Completion of future centers would require approvals and arrangements with hospitals, health care organizations, or other third parties, including certain regulatory authorities.  The Food and Drug Administration has issued the requisite pre-market approval for the gamma knife utilized by the Company.  In addition, many states require hospitals to obtain a Certificate of Need (“CON”) before they can acquire a significant piece of medical equipment.  Should the Company enter into future ventures such “need” will be demonstrable, but it can have no assurance that CONs will be granted.  In addition, the Nuclear Regulatory Commission (the “NRC”) must issue a permit to the Company to permit loading the cobalt at each gamma knife site.  While the Company believes that it can obtain an NRC permit for each gamma knife unit, there is no assurance that it will.

Liability Insurance

Although the Company does not directly provide medical services, it has obtained professional medical liability insurance, and has general liability insurance as well. The Company’s professional medical liability and general liability policies have limits of $3 million each.  The Company believes that its insurance is adequate for providing treatment facilities and non-medical services, although there can be no assurance that the coverage limits of such insurance will be adequate or that coverage will not be reduced or become unavailable in the future.

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Competition

The health care industry, in general, is highly competitive and the Company expects to have substantial competition from other independent organizations, as well as from hospitals in establishing future gamma knife or other types of cancer treatment centers.  There are other companies that provide gamma knife or other types of cancer treatment on a “cost per treatment basis”.  In addition, larger hospitals may be expected to maintain a gamma knife as well as competing technologies as part of their regular inpatient services, which could have the effect of reducing the number of gamma knife procedures performed at such facility.  Principal competitive factors include quality and timeliness of test results, ability to develop and maintain relationships with referring physicians, facility location, convenience of scheduling and availability of patient appointment times.  The Company believes that cost containment measures will encourage hospitals to seek companies that are providing the technology, instead of incurring the capital cost of establishing their own treatment centers.

Gamma Knife Financing

The gamma knife is an expensive piece of equipment, presently costing from $3.0 to $4.5 million, depending on features.  Therefore, the Company’s development of new gamma knife centers is dependent on its ability to secure favorable financing.  In addition, after a number of years of use, the radioactive cobalt contained in the gamma knife requires replacement.  This is also an expensive process.

Gamma Knife Supply and Servicing

To date, the Company has purchased all of its gamma knife equipment from Elekta Instruments, Inc., a subsidiary of AB Elekta of Stockholm, Sweden.  Elekta is responsible for the installation and testing of the equipment and the training of the hospital staff in the operation of the equipment.  The Company arranges for maintenance services for its gamma knife units, including the necessary services related to cobalt replacement, through Elekta.  Any interruption in the supply of equipment or services from Elekta would adversely affect the Company’s ability to maintain its gamma knife treatment centers.

Also, should restrictions be imposed on the operations of Elekta, such as restrictions relating to the handling and disposal of radioactive materials, necessary support services could become more costly and more difficult to obtain.

New Technology/Possible Obsolescence

Gamma knife technology may be subject to technological change.  Consequently, the Company will have to rely on the leading gamma knife’s manufacturer, Elekta, to introduce improvements or upgrades in order to keep pace with technological change.  Any such improvements or upgrades which the Company may be required to introduce will require additional financing.  In addition, newly developed techniques and devices for performing brain surgery may render the gamma knife less competitive or obsolete.

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Dependence on Hospital, Healthcare Organizations and Others

In establishing new gamma knife centers, the Company must reach an arrangement with a hospital or other medical center for the installation and operation of a gamma knife facility and then to purchase the gamma knife equipment and construct and operate the facility.  Before entering into such an agreement, the Company must make an assessment of the economic feasibility of operating the gamma knife at that location.  The Company retains no control or influence over the medical staff or decisions regarding the treatment of patients.  In that regard, the Company’s economic success is highly dependent on its initial determinations of the viability of the gamma knife’s location.  Should the medical center or the physicians at that medical center ultimately use the gamma knife facility for significantly fewer patients than initially projected, the Company could be required to operate the gamma knife center at a loss for an extended period of time.

With respect to other cancer centers in which the Company has an interest, the Company participates with other physician groups and other investors in planning and constructing the facility and purchasing the necessary equipment, such as an IMRT or IGRT.  The Company plays a lead role in the initial planning and establishment of those centers but does not control the day-to-day operations thereafter.  The long-term success of those centers depends to a significant degree on the operating decisions made by the physicians and administrators at those centers.

New Business Activity – Elite Health

Elite Health, the business acquired by the Company in October 2021, 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.  While the Company believes that the Elite Health founders and affiliates have the required experience to obtain the license and launch and operate the business if it is successful in obtaining the license, there can be no assurance that the Company will be successful in these endeavors.  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.

The COVID-19 Outbreak May Continue to Adversely Affect Our Business Operations and Financial Condition.

The novel coronavirus COVID-19 pandemic has had a materially adverse effect on operations in New York and Florida and could continue to impact our business in all locations.  Most states and municipalities in the U.S., including New York, California, and Florida, continue to take action 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 Gamma Knife and other 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.

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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 government and the healthcare 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 are in excess of $2 million at December 31, 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.

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.  If the Company experiences operating losses in the future, we will be required to seek additional capital to support continued operations and the development of new centers, but we cannot assure you, however, that we will be able to raise such additional capital as and when required.

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Stock Price Volatility; Illiquid Trading Market

The Company’s common stock is thinly traded.  At present, trades are reported on the OTC Pink marketplace only several days a month.  This thin trading and relatively small non-affiliate float lead to a high level of volatility in reported sale prices.  Investors in the Company’s Common Stock will have a limited ability to trade shares on the open market and, even if able to sell shares, could suffer significant market losses due to large swings in the prices of the shares.

Item 1B.
Unresolved Staff Comments.

None

Item 2.
Properties.

The Company’s base facility, from which it conducts substantially all of its administrative operations, is located in Rockville, Maryland and occupies approximately 1,300 square feet. The rent is approximately $42,000 per year.  The Company occupied about 3,800 square feet at the NYU Medical Center in New York, New York.  This facility was sold to NYU Medical Center and at the end of the contract on March 31, 2021, ownership was passed onto NYU Medical Center.

Item 3.
Legal Proceedings.

The Company is subject to lawsuits, investigations and potential claims arising out of the ordinary conduct of its business.  The Company is not currently involved in any material litigation.

Item 4.
Mine Safety Disclosures.

Not applicable

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PART II

Item 5.
Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

The Company’s Common Stock is traded on the over-the-counter market and quoted on the OTC Pink marketplace.

The following table displays the range of high and low closing prices for the Company’s Common Stock for the period from January 1, 2020 through December 31, 2021.

Period
High Close
Low Close
     
January 1 – March 31, 2020
.20
.15
April 1 - June 30, 2020
.28
.11
July 1 – September 30, 2020
.28
.19
October 1 – December 31, 2020
.33
.25
     
January 1 – March 31, 2021
.38
.25
April 1 - June 30, 2021
.44
.26
July 1 – September 30, 2021
.31
.25
October 1 – December 31, 2021
.31
.23

The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions.

As of April 15, 2022, there were approximately 66 holders of record of the Company’s Common Stock.

To date the Company has declared no dividends on its Common Stock and does not anticipate declaring dividends in the foreseeable future.

During the year ended December 31, 2021, the Company did not purchase any of its own equity securities.

Item 6.
Selected Financial Data

Not required for smaller reporting companies.

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Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Restatement of Previously Issued Consolidated Financial Statements

The following discussion and analysis should be read in conjunction with the audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2021, included elsewhere in this Annual Report on Form 10-K/A. This Annual Report on Form 10-K/A restates amounts included in the 2021 Annual Report as of and for the year ended December 31, 2021. See Note L, Restatement of Previously Issued Consolidated Financial Statements, in Item 8, Financial Statements and Supplementary Data, for additional information. The relevant unaudited interim financial information for each of the quarters during the year ended December 31, 2021 has also been restated. See Note M, Quarterly Results of Operations (Unaudited), in Item 8, Financial Statements and Supplementary Data, for such restated information.

Results of operations

2021 Compared to 2020

Patient revenue in 2021 was $1,061,000 as compared to $3,173,000 in 2020. 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 in 2021 were $86,000 as compared to $361,000 in 2020, primarily due to the annualized effects of the NYU contract ending in March 2021.

SG&A decreased by $134,000 or approximately 11% from $1,197,000 in 2020 to $1,063,000 in 2021.  This decrease is primarily due to a decrease in insurance and other costs related to maintaining the NYU Gamma Knife Center.  Interest expense decreased to $3,000 in 2021 from $25,000 in 2020, due mainly to the equipment loan being paid off in March of 2021.  Loss from investments in unconsolidated entities decreased from $809,000 in 2020 to $470,000 in 2021, primarily due to lower impairments of amounts advanced to MOP and CBOP, in turn due to lower advances to those entities in 2021.  The Company reported a net loss of $973,000 in 2021, as compared to a net income of $533,000 in the prior year, primarily due to the closing of the NYU Gamma Knife Center.  The Company incurred an income tax charge of $420,000 in 2021, compared with $323,000 in 2020.

Liquidity and capital resources

At December 31, 2021, the Company had working capital of $1,617,000 as compared to $2,597,000 at December 31, 2020. Total assets decreased by $485,000 from 2020 to 2021 principally due to Company having to use its reserves, since the closure of the NYU Gamma Knife Center. Cash and cash equivalents at December 31, 2021 were $2,178,000 as compared to $2,030,000 at December 31, 2020.

Net cash provided by operating activities was $174,000 in 2021, as compared to $1,117,000 in 2020.  Net cash used in financing activities was $89,000 in 2021 as compared to $901,000 in 2020 mainly due to lower finance lease principal payments.

For the year ended December 31, 2021, net cash provided by investing activities was $63,000 in 2021 as compared to $479,000 used in 2020, primarily due to $356,000 lower principal payments received under the sales-type sublease from the NYU Gamma Knife Center.

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Off-balance sheet arrangements

None

Critical accounting policies

Estimates and assumptions

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ materially from those estimates.

Revenue Recognition

Prior to October 2018, the Company’s NYU Agreement primarily consisted of an operating lease, and the associated patient revenue from the use of the gamma knife was primarily operating lease income. Following an amendment to the Company’s lease agreement with NYU, effective August 2016, the Company received a $30,000 minimum lease payment from NYU each month. With the exception of these fixed payments, the NYU agreement provided only for contingent rental income based on a tiered fee schedule related to the number of patient procedures and associated thresholds, with the rate per procedure decreasing as more procedures are performed.  The Company recognized the contingent rental income and the fixed monthly payments on a systematic basis using an average fee per procedure calculated by estimating the expected number of procedures per contract year which runs from November 1, to the following October 31.  Any amounts received in excess of the average fee were considered deferred revenue.  At the end of each reporting period, the Company reviewed its estimated revenue for the contract year and adjusted revenue for any material changes in the estimate.  At the end of the contract year, the revenue was adjusted to the actual amount received.

In September 2017, USN and NYU entered into an additional amendment to the NYU Agreement, whereby NYU committed to purchase all of the gamma knife equipment at NYU for a purchase price of $2,400,000, consisting of 41 monthly installments of $50,000 commencing at the end of October 2017 and continuing through the end of February 2021, with a final payment of $350,000 on March 31, 2021.  Upon receipt of final payment, title to all the equipment at the center passed to NYU.

In October 2018, USN satisfied its obligation to reload the cobalt, and the NYU agreement was reevaluated to be a sales-type sublease between USN, the lessor, and NYU, the lessee. At the inception of a sales-type sublease, the lessor recognizes its gross investment in the sublease, unearned income and sales price. The cost or carrying amount, if different, of the leased property plus any initial direct costs minus the present value of the unguaranteed residual value accruing to the benefit of the lessor, is charged by the lessor against income in the current period.  Management has concluded that all fixed future minimum lease payments (“MLPs”) payable by NYU to USN should be included in the investment in sublease. The MLPs included 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 present value of the MLPs was estimated to be approximately $2,447,000 and was recorded as an investment in sublease effective October 1, 2018. Until the contract renewal in October of 2020, the patient revenue under the tiered schedule had been considered contingent income under the sales type lease was recognized on a systematic basis using an average fee per procedure, until October 2020, when the Company recorded patient revenue based on procedures performed at the applicable billing rate for each procedure since the Company did not exceed the threshold at which billing rates decreased before the completed sale of the equipment on March 31, 2021.

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NYU Maintenance Revenue

The NYU agreement, which ended in March 2021, specified that USN was obligated to maintain the gamma knife equipment in good operating condition. This maintenance obligation was incurred through the term of the agreement while patient procedures were performed. Usage of the gamma knife machine was directly linked to the maintenance of the machine. USN billed NYU monthly for the maintenance and gamma knife services provided. The portion of the total contract consideration allocated to the maintenance services was $79,000 for 2021 and $316,000 for 2020 and was recognized ratably over each year.

Investments in unconsolidated entities

The Company accounts for its investments in unconsolidated entities by the equity method.  The Company records its share of such earnings (losses) in the consolidated statements of operations as “Income (loss) from investments in unconsolidated entities”.  The carrying value of the Company’s investments in unconsolidated entities is recorded in the consolidated balance sheets.  The Company records losses of the unconsolidated entities only to the extent of the Company’s interest in, and advances to, the entities.

Item 7A.
Qualitative and Quantitative Disclosures About Market Risk.

Not required for smaller reporting companies.

Item 8.
Financial Statements and Supplementary Data.

The financial statements and supplementary data required by this item are set forth in this Annual Report on Form 10-K/A beginning at page F-1.

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U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES
Contents

   
Page
     
Consolidated Financial Statements

     
 
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U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Stockholders
U.S. NeuroSurgical Holdings, Inc.
Rockville, Maryland

Opinion on the Financial Statements
 
We have audited the accompanying consolidated balance sheets of U.S. NeuroSurgical Holdings, Inc. and Subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, equity, and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
 
Basis for Opinion
 
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
 
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
 
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Restatement of Previously Issued Financial Statements

As discussed in Note L to the consolidated financial statements, the 2021 consolidated financial statements have been restated to correct a misstatement.

Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation and accounting for the acquisition related to a business combination
As discussed in Note K to the consolidated financial statements, effective October 1, 2021, U.S. NeuroSurgical, Inc. (“USN”) acquired all of the outstanding shares of capital stock of Elite Health Plan, Inc. (“Elite”), in exchange for issuing shares of common stock in USN to the former stockholders of Elite worth approximately $315,000.

We identified the assessment of the valuation of the acquisition and the addition of a noncontrolling interest holder as a critical audit matter. There was a high degree of subjective auditor judgment in assessing the estimate used to derive the fair value of the issued shares.

The following are the primary procedures we performed to address the critical audit matter. We compared the trading value of the Parent Company's stock for the preceding three and nine months to the estimate on the acquisition date and we evaluated discounts applied in relation to the noncontrolling interests' lack of control and participation and in relation to relevant valuation techniques. We also recalculated the amounts reported to record this transaction and the related noncontrolling interest.
 
Aronson LLC
  
Rockville, Maryland
 
June 24, 2022

We have served as the Company’s auditor since 2014.

26
Table of Contents
U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES
U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

   
December 31,
  
   
2021
    
2020
  
ASSETS
    (As Restated)
        
Current assets:
            
Cash and cash equivalents
  
$
2,178,000
    
$
2,030,000
  
Accounts receivable
    
-
      
346,000
  
Investment in sales-type sublease - current
    
-
      
532,000
  
Other current assets
    
65,000
      
99,000
  
Total current assets
    
2,243,000
      
3,007,000
  
                 
Other assets:
                
Due from related parties
    
930,000
      
912,000
  
Investments in unconsolidated entities
    
141,000
      
160,000
  
Goodwill
    
315,000
      
-
  
Total other assets
    
1,386,000
      
1,072,000
  
                 
Property and equipment:
                
Operating lease right-of-use asset
    
59,000
      
94,000
  
Total property and equipment
    
59,000
      
94,000
  
                 
TOTAL ASSETS
  
$
3,688,000
    
$
4,173,000
  
                 
LIABILITIES
                
Current liabilities:
                
Obligations under finance lease - current portion
  
$
-
    
$
89,000
  
Operating lease right-of-use liability - current portion
    
43,000
      
40,000
  
Accounts payable and accrued expenses
    
169,000
      
170,000
  
Income taxes payable
    
414,000
      
111,000
  
Total current liabilities
    
626,000
      
410,000
  
                 
Operating lease right-of-use liability - net of current portion
    
23,000
      
66,000
  
Guarantee liability
    
11,000
      
11,000
  
Total liabilities
    
660,000
      
487,000
  
                 
EQUITY
                
Common stock - par value $0.01; 25,000,000 shares authorized; 7,792,185 shares issued and outstanding  at December 31, 2021 and 2020.
    
78,000
      
78,000
  
Additional paid-in capital
    
2,871,000
      
3,100,000
  
(Accumulated deficit) retained earnings
    
(373,000
)
    
508,000

U.S. Neurosurgical Holdings, Inc. stockholders’ equity
     2,576,000       3,686,000  
Noncontrolling interests
     452,000       -  
Total equity
    
3,028,000
      
3,686,000
  
TOTAL LIABILITIES AND EQUITY
  
$
3,688,000
    
$
4,173,000
  

See accompanying notes to the consolidated financial statements

27
U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES
U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

   
Years Ended December 31,
  
   
2021
    
2020
  
     (As Restated)
        
Revenue
  
$
1,061,000
    
$
3,173,000
  
                 
Costs and expenses:
                
Patient expenses
     86,000       361,000  
Selling, general and administrative
     1,063,000       1,197,000  
                 
Total
     1,149,000       1,558,000  
                 
Operating (loss) income
     (88,000 )    
1,615,000
  
                 
Total other (expense) income
                
Interest expense
    
(3,000
)
    
(25,000
)
Interest income
    
-
      
3,000
  
Interest income - sales-type sublease
    
8,000
      
72,000
  
Loss from investments in unconsolidated entities, net
    
(470,000
)
    
(809,000
)
Total other expense
     (465,000 )     (759,000 )
                 
(Loss) income before income taxes
    
(553,000
)
    
856,000
  
                 
Income tax provision
    
420,000
      
323,000
  
                 
Net (loss) income
  

(973,000
)
  

533,000
  
Net loss attributable to noncontrolling interests
     92,000       -  
Net (loss) income attributable to U.S. Neurosurgical Holdings, Inc.
   $ (881,000 )   $ 533,000  
                 
Basic and diluted net (loss) income per share attributable to U.S. Neurosurgical Holdings, Inc.
  
$
(0.11
)
  
$
0.07
  
                 
Weighted average common shares outstanding, basic and diluted
    
7,792,185
      
7,792,185
  

See accompanying notes to the consolidated financial statements

28
U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES
U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY


  
Common Stock
                                
    
Number
of
Shares
    
Amount
    
Additional
Paid-In
Capital
    
(Accumulated
Deficit)
Retained Earnings
    U.S. Neurosurgical Holdings, Inc. Stockholders’ Equity    
Noncontrolling
Interests
   
Total
Equity
 
Balance - December 31, 2019
    
7,792,185
    
$
78,000
    
$
3,100,000
    
$
(25,000
)
  
$
3,153,000
    
$
-
    
$
3,153,000
  
Net income for the year ended December 31, 2020
    
-
      
-
      
-
      
533,000
      
533,000
      
-
      
533,000
  
Balance - December 31, 2020
    
7,792,185
    
$
78,000
    
$
3,100,000
    
$
508,000
    
$
3,686,000
    
$
-
    
$
3,686,000
  
Sale of subsidiary shares to noncontrolling interests
                     (229,000 )             (229,000 )     544,000       315,000  
Net loss for the year ended December 31, 2021 (As Restated)
    
-
      
-
      
-
      
(881,000
)
    
(881,000
)
    
(92,000
)
    
(973,000
)
Balance - December 31, 2021 (As Restated)
    
7,792,185
    
$
78,000
    
$
2,871,000
    
$
(373,000
)
  
$
2,576,000
    
$
452,000
    
$
3,028,000
  

See accompanying notes to the consolidated financial statements

29
U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES
U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

   
Years Ended December 31,
  
   
2021
    
2020
  
    (As Restated)
        
Cash flows from operating activities:
            
Net (loss) income
  
$
(973,000
)
  
$
533,000
  
Adjustments to reconcile net income to net cash provided by operating activities:
                
Amortization of operating lease right-of-use asset
    
35,000
      
34,000
  
Loss from investments in unconsolidated entities, net
    
470,000
      
809,000
  
Distributed earnings from unconsolidated entities
    
-
      
176,000
  
Accrued interest from notes receivable
    
-
      
-
  
Deferred income taxes
    
-
      
17,000
  
Changes in:
                
Accounts receivable
    
346,000
      
10,000
  
Income taxes receivable/payable
    
303,000
      
(109,000
)
Other current assets
    
34,000
      
(6,000
)
Accounts payable and accrued expenses
    
(1,000
)
    
(85,000
)
Deferred revenue
    
-
      
(226,000
)
Operating lease right-of-use liability
    
(40,000
)
    
(36,000
)
Net cash provided by operating activities
    
174,000
      
1,117,000
  
                 
Cash flows from investing activities:
                
Advances to unconsolidated entities
    
(491,000
)
    
(459,000
)
Repayments from loans to unconsolidated entities
    
22,000
      
175,000
  
Capital contributions to unconsolidated entities
    
-
      
(125,000
)
Principal payments received under sales-type sublease
    
532,000
      
888,000
  
Net cash provided by investing activities
    
63,000
      
479,000
  
                 
Cash flows from financing activities:
                
Repayment of finance lease obligations
    
(89,000
)
    
(901,000
)
Net cash used in financing activities
    
(89,000
)
    
(901,000
)
                 
Net change in cash and cash equivalents
    
148,000
      
695,000
  
Cash and cash equivalents - beginning of year
    
2,030,000
      
1,335,000
  
Cash and cash equivalents - end of year
  
$
2,178,000
    
$
2,030,000
  
                 
Supplemental disclosures of cash flow information:
                
Cash paid for:
                
Interest
  
$
3,000
    
$
25,000
  
Income taxes
  
$
213,000
    
$
419,000
  
Supplemental disclosure of noncash investing and financing activities:
                
Conversion of prior advances to unconsolidated entity in lieu of cash payment for capital contribution
  
$
-
    
$
121,000
  
Issuance of subsidiary shares in exchange for a controlling interest in Elite Health Plan, Inc.
   $ 315,000     $ -  

See accompanying notes to the consolidated financial statements

30
U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note A – Organization and Business

U.S. NeuroSurgical Holdings, Inc. owns and operates, through its wholly-owned subsidiaries, stereotactic radiosurgery centers, utilizing gamma knife technology, and holds other interests in radiological treatment facilities.  As used herein, unless the context indicates otherwise, the term “Company”, “Registrant” and “Holdings” means U.S. NeuroSurgical Holdings, Inc. and its wholly-owned subsidiary, U.S. NeuroSurgical, Inc. (“USN”), and the wholly-owned subsidiaries of USN, U.S. NeuroSurgical Physics, Inc., USN Corona, Inc., and Elite Health Plan, Inc, from the date of acquisition.

USN, a Delaware corporation, was organized in July 1993 for the purpose of owning and operating stereotactic radiosurgery centers and utilizing the gamma knife technology.  USN held an interest in one gamma knife center on the premises of New York University Medical Center (“NYU”) in New York, New York, which expired during 2021.  Management continues to explore opportunities to organize and participate in additional gamma knife centers.  USN’s business strategy is to provide a mechanism whereby hospitals, physicians, and patients can have access to gamma knife treatment capability, a high capital cost item.  USN provides the gamma knife to medical facilities on a “cost per treatment” basis.  Through March 31, 2021, USN held an interest in a gamma knife unit and was reimbursed by the facility where it is housed, based on utilization. This contract ended on March 31, 2021 and currently USN does not have any customer contracts.

During the fourth quarter of 2007, USN formed a wholly-owned subsidiary, USN Corona, Inc. (“USNC”), to carry investments in Corona Gamma Knife, LLC and NeuroPartners, LLC. Those investments were formed to develop and manage a gamma knife center at San Antonio Regional Hospital in Upland, California. USNC currently owns 39% of Corona Gamma Knife, LLC and 20% of NeuroPartners, LLC. (See Note C[1])

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 IMRT (Intensity Modulated Radiation Therapy) and IGRT (Image Guided Radiation Therapy) capabilities. In 2010, the Company formed Florida Oncology Partners, LLC (“FOP”) in partnership with local physicians and other investors. USNC owned a 24% interest in FOP. FOP’s first center was located in Miami, Florida and opened in the second quarter of 2011.

During 2011, the Company participated in the formation of Boca Oncology Partners RE, LLC (“BOPRE”), for the purpose of acquiring an interest in Boca West, IMP, LLC, (“Boca West, IMP”) which owns a medical office building. USNC currently owns 22.51% of BOPRE. (See Note C[3]).

In 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 its formation, as it was not able to participate in MOP’s formation due to the fact that USNC was not a physician. An application was filed for a waiver and on December 22, 2016, USNC was cleared to become a part owner of MOP. USNC currently owns 35.83% of MOP. (See Note C[4])

On September 3, 2015, pursuant to the Agreement and Plan of Reorganization (the “Merger Agreement”), dated as of September 3, 2015, by and among USN, Holdings and U.S. NeuroSurgical Merger Sub, Inc. (“Merger Sub”), the Company adopted a new holding company organizational structure whereby USN is now a wholly owned subsidiary of Holdings. This structure did not result in any changes to the assets or operations of the Company, but management believes that it will create a more flexible framework for possible future transactions and organizational and operational adjustments.

The holding company organizational structure was effected by a merger (the “Merger”) conducted pursuant to Section 251(g) of the Delaware General Corporation Law (the “DGCL”), which provides for the formation of a holding company structure without a vote of the stockholders of the constituent corporations. Because the holding company organizational structure occurred at the parent company level, the remainder of the Company’s subsidiaries, operations and customers were not affected by this transaction.

31
U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES
In order to effect the Merger, USN formed Holdings as its wholly owned subsidiary and Holdings formed Merger Sub as its wholly owned subsidiary. Under the terms of the Merger Agreement, Merger Sub merged with and into USN, with USN surviving the merger and becoming a direct, wholly owned subsidiary of Holdings. Immediately prior to the Merger, Holdings had no assets, liabilities or operations.

Pursuant to the Merger Agreement, all of the outstanding capital stock of USN was converted, on a share for share basis, into capital stock of Holdings. As a result, each former stockholder of USN became the owner of an identical number of shares of capital stock of Holdings, evidencing the same proportional interests in Holdings and having the same designations, rights, powers and preferences, qualifications, limitations and restrictions, as those that the stockholder held in USN.

Following the Merger, Holdings’ common stock continued to trade on the over-the-counter market and continued to be quoted on the OTC Markets under the same symbol, “USNU.” The conversion of shares of capital stock under the Merger Agreement occurred without an exchange of physical certificates. Accordingly, physical certificates formerly representing shares of outstanding capital stock of USN are deemed to represent the same number of shares of capital stock of Holdings.

Pursuant to Section 251(g) of the DGCL, the provisions of the certificate of incorporation and bylaws of Holdings are substantially identical to those of USN prior to the date on which the Merger Agreement took effect. The authorized capital stock of Holdings, the designations, rights, powers and preferences of such capital stock, and the qualifications, limitations and restrictions thereof are also substantially identical to those of the capital stock of USN immediately prior to the date of the Merger. Further, the directors and executive officers of Holdings are the same individuals who were directors and executive officers, respectively, of USN immediately prior to the date of the Merger.

Late in 2016, FOP took initial steps toward the development of a new radiation therapy center in Homestead, Florida. However, 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. CB Oncology Partners, LLC (“CBOP”) was organized on September 1, 2017 to acquire the assets and rights in this new center from FOP. USNC owns a 28.58% interest in CBOP. (See Note C[5]).

The Company, through the formation of noncontrolling interests in unconsolidated joint ventures, is currently exploring other opportunities for the establishment of cancer centers using IMRT and/or IGRT in Florida and other parts of the U.S.

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 New York, 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 Gamma Knife and other 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.

32
U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES
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 are in excess of $2 million at December 31, 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 B - The Company and its Significant Accounting Policies

[1]
Basis of presentation and consolidation:

The consolidated financial statements include the accounts of Holdings and its wholly-owned subsidiaries, USN, USNC and U.S. NeuroSurgical Physics, Inc., and Elite Health through from the date of acquisition. All significant intercompany balances and transactions have been eliminated in consolidation.

The Company applies the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, Consolidation to noncontrolling interests in consolidated financial statements.  The guidance requires noncontrolling interests to be reported as a component of equity separate from the parent’s equity and purchases and sales of equity interests, that do not result in a change in control, to be accounted for as equity transactions.  In addition, net (loss) income attributable to noncontrolling interests are to be included in net (loss) income and, upon a loss of control, the interest sold, as well as any interest retained, is to be recorded at fair value, with any gain or loss recognized in net (loss) income.

[2]
Revenue recognition:

The Company primarily generated revenue from a leasing arrangement with New York University, which is not within the scope of Revenue from Contracts with Customers (Topic 606), and from the sale of maintenance services with a single performance obligation.

The Company recognizes revenue in accordance with two different accounting standards: 1) Topic 606 and 2) Accounting Standards Codification (“ASC”) Topic 842, Leases.

Under Topic 606, the core principle is to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. 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 each performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service to a customer and is the unit of account under Topic 606. The Company recognizes revenue when a performance obligation is satisfied by transferring control over a product or service to a customer.

33
U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES
The discussion below addresses our primary types of revenue as categorized by the applicable accounting standards.

NYU Lease revenue:

Prior to October 2018, the Company’s Gamma Knife Neuroradiosurgery Equipment Agreement with NYU (“NYU Agreement”) primarily consisted of an operating lease, and the associated patient revenue from the use of the gamma knife was primarily operating lease income. Following an amendment to the Company’s lease agreement with NYU, effective August 2016, the Company received a $30,000 minimum lease payment from NYU each month. With the exception of these fixed payments, the NYU agreement provided only for contingent rental income based on a tiered fee schedule related to the number of patient procedures and associated thresholds, with the rate per procedure decreasing as more procedures are performed. The Company recognized the contingent rental income and the fixed monthly payments on a systematic basis using an average fee per procedure calculated by estimating the expected number of procedures per contract year which runs from November 1, to the following October 31.  Any amounts received in excess of the average fee were considered deferred revenue.  At the end of each reporting period, the Company reviewed its estimated revenue for the contract year and adjusted revenue for any material changes in the estimate.  At the end of the contract year, the revenue was adjusted to the actual amount received or receivable.

In September 2017, USN and NYU entered into an additional amendment to the NYU Agreement, whereby NYU committed to purchase all of the gamma knife equipment at the NYU Medical Center for a purchase price of $2,400,000, consisting of 41 monthly installments of $50,000 commencing at the end of October 2017 and continuing through the end of February 2021, with a final payment of $350,000 on March 31, 2021.  Upon receipt of final payment, title to all the equipment at the center passed to NYU.

In October 2018, USN satisfied its obligation to reload the cobalt, and the NYU agreement was re-evaluated to be a sales-type sublease between USN, the lessor, and NYU, the lessee. At the inception of a sales-type sublease, the lessor recognizes its gross investment in the sublease, unearned income and sales price. The cost or carrying amount, if different, of the leased property plus any initial direct costs minus the present value of the unguaranteed residual value accruing to the benefit of the lessor, is charged by the lessor against income in the current period. Management has concluded that all fixed future minimum lease payments (“MLPs”) payable by NYU to USN should be and were included in the investment in sublease. These MLPs include 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 present value of the MLPs was estimated to be approximately $2,447,000 and was recorded as an investment in sublease effective October 1, 2018. Until the contract renewal in October of 2020, the patient revenue under the tiered schedule had been considered contingent income under the sales type lease and was recognized on a systematic basis using an average fee per procedure. In October 2020, the Company recorded patient revenue based on procedures performed at the applicable billing rate for each procedure since the Company did not exceed the threshold at which billing rates decrease before the completed sale of the equipment on March 31, 2021.

Upon termination of the NYU contract, the Company recognized a gain of $100,000 related to previously accrued expenses. The gain was included as a reduction in selling, general and administrative expenses in the accompanying Consolidated Statements of Operations in the year ended December 31, 2021.

NYU Maintenance Revenue:

The NYU agreement, which ended in March 2021, specified that USN was obligated to maintain the gamma knife equipment in good operating condition. This maintenance obligation was incurred through the term of the agreement while patient procedures were performed. Usage of the gamma knife machine was directly linked to the maintenance of the machine.  USN billed NYU monthly for the maintenance and gamma knife services provided. The portion of the total contract consideration allocated to the maintenance services was $79,000 for 2021 and $316,000 for 2020, and was recognized ratably over each year.

34
U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES
[3]
Cash and cash equivalents:

The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

[4]
Accounts receivable

Accounts receivable only included amounts owed to the Company from the NYU Agreement.  The agreement ended with the sale of the equipment to NYU on March 31, 2021.

[5]
Investments in unconsolidated entities:

The Company accounts for its investments in unconsolidated entities by the equity method. The Company records its share of such earnings (loss) in the Consolidated Statements of Operations as “Loss from investments in unconsolidated entities, net”. The carrying value of the Company’s investments in unconsolidated entities is recorded in the Consolidated Balance Sheets. The Company records losses of the unconsolidated entities only to the extent of the Company’s interest in and advances to the entities. As such, the recorded balance of MOP and CBOP have been taken to zero.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, which in part requires entities to assess whether distributions of cash from unconsolidated entities represent a return on the investment or a return of the investment, to appropriately classify the distributions in the statement of cash flows. Although the ASU is effective in the first quarter of 2018, we early adopted the guidance in the first quarter of 2017 due to the ongoing applicability of the new standard to the Company’s consolidated financial statements. We made an accounting policy election to use the cumulative earnings approach to determine that the distributions were returns on the investment and accordingly classified them as operating cash flows. Under the cumulative earnings approach, distributions received from the unconsolidated entity are presumed to be a return on the investment unless the distributions received by the investor, less distributions received in prior periods that were deemed to be returns of investment, exceed cumulative equity in earnings recognized by the investor.

[6]
Goodwill:

Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a business acquisition. Goodwill is tested for impairment on an annual basis, at the anniversary of the acquisition, and between annual tests in certain circumstances, and written down when impaired.

Evaluating goodwill for impairment involves the determination of the fair value of each reporting unit in which goodwill is recorded using a qualitative or quantitative analysis. A reporting unit is an operating segment or a component of an operating segment for which discrete financial information is available and reviewed by segment management on a regular basis. The qualitative impairment test includes considering various factors, including macroeconomic conditions, industry and market conditions, cost factors, a sustained share price or market capitalization decrease, and any reporting unit specific events.

Goodwill was evaluated on a qualitative basis and concluded that no adjustment to the carrying value of goodwill was necessary. In addition, no qualitative indicators of impairment were identified during the fourth quarter of fiscal year ended December 31, 2021, and therefore, no interim quantitative goodwill impairment evaluation was performed. If the fair value of a reporting unit exceeds the carrying value, goodwill impairment is not indicated. If the carrying amount of a reporting unit is determined to be higher than its estimated fair value, the excess is recognized as an impairment expense.

In accordance with the authoritative guidance over fair value measurements, the fair value of a reporting unit is defined as the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date. The Company primarily uses the income approach methodology, which includes the discounted cash flow method and an enterprise value method, and the market approach methodology, which considers the values of comparable businesses, to estimate the fair value of the reporting unit.

35
U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES
Management believes the methodology used to review impairment of goodwill, which includes a significant amount of judgment and estimates, provides a reasonable basis to determine whether impairment has occurred. However, many of the factors employed in determining whether goodwill is impaired are outside of the Company’s control and it is reasonably likely that assumptions and estimates will change in future periods. These changes could result in future impairments.

[7]
Long-lived assets:

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

[8]
Asset retirement obligations:

The Company records liabilities for legal obligations associated with the retirement of tangible long-lived assets based on the estimated future cost of asset retirement obligations discounted to present value and records a corresponding asset and liability on its consolidated balance sheets. The values ultimately derived are based on many significant estimates, including future decommissioning costs, inflation, cost of capital, and market risk premiums. The nature of these estimates requires the Company to make judgments based on historical experience and future expectations. Revisions to the estimates may be required based on such things as changes to cost estimates or the timing of future cash outlays. Any such changes that result in upward or downward revisions in the estimated obligation will result in an adjustment to the related capitalized asset and corresponding liability on a prospective basis.

[9]
Capital lease obligations:

Effective January 1, 2019, the Company adopted ASU 2016-02, Leases, and the Company’s leases previously classified as capital leases, were determined to be finance leases.

[10]
Guarantees:

The Company recognizes a liability at the fair value of the obligation at the inception of a financial guarantee contract. The initial liability is subsequently reduced as the Company is released from exposure under the guarantee. If it becomes probable that the Company will have to perform on a guarantee, a separate liability is accrued if it is reasonably estimable, based on the facts and circumstances at that time. The Company reverses the fair value liability only when there is no further exposure under the guarantee.

[11]
Income taxes:

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets or liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce tax assets to amounts more likely than not to be realized.

The Company has applied the accounting provisions for Accounting for Uncertainty in Income Taxes. (Topic 740) This accounting provision provides a comprehensive model for how the Company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the Company has taken or expects to take on its tax returns. If applicable, the Company records interest and penalties as a component of income tax expense. The Company had no uncertain material tax positions at December 31, 2021 and 2020. Tax years from January 1, 2018 to the current year remain open for examination by federal and state tax authorities.

36
U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES
[12]
Earnings per share:

Earnings per share are computed by dividing earnings available to common stockholders by the weighted average shares outstanding for the period. There were no common stock equivalents during 2021 and 2020, and therefore, no potential dilution for the periods presented.

[13]
Advertising costs:

The Company follows the policy of charging the costs of advertising to expense as incurred. There were no advertising costs in 2021 and 2020.

[14]
Estimates and assumptions:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

[15]
Fair values of financial instruments:

The estimated fair value of financial instruments has been determined based on available market information and appropriate valuation methodologies. The carrying amounts of cash and cash equivalents, accounts receivable, other current assets, due from or to related parties, and accounts payable approximate fair value at December 31, 2021 and 2020 because of the short maturity of these financial instruments. The carrying values of the notes receivable and the obligations under finance leases, approximate fair value because the interest rates on these instruments approximate the market rates at December 31, 2021 and 2020.

[16]
Credit risk:

At times, the Company may have cash and cash equivalents at a financial institution in excess of insured limits. The Company places its cash and cash equivalents with high credit quality financial institutions whose credit ratings are monitored by management to minimize credit risk. Accounts receivable consisted of amounts due from the medical centers. Historically, credit losses on accounts receivable have not been significant. At December 31, 2020, substantially all of the Company’s accounts receivable were due from one customer, NYU.

[17]
Leases:

In February 2016, the FASB issued ASU 2016-02, Leases (“Topic 842”) to increase transparency and comparability among organizations by requiring (1) recognition of lease assets and lease liabilities on the balance sheet and (2) disclosure of key information about leasing arrangements. Some changes to the lessor accounting guidance were made to align both of the following: (1) the lessor accounting guidance with certain changes made to the lessee accounting guidance and (2) key aspects of the lessor accounting model with revenue recognition guidance. Topic 842 was effective for fiscal years and interim periods beginning after December 15, 2018. A modified retrospective approach is required for adoption for all leases that exist at or commence after the date of initial application with an option to use certain practical expedients.

The Company adopted the provisions of 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 revenue was accounted for under Topic 842, this guidance did not have a material impact on our Consolidated Statements of Operations or Cash Flows.

37
U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES
The Company determines if an arrangement is a lease at its inception. The Company’s current operating lease relates to office space and is discussed in Note I. The Company’s finance lease obligations and sales-type sublease were related to the NYU gamma knife. The Company’s previously-recorded capital lease obligations addressed in Note F to the consolidated financial statements were accounted for as finance lease obligations upon adoption of Topic 842. The sales-type sublease is discussed in Note E.

Under Topic 842, operating leases result in the recognition of ROU assets and lease liabilities on the consolidated balance sheets. ROU assets represent the right to use the leased asset for the lease term and lease liabilities represent the obligation to make lease payments. Under Topic 842, operating lease ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The Company’s operating lease does not provide an implicit rate; therefore, upon adoption of Topic 842, the Company used its estimated incremental borrowing rate at the commencement date to determine the present value of lease payments. The ROU assets include any initial lease payments made and exclude lease incentives received. The lease terms may include options to extend or terminate the lease that are reasonably certain to be exercised. Lease expense under Topic 842 is recognized on a straight-line basis over the lease term.

The tables below present financial information associated with our leases as of and for the years ended December 31, 2021, and 2020.


Classification  
December 31,
  
Assets
 
2021
    
2020
  
Current
           
Finance lease assets
Investment in sales-type sublease - current
  
$
-
    
$
532,000
  
                   
Long-term
                  
Operating lease assets
Operating lease right-of-use asset
    
59,000
      
94,000
  
Total leased assets
    
$
59,000
    
$
626,000
  
                   
Liabilities
                  
Current
                  
Finance lease liabilities
Obligations under finance lease - current portion
  
$
-
    
$
89,000
  
Operating lease liabilities
Operating lease right-of-use liability - current portion
    
43,000
      
40,000
  
                   
Long-term
                  
Operating lease liabilities
Operating lease right-of-use liability - net of current portion
    
23,000
      
66,000
  
Total lease liabilities
    
$
66,000
    
$
195,000
  
                   
Lease Cost
                  
Operating lease cost
Selling, general and administrative
  
$
41,000
    
$
42,000
  
                   
Finance lease cost
                  
Interest on lease liabilities
Interest expense
    
1,000
      
23,000
  
                   
Sublease income
Interest income - sales-type sublease
    
8,000
      
72,000
  
Net lease cost
    
$
34,000
    
$
(7,000
)

Maturity of lease liabilities (as of December 31, 2021)
  
Operating lease
  
2022
    
46,000
  
2023
    
24,000
  
Total
  
$
70,000
  
Less amount representing interest
    
4,000
  
Present value of lease liabilities
  
$
66,000
  
Discount rate
    
5.850
%

38
U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES
Note C - Investments in Unconsolidated Entities

[1]
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 on April 1, 2016, and the final payment was paid in March  2021, removing USNC’s guarantee obligation.

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 December 31, 2021 and 2020, the Company’s recorded (loss) investment of NeuroPartners LLC and CGK was ($10,000) and $26,000, respectively.  During the years ended December 31, 2021, and 2020, the Company’s equity in (loss) earnings of NeuroPartners LLC and CGK was ($36,000) and $124,000, respectively.  At December 31, 2021 and 2020, amounts due from these related parties was $6,000 and $9,000, respectively.

39
U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES
The following tables present the aggregation of summarized combined financial information of NeuroPartners LLC and CGK:

Neuro Partners LLC and CGK Combined Condensed Income Statement Information

    
Years Ended
December 31,
  
   
2021
    
2020
  
             
Patient revenue
  
$
606,000
    
$
1,141,000
  
                 
Net (loss) income
  
$
(9,000
)
  
$
391,000
  
                 
USNC’s equity in (loss) income of Neuro Partners LLC and CGK
  
$
(36,000
)
  
$
124,000
  

Neuro Partners LLC and CGK Combined Condensed Balance Sheet Information


 
December 31,
  

 
2021
    
2020
  

           
Current assets
  
$
299,000
    
$
121,000
  
                 
Noncurrent assets
    
294,000
      
551,000
  
                 
Total assets
  
$
593,000
    
$
672,000
  
                 
Current liabilities
  
$
564,000
    
$
634,000
  
                 
Noncurrent liabilities
    
-
      
-
  
                 
Equity
    
29,000
      
38,000
                 
Total liabilities and equity
  
$
593,000
    
$
672,000
  

[2]
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 IMRT and IGRT capabilities.  In 2010, the Company formed FOP in partnership with local physicians and other investors. USNC owned 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 had 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 as of December 31, 2021. 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.

40
U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES
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 was the guarantor with several other members of FOP. Effective November 15, 2019, FOP transferred this loan, along with the equipment acquired with the loan proceeds, to 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. Due to the circumstances, FOP derecognized the associated assets and liabilities and calculated a contingent liability equal to the net liabilities derecognized. On November 24, 2021, the third-party owner filed a Voluntary Motion to Dismiss their lawsuit against FOP, and on December 11, 2021, it was accepted and recorded by the court. There can be no guarantee the third-party owner will not reinstitute any future claims against FOP.

The Company’s recorded investment in FOP prior to dissolution had been reduced to zero due to losses incurred in prior years. No equity in earnings had been recorded by the Company for the years ended December 31, 2021 and 2020 due to FOP’s deficit equity.

During the year ended December 31, 2020, the Company wrote off all remaining amounts due from FOP and accrued interest thereon, resulting in a $78,000 loss. During the year ended December 31, 2020, FOP repaid $155,000 of the amounts due to the Company.

On September 21, 2021, FOP filed Articles of Dissolution with the Florida Department of State that were recorded on September 22, 2021. FOP is fully dissolved.

[3]
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, 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.

41
U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES
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. During 2021 an additional member relinquished its ownership to USNC. As a result, the Company now holds a 22.5% ownership interest in BOPRE, which it accounts for under the equity method. The Company’s recorded investment in BOPRE is $151,000 and $134,000, at December 31, 2021 and 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


 
Years Ended December 31,
  
   
2021
    
2020
  
             
Rental Income
  
$
-
    
$
-
  
 
                
Net income
  
$
85,000
    
$
63,000
  

               
USNC’s equity in income in BOPRE
  
$
17,000
    
$
13,000
  

BOPRE Condensed Balance Sheet Information

   
December 31,
  
   
2021
    
2020
  
             
Current assets
  
$
112,000
    
$
27,000
  
 
                
Noncurrent assets
    
757,000
      
757,000
  
 
                
Total assets
  
$
869,000
    
$
784,000
  
 
                
Current liabilities
  
$
-
    
$
-
  
 
                
Noncurrent liabilities
    
-
      
-
  
 
                
Equity
    
869,000
      
784,000
  
 
                
Total liabilities and equity
  
$
869,000
    
$
784,000
  

42
U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES
[4]
Medical Oncology Partners

In April 2015, MOP, was formed in partnership with local physicians and other investors. MOP was established to acquire a 100% equity interest in 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 it’s 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. During the year ended December 31, 2020, USNC contributed $125,000 of capital to MOP all of which was written off.  For the years ended December 31, 2021 and 2020, the Company’s equity in loss of MOP was $231,000 and $450,000, respectively, but was not recorded due to prior losses.

During the year ended December 31, 2020, the Company wrote off all amounts due and accrued interest thereon, from MOP and UOMA, resulting in a $686,000 loss. During the year ended December 31, 2021 the Company advanced an additional $461,000, 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.

43
U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES
The following table presents the summarized financial information of MOP:

MOP Condensed Consolidated Income Statement Information

   
Years Ended December 31,
  
   
2021
    
2020
  
             
Patient revenue
  
$
2,417,000
    
$
2,104,000
  
 
                
Net loss
  
$
(646,000
)
  
$
(1,256,000
)
 
                
USNC’s equity in loss in MOP
  
$
(231,000
)
  
$
(450,000
)

MOP Condensed Consolidated Balance Sheet Information

   
December 31,
  
   
2021
    
2020
  
             
Current assets
  
$
201,000
    
$
204,000
  
 
                
Noncurrent assets
    
384,000
      
701,000
  
 
                
Total assets
  
$
585,000
    
$
905,000
  
 
                
Current liabilities
  
$
3,109,000
    
$
2,736,000
  
 
                
Noncurrent liabilities
    
92,000
      
410,000
  
 
                
Deficit
    
(2,616,000
)
    
(2,241,000
)
 
                
Total liabilities and deficit
  
$
585,000
    
$
905,000
  

[5]
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. CBOP had no assets at the end of 2017. 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 December 31, 2021, total $2,174,000 of outstanding principal, less $1,251,000 of allowances, for a net receivable of $923,000 all of which is included in due from related parties on the accompanying Consolidated Balance Sheets. Amounts due from CBOP at December 31, 2020, total $2,154,000 of outstanding principal, less $1,251,000 of allowances, for a net receivable of $903,000 all of which is included in due from related parties on the accompanying Consolidated Balance Sheets. These balances accrue interest at 6% per annum. Interest earned by the Company from the amounts owed by CBOP totaled $125,000 for both the years ended December 31, 2021 and 2020.  At December 31, 2021 and 2020, total accrued interest was $398,000 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. For the years ended December 31, 2021 and 2020, the Company’s equity in loss of CBOP was $91,000 and $195,000, respectively, but was not recorded due to prior losses.

44
U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES
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

   
Years Ended December 31,
  
   
2021
    
2020
  
             
Patient revenue
  
$
2,042,000
    
$
1,795,000
  
 
                
Net loss
  
$
(319,000
)
  
$
(730,000
)
 
                
USNC’s equity in loss  of CBOP
  
$
(91,000
)
  
$
(195,000
)

CBOP Condensed Balance Sheet Information

   
December 31,
  
   
2021
    
2020
  
             
Current assets
  
$
400,000
    
$
385,000
  
 
                
Noncurrent assets
    
3,667,000
      
4,271,000
  
 
                
Total assets
  
$
4,067,000
    
$
4,656,000
  
 
                
Current liabilities
  
$
3,472,000
    
$
3,181,000
  
 
                
Noncurrent liabilities
    
3,121,000
      
3,684,000
  
 
                
Deficit
    
(2,526,000
)
    
(2,209,000
)
 
                
Total liabilities and deficit
  
$
4,067,000
    
$
4,656,000
  

Note D - Agreement with New York University on Behalf of New York University Medical Center

In November 1996, USN entered into a Gamma Knife Neuroradiosurgery Equipment Agreement with NYU, (the “NYU Agreement”) for a period of seven years (the “term”), with an option for NYU to extend the term for successive three-year periods or to purchase the gamma knife equipment at an appraised market value price. USN had the ability to negotiate the purchase price and upon failure of the parties to agree could request that the facility be closed. All costs associated with closing and restoring the facility to its original condition were the responsibility of USN.  The NYU agreement, among other matters, required USN to provide (i) the use of the gamma knife equipment to NYU, (ii) training necessary for the proper operation of the gamma knife equipment, (iii) sufficient supplies for the equipment, (iv) the repair and maintenance of the equipment, (v) all basic hardware and software upgrades to the equipment and, (vi) an uptime guarantee. In return, NYU paid USN a scheduled fee based on the number of patient procedures performed.

In 2004, the NYU agreement was extended through March 2009. In 2008, the NYU agreement was extended for an additional 12 years through March 2021. To secure this extension, USN agreed to install a new gamma knife PERFEXION model. The new equipment and certain space improvements, costing $3,742,000 in total, was financed through a seven-year lease arrangement. The amendment provided for a payment to USN of a flat fee for each patient procedure performed.

45
U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES
The Company entered into a six-year lease of $4.7 million for the purchase of the replacement equipment and associated leasehold improvements. The Company entered into a second two-year lease of $250,000 for the cost of the construction required at the relocated site which was repaid in July 2016.

In 2016, USN entered into an agreement with Elekta for the installation of new ICON imaging technology for the NYU Gamma Knife equipment with a total cost, including sales taxes, of $816,000. This ICON technology was installed during the month of July 2016 and the gamma knife center reopened on August 5, 2016. The Company entered into a four-year lease for $879,000 to finance the acquisition of the ICON technology and associated installation costs. A monthly maintenance agreement commenced a year after the installation date for $6,000 per month. The two parties also agreed for USN to receive a fixed monthly payment of $30,000 for the remaining term of the agreement through March 2021.

In September 2017, USN and NYU entered into an additional amendment to the NYU Agreement, whereby NYU committed to purchase all of the gamma knife equipment at the NYU Medical Center for a purchase price of $2,400,000, with 41 monthly installments of $50,000 from October 2017 through February 2021, and a final payment of $350,000 on March 31, 2021. Previously, the NYU agreement ended on March 17, 2021, and NYU had an option to purchase the gamma knife equipment at the estimated future value of the equipment at that time. In June 2017, the Company obtained an independent estimate of $2,570,000 for the estimated future fair value of the equipment in March 2021.

The Company continued to be responsible for the maintenance and insurance for the gamma knife equipment at the NYU facility through contract period and continued to be reimbursed for use of the gamma knife based on a fee per procedure performed with the equipment. NYU provided the medical and technical staff to operate the facility.

With the September 2017 amendment, the Company became obligated to reload the cobalt for the gamma knife at its own expense and bear the cost of site work involved in reloading the cobalt, up to a maximum of $1,088,000.  In July 2018, USN entered into an agreement with Elekta for the cobalt reload on the NYU gamma knife equipment with a cost, including sales taxes, of $925,000. This cobalt reload occurred in July 2018, and the gamma knife center reopened on August 6, 2018. The Company obtained lease financing of $833,000 to partially finance the reload of the cobalt, and paid the remaining balance directly to Elekta. In addition, the Company incurred costs of $578,000 to install the new cobalt to be paid directly to the contractor. All cobalt related costs were finalized by October 1, 2018 and totaled $1,503,000. As a result of the Company satisfying its obligation to reload the cobalt, the agreement with NYU met the criteria to be classified as a sales type lease. In addition, the Company is now no longer obligated to restore the NYU facility to its original condition. Accordingly, all related assets and the asset retirement obligation were derecognized effective October 1, 2018.

All conditions of the agreement were met, and the contract expired on March 31, 2021.

NYU Revenue Recognition:

The Company derived patient revenue from the NYU center of $1,061,000 and $3,173,000 in 2021 and 2020, respectively, consisting of lease revenue of $982,000 and $2,857,000 and maintenance revenue of $79,000 and $316,000 for 2021 and 2020, respectively.

NYU Accounts Receivable and Contract Balances:

Accounts receivable presented in the Company’s Consolidated Balance Sheets represented an unconditional right to consideration from NYU. The NYU Agreement was primarily a leasing arrangement and did not have other contract assets or contract liabilities, other than associated deferred revenue.

Accounts receivable totaled $0 and $346,000 at December 31, 2021 and 2020, respectively.

46
U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES
Note E – Investment in Sublease

The September 2017 amendment to the NYU Agreement provided for NYU to purchase all of the gamma knife equipment at the NYU Medical Center for a purchase price of $2,400,000, consisting of 41 monthly installments of $50,000 commencing at the end of October 2017 and continuing through the end of February 2021, with a final payment of $350,000 on March 31, 2021.  Upon receipt of final payment, title to all the equipment at the center passes to NYU. This amendment also required USN to reload the cobalt in the gamma knife and to reimburse NYU for certain costs NYU incurred due to the cobalt reload.

Effective October 1, 2018, USN completed the reload of the cobalt and associated costs for a total cost of $1,503,000. With the removal of the cobalt contingency, the NYU agreement was reevaluated to be a sales-type sublease between USN, the lessor, and NYU, the lessee. At the inception of a sales-type sublease, the lessor recognizes its gross investment in the sublease, unearned income and sales price. The initial sales price of $2,400,000 at September 2017 was valued at $2,447,000 at October 1, 2018, using the present value of future cash flows. The cost or carrying amount, if different, of the leased property plus any initial direct costs minus the present value of the unguaranteed residual value accruing to the benefit of the lessor, was charged by the lessor against income in 2018

The monthly fixed payments under the NYU Agreement amortized the investment in sublease until title passed to NYU on March 31, 2021. The NYU Agreement required NYU to make monthly fixed payments of $30,000 and $50,000 through February 2021 with a final fixed payment of $380,000 ($30,000 and $350,000) in March 2021.

Note F - Obligations Under Finance Leases

In 2009, the Company installed a PERFEXION model gamma knife at the NYU center with a seven-year lease from Elekta Capital. The amount financed, covering the cost of the new gamma knife equipment and certain space improvements, was approximately $3,742,000 in total. This lease became payable as a result of damage sustained at the NYU facility in October 2012, due to flooding from Hurricane Sandy, and the remainder of the balance due was paid in January 2013. In 2013, the Company entered into a modification of the above capital lease agreement to finance the new gamma knife installation, the related construction costs and the removal costs of the old equipment for approximately $4.7 million at an interest rate of 4.49% to be repaid beginning in May 2014 over 72 months with no payments for the first three months and $78,000 monthly payments thereafter through May 2020. The Company entered into another capital lease in 2014 to finance a further $250,000 of installation and construction costs, which was repaid over 24 months. In 2016, the Company entered into a capital lease in the amount of $879,000 at an interest rate of 4.45% to finance the installation of the ICON technology for the NYU Gamma Knife equipment to be repaid over 48 months with $20,000 monthly payments beginning October 2016 through September 2020. In October 2018, the Company entered into a capital lease in the amount of $833,000 at an interest rate of 5.85% to partially finance the reload of the cobalt to be repaid over 30 months with $30,000 monthly payments from October 2018 through March 2021.

As discussed in Note B, the Company adopted Topic 842 on January 1, 2019.  Upon adoption of Topic 842, the capital lease obligations are accounted for as finance lease obligations with no significant change to how the obligations were accounted for.

The obligations under the finance leases are as follows:

   
December 31,
  
   
2021
    
2020
  
             
Finance leases - Gamma Knife
  
$
-
    
$
89,000
  
                 
Less current portion
    
-
   
(89,000
)
                 
   
$
-
    
$
-
  

47
U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES
Note G - Concentrations


The Company derived substantially all of its revenue from NYU. The Company’s contract with NYU, its only customer, ended in March 2021. (See Note D)

Note H – Taxes

The components of the provision for income taxes are as follows:

   
Years Ended December 31,
  
   
2021
    
2020
  
    (As Restated)
        
Current taxes:
            
Federal
  
$
228,000
    
$
211,000
  
State
    
192,000
      
95,000
  
Current taxes
    
420,000
      
306,000
  
Deferred taxes:
                
Federal
  
$
-
    
$
12,000
State
    
-
      
5,000
Deferred taxes
    
-
      
17,000
Income tax provision
  
$
420,000
    
$
323,000
  

A reconciliation of the tax provision calculated at the statutory federal income tax rate with amounts reported follows:

   
Year Ended December 31,
  
   
2021
    
2020
  
    (As Restated)
        
Income tax at the federal statutory rate
  
$
(130,000
)
  
$
180,000
  
State income tax, net of federal taxes
    
(106,000
)
    
52,000
  
Permanent differences and other
    
(67,000
)
    
16,000
  
Change in estimated effective state tax rate
    
2,000
      
(4,000
)
Change in valuation allowance
    
721,000
      
79,000
  
                 
Income tax provision
  
$
420,000
    
$
323,000
  

48
U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES
Items which give rise to deferred tax assets and liabilities are as follows:

   
December 31,
  
   
2021
    
2020
  
Deferred tax asset:
   (As Restated)
        
Basis differences in unconsolidated entities, including advances and loans to those entities
  
$
587,000
    
$
561,000
  
Excess of book depreciation over tax depreciation
    
-
      
192,000
  
Net intangible assets and other capitalized costs
     102,000       -  
Net operating loss
    
66,000
      
34,000
  
Net effect of conversion from the accrual basis of accounting to the cash basis of accounting for tax purposes primarily related to accounts receivable, prepaid expense, deferred revenue, and accounts payable
    
45,000
      
-
  
Valuation allowance
    
(800,000
)
    
(79,000
)
     
-
      
708,000
  
                 
Deferred tax liability:
                
Deferred gain on disposal of gamma knife
    
-
   
(634,000
)
Net effect of conversion from the accrual basis of accounting to the cash basis of accounting for tax purposes primarily related to accounts receivable, prepaid expense, deferred revenue, and accounts payable
    
-
      
(74,000
)
Net deferred tax asset
  
$
-
    
$
-
  

The Company files income tax returns in the U.S. federal jurisdiction, the State of Maryland, the State of Florida , the State of California, and the State of New York.  With few possible exceptions, the Company is no longer subject to U.S. or state income tax examinations by tax authorities for years before 2018.

As further described in Note L, management has restated the Company's 2021 Consolidated Financial Statements to record an additional tax liability as a result of the gain realized on the disposition of the Company's business at the New York University Medical Center.

Note I – Commitments and Contingencies

[1]
Operating Leases:

The Company leases office space under an operating lease which was renewed in February 2018 and expires June 2023. The terms of the lease include an escalation clause for a portion of certain operating expenses.

As discussed in Note B, the Company adopted Topic 842 as of January 1, 2019. Upon adoption of Topic 842, the Company’s office lease remained an operating lease and a lease liability in the amount of $176,000 was recognized based on the present value of the remaining minimum lease payments, discounted using the Company’s incremental borrowing rate. The related lease ROU asset was recorded in the amount of $161,000, reflecting the present value of future minimum lease payments, adjusted for deferred rent. As of December 31, 2021 operating lease right-of-use liability and asset amounted to $66,000 and $59,000, respectively. As of December 31, 2020, the operating lease right-of-use liability and asset amounted to $106,000 and $94,000, respectively. Total operating lease expense for the years ended December 31, 2021 and 2020, was $41,000 and $42,000, respectively.
 
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U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES
The maturities of the operating lease liability as of December 31, 2021, were as follows:

Year Ending
December 31,
      
       
2022
    
46,000
  
2023
    
24,000
  
     
70,000
  
Less interest
    
(4,000
)
Present value of net minimum obligation
  
$
66,000
  

[2]
NYU Gamma Knife:

Capital Lease Obligations (Notes D and F):
In 2009, the Company installed a new gamma knife PERFEXION model at the NYU Medical Center. This new equipment and certain space improvements, costing approximately $3,742,000 in total, were financed through a seven-year lease arrangement. This PERFEXION equipment was recorded as a total loss as a result of flooding from Hurricane Sandy in October 2012.

In early 2014, the Company entered into a six-year lease in the amount of $4.7 million for the purchase of the replacement equipment and associated leasehold improvements. The first payment of $78,000 was made on September 1, 2014, including $18,000 of interest, and the final payment was made in May 2020.

The Company entered into a second capital lease in 2014 to finance an additional $250,000 of installation and construction costs, which was repaid in July 2016.

In April 2016 the Company obtained lease financing of $879,000 to finance the acquisition of the ICON technology for the NYU Gamma Knife and associated installation costs. Monthly lease payments of $20,000 began in October 2016, and the final payment was made in September 2020.

In October 2018, the Company entered into an additional capital lease in the amount of $833,000 to partially finance the reload of the cobalt to be repaid over 30 months. The final payment was made in March 2021.

Maintenance Contract:

The new gamma knife installed in April 2014 included a one-year warranty. The new maintenance agreement began in April of 2015. The monthly payment increased from $20,000 to $26,000 effective August 2017, due to the addition of the ICON maintenance agreement and was in effect for 5 years. The final payment of the maintenance agreement was made in March 2021.

[3]
Guarantees:

USNC was a 20% guarantor on NeuroPartners, LLC’s lease, which terminated in March 2021, with respect to the gamma knife equipment, cobalt reload and associated construction, and certain leasehold improvements located at the Southern California Regional Gamma Knife Center at SARH in Upland, California. The outstanding balance on the lease obligations was $60,000 at December 31, 2020. The final payment of this lease was made in March of 2021, thereby releasing USNC from this guarantee.

Holdings is a guarantor of the full amount of the outstanding CBOP loan with BB&T Bank entered into in 2017, as described In Note C[2]. The outstanding balance on this loan was $2,715,000 and $3,066,000 at December 31, 2021 and 2020, respectively.

50
U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES
USNC was a 10% guarantor on 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. The Company was released from this guaranty when the mortgage was refinanced in April of 2020.

The Company expected any potential obligations from these guarantees to be reduced by the recoveries of the respective collateral and had recorded a liability of $11,000 at December 31, 2021 and 2020.

[4]
Product liability:

Although USN does not directly provide medical services, it has obtained professional medical liability insurance, and has general liability insurance as well. USN’s professional medical liability and general liability policies have limits of $3 million each.  The Company believes that its insurance is adequate for providing treatment facilities and non-medical services, although there can be no assurance that the coverage limits of such insurance will be adequate or that coverage will not be reduced or become unavailable in the future.

Note J - Employees’ IRA Plans

The Company has established a Company IRA covering all employees. The plan allows participants to make pre-tax contributions and the Company may, at its discretion, match certain percentages of the employee contribution. Amounts contributed to the plan are deposited into a trust fund administered by independent trustees. The Company made a discretionary matching IRA contribution of $14,000 for the year ended December 31, 2020. No such match was made for the year ended December 31, 2021.



Note K – Acquisition



The Company has been exploring opportunities to expand to other businesses that could benefit its current operations and relationships.  Effective October 1, 2021, U.S. NeuroSurgical, Inc. (“USN”), acquired all of the outstanding shares of capital stock of Elite Health Plan, Inc., a California corporation (“Elite Health”.) The transaction with Elite Health was structured as an investment by Elite Health shareholders in USN, and as such did not have an immediate effect on the percentage ownership of the shareholders of the Company.  However, the Company’s interest in USN, which currently holds substantially all of the interest in the Company’s businesses and operations, was effectively diluted by 15% as a result of the issuance of the new USN shares to the former holders of Elite Health.  In addition, 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 for Company shares.



Elite Health is a private company with a 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, management believes 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 will endeavor to utilize the latest advances in information systems, including AI and data analytics, in its processes to enhance each patient experience and control medical costs.


51
Table of Contents
U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES

Management 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 will be effective in doing so.



The total fair value of the purchase price for the acquisition was $315,000, which included the fair value of the noncontrolling shares issued, including the acquired Company.



The results of the acquisition were included in the consolidated financial statements from the closing date. The acquisition was not considered material to the consolidated financial statements. As a result, no pro forma information has been provided.



The following table summarizes the changes in the carrying value of goodwill for the acquisition of Elite Health Plan, Inc.:


Balance at January 1, 2020
  
$
-
  
Acquisition
    
-
  
Balance at December 31, 2020
    
-
  
Acquisition
    
315,000
  
Balance at December 31, 2021
  
$
315,000
  

52
Note L – Restatement of Previously Issued Consolidated Financial Statements

We have restated the Company's Consolidated Financial Statements as of and for the year ended December 31, 2021, as a result of a previously unrecorded tax liability in connection with the disposition of the Company’s business at the New York University Medical Center, which resulted in the recognition of a gain on the sale and transfer of the gamma knife property on the December 31, 2021 income tax returns. The Company previously received insurance proceeds with the Gamma Knife facility, which was destroyed as a result of flooding from Hurricane Sandy. For tax purposes, the resulting gain becomes taxable when the replacement property is sold or disposed of, which occurred in 2021.

The Company has corrected the accounting errors in the 2021 Consolidated Financial Statements, which have been adjusted as follows:

As of December 31, 2021
Consolidated Balance Sheets:

   
Amount Previosly Reported
    
Amount As
Restated
  
             
Income taxes payable
  
$
114,000
    
$
414,000
  
Total liabilities
  
$
361,000
    
$
660,000
  
Total equity
  
$
3,327,000
    
$
3,028,000
  

Year ended December 31, 2021
Consolidated Statements of Operations:

   
Amount Previosly Reported
    
Amount As
Restated
  
             
Income tax provision
  
$
120,000
    
$
420,000
  
Net loss
  
$
674,000
    
$
973,000
  
Net loss attributable to noncontrolling interest
  
$
47,000
    
$
92,000
  
Net loss attributable to U.S. Neurosurgical Holdings, Inc.
  
$
627,000
    
$
881,000
  
                 
Basic and diluted net loss per share attributable to U.S. NeuroSurgical Holdings, Inc.
   $ (0.08 )   $ (0.11
)

The restatement corrections impact certain components within operating cash flows of the Consolidated Statements of Cash Flows. Total operating cash flows, investing activities, financing activities, and cash and cash equivalents are unchanged as a result of the restatements.
53
Note M – Quarterly Results of Operations (Unaudited)

In the first quarter of 2021, the disposition of the Company’s business at New York University Medical Center occurred, which resulted in the recognition of a gain on the sale and transfer of the gamma knife property at that time.

A summary of the unaudited results of operations for the year ended December 31 is as follows:

   
2021
  
   
As Restated
  
   
First Quarter
    
Second Quarter
    
Third Quarter
    
Fourth Quarter
  
Revenue
  
$
1,061,000
    
$
-
    
$
-
    
$
-
  
                                 
Cost and expenses:
                                
Patient expenses
    
86,000
      
-
      
-
      
-
  
Selling, general and administrative
    
298,000
      
249,000
      
268,000
      
248,000
  
Total
    
384,000
      
249,000
      
268,000
      
248,000
  
                                 
Operating (loss) income
    
677,000
      
(249,000
)
    
(268,000
)
    
(248,000
)
                                 
Total other (expense) income
                                
Interest expense
    
(2,000
)
    
(1,000
)
    
-
      
-
  
Other income
    
-
      
-
      
9,000
      
(9,000
)
Interest income - sales-type sublease
    
8,000
      
-
      
-
      
-
  
Loss from investment in unconsolidated entities, net
    
(139,000
)
    
(135,000
)
    
(77,000
)
    
(119,000
)
Total other expense
    
(133,000
)
    
(136,000
)
    
(68,000
)
    
(128,000
)
                                 
(Loss) income before income taxes
    
544,000
      
(385,000
)
    
(336,000
)
    
(376,000
)
                                 
Income tax provision
    
252,000
      
232,000
      
16,000
      
(80,000
)
                                 
Net (loss) income
    
292,000
      
(617,000
)
    
(352,000
)
    
(296,000
)
Net loss attributable to noncontrolling interests
    
-
      
-
      
-
      
92,000
  
Net (loss) income attributable to U.S. NeuroSurgical Holdings, Inc.
  
$
292,000
    
$
(617,000
)
  
$
(352,000
)
  
$
(204,000
)
                                 
Basic and diluted net (loss) income per share attributable to U.S. NeuroSurigical Holdings, Inc.
  
$
0.04
    
$
(0.08
)
   $ (0.05 )   $ (0.03 )

54
In lieu of filing amended reports on Form 10-Q, the following tables represent the Company's restated unaudited consolidated financial statements for each of the quarters during the year ended December 31, 2021. See Note L, Restatement of Previously Issued Consolidated Financial Statements, for additional information.

   
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
  
   
As Restated
  
   
December 31, 2021
    
September 30, 2021
    
June 30, 2021
    
March 31, 2021
  
   
Three Months Ended
    
Three Months Ended
    
Nine Months Ended
    
Three Months Ended
    
Six Months Ended
    
Three Months Ended
  
Revenue
   $ -    
$
-
    
$
1,061,000
    
$
-
    
$
1,061,000
    
$
1,061,000
  
                                                 
Cost and expenses:
                                                
Patient expenses
    
-
      
-
      
86,000
      
-
      
86,000
      
86,000
  
Selling, general and administrative
    
248,000
      
268,000
      
815,000
      
249,000
      
547,000
      
298,000
  
Total
    
248,000
      
268,000
      
901,000
      
249,000
      
633,000
      
384,000
  
                                                 
Operating (loss) income
    
(248,000
)
    
(268,000
)
    
160,000
      
(249,000
)
    
428,000
      
677,000
  
                                                 
Total other (expense) income
                                                
Interest expense
    
-
      
-
      
(3,000
)
    
(1,000
)
    
(3,000
)
    
(2,000
)
Other income
    
(9,000
)
    
9,000
      
9,000
      
-
      
-
      
-
  
Interest income - sales-type sublease
    
-
      
-
      
8,000
      
-
      
8,000
      
8,000
  
Loss from investment in unconsolidated entities, net
    
(119,000
)
    
(77,000
)
    
(351,000
)
    
(135,000
)
    
(274,000
)
    
(139,000
)
Total other expense
    
(128,000
)
    
(68,000
)
    
(337,000
)
    
(136,000
)
    
(269,000
)
    
(133,000
)
                                                 
(Loss) income before income taxes
    
(376,000
)
    
(336,000
)
    
(177,000
)
    
(385,000
)
    
159,000
      
544,000
  
                                                 
Income tax provision
    
(80,000
)
    
16,000
      
500,000
      
232,000
      
484,000
      
252,000
  
                                                 
Net (loss) income
    
(296,000
)
    
(352,000
)
    
(677,000
)
    
(617,000
)
    
(325,000
)
    
292,000
  
Net loss attributable to noncontrolling interests
    
92,000
      
-
      
-
      
-
      
-
      
-
  
Net (loss) income attributable to U.S. NeuroSurgical Holdings, Inc.
  
$
(204,000
)
  
$
(352,000
)
  
$
(677,000
)
  
$
(617,000
)
  
$
(325,000
)
  
$
292,000
  
                                                 
Basic and diluted net (loss) income per share attributable to U.S. NeuroSurigical Holdings, Inc.
  
$
(0.03
)
   $ (0.05 )  
$
(0.09
)
  
$
(0.08
)
  
$
(0.04
)
   $ 0.04  

55
   
CONDENSED CONSOLIDATED BALANCE SHEETS
  
   
As Restated
  
   
September 30, 2021
    
June 30, 2021
    
March 31, 2021
  
ASSETS
                  
Current assets:
                  
Cash and cash equivalents
  
$
2,567,000
    
$
2,820,000
    
$
2,543,000
  
Accounts receivable
    
-
      
-
      
828,000
  
Other current assets
    
67,000
      
89,000
      
80,000
  
Total current assets
    
2,634,000
      
2,909,000
      
3,451,000
  
                         
Other assets:
                        
Due from related parties
    
918,000
      
923,000
      
916,000
  
Investments in unconsolidated entities
    
152,000
      
164,000
      
161,000
  
Total other assets
    
1,070,000
      
1,087,000
      
1,077,000
  
                         
Property and equipment:
                        
Operating lease right-of-use asset
    
68,000
      
77,000
      
86,000
  
Total property and equipment
    
68,000
      
77,000
      
86,000
  
                         
TOTAL ASSETS
  
$
3,772,000
    
$
4,073,000
    
$
4,614,000
  
                         
LIABILITIES
                        
Current liabilities:
                        
Operating lease right-of-use liability - current portion
  
$
42,000
    
$
41,000
    
$
40,000
  
Accounts payable and accrued expenses
    
180,000
      
135,000
      
166,000
  
Income taxes payable
    
496,000
      
480,000
      
363,000
  
Total current liabilities
    
718,000
      
656,000
      
569,000
  
                         
Operating lease right-of-use liability - net of current portion
    
34,000
      
45,000
      
56,000
  
Guarantee liabliity
    
11,000
      
11,000
      
11,000
  
Total long-term liabilities
    
45,000
      
56,000
      
67,000
  
                         
Total liabilities
    
763,000
      
712,000
      
636,000
  
                         
EQUITY
                        
Common stock
    
78,000
      
78,000
      
78,000
  
Additional paid-in capital
    
3,100,000
      
3,100,000
      
3,100,000
  
(Accumulated deficit) retained earnings
    
(169,000
)
    
183,000
      
800,000
  
Total equity
    
3,009,000
      
3,361,000
      
3,978,000
  
                         
TOTAL LIABILITIES AND EQUITY
  
$
3,772,000
    
$
4,073,000
    
$
4,614,000
  

The restatement corrections impact certain components within operating cash flows of the Consolidated Statements of Cash Flows. Total operating cash flows, investing activities, financing activities, and cash and cash equivalents are unchanged as a result of the restatements.

56
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None

Item 9A.
Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the 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 President 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 President 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 SEC’s rules and forms, due to the material weakness in internal control over financial reporting described below.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934).  Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America.  The Company’s internal control over financial reporting includes those policies and procedures that:

57
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(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles 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.

All internal control systems, no matter how well designed, have inherent limitations and can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.  Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Our management, including our President, and assisted by our Lead Director, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. 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 has identified the following material weakness as of December 31, 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 requirement. 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, lease accounting, accounting for business combinations, and income taxes. The Company is in the process of developing efficient approaches to remediate this material weakness.

Changes in Internal Control over Financial Reporting

Management is in the process of reviewing and developing plans to remediate the material weakness identified above.  Otherwise, 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 December 31, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B.
Other Information.

Not applicable.

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PART III
Item 10.
Directors, Executive Officers and Corporate Governance.

The directors and executive officers of the Company are as follows:

Name
Age
Position
     
Alan Gold
77
President & Chairman of the Board
     
William F. Leimkuhler
70
Director
     
Charles H. Merriman, III
87
Director
     
Susan Greenwald
76
Vice President and Secretary

Alan Gold has served as President and Chairman of the Board of the Company since 1996. Mr. Gold has also been a director of the Company since its formation in 1993. Mr. Gold served as President of GHS from 1983 through May 1999 and director of GHS since its formation through November 1999. Mr. Gold was one of the founders of Global Health Systems, the predecessor of GHS, serving as its President since its formation in July 1983.  From 1981 to 1983, he served as Executive Vice President of Libra Group, a company located in Rockville, Maryland, engaged in health care automation, where he was President of Global Health Foundation and Libra Research and Executive Vice President of Libra Technology. From July 1997 through March 1998 Mr. Gold was also an employee of Health Management Systems.

William F. Leimkuhler has served as director of the Company since May 1999.  He currently serves as Lead Director of the Company’s Board of Directors.  He also served as a director of GHS since 1984 through November 1999.  Since November 2017, Mr. Leimkuhler has served as the Chief Financial Officer, and most recently as Vice President of Mutualink, Inc., a provider of communications interoperability solutions for public safety agencies, critical infrastructure, schools and private enterprise.  From October 1999 until November 2017, he served as General Counsel of Paice LLC, the developer of an advanced hybrid electric powertrain for passenger vehicles.  In recent years, he has also acted as a consultant to several emerging growth companies on corporate and business development matters.  From January 1994 until October 1999, he served as Vice President and General Counsel of Allen & Company Incorporated, an investment banking firm.  Mr. Leimkuhler also serves as a director of Argan, Inc.

Charles H. Merriman, III has served as a director of the Company since May 1999. He also served as a director of GHS from October 1997 to November 1999. Mr. Merriman retired at the close of the year 2001 from service as Senior Vice President and Managing Director of BB&T Capital Markets (“BB&T”), an investment banking enterprise, where he was employed in various capacities since 1972 by BB&T and its predecessor. Mr. Merriman has extensive knowledge of the Company’s primary focus on healthcare and technology.

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Susan Greenwald has served as Vice President of Marketing Communications and as Secretary of the Company since May 1999. She performed services for GHS in the same capacity from its inception in 1983 through May 1999. Ms. Greenwald was one of the founders of Global Health Systems, the predecessor of GHS, and served as its Vice President of Marketing Communications since 1983. From 1981 through 1983 she was the Proposal Manager for Libra Technology and Global Health Foundation, sister companies engaged in federal contracting and private enterprise, respectively, in the healthcare information technology business. From July 1997 through February 1998, Ms. Greenwald was an employee of Health Management Systems.

Mr. Gold and Ms. Greenwald are married.

Pursuant to the Company’s bylaws, the Company’s Board of Directors is elected by the stockholders at each annual meeting to serve until the next annual meeting or until their successors are elected and qualified.  In the case of a vacancy, a director will be appointed by a majority of the remaining directors then in office to serve the remainder of the term left vacant.  Directors do not receive any fees for attending board meetings.  Directors are entitled to receive reimbursement for traveling costs and other out-of-pocket expenses incurred in attending board meetings.  During the year ended December 31, 2021, the Board of Directors did not meet. In view of the small size of the Company’s Board, it does not operate through committees.  Instead, the full Board of Directors performs the functions typically performed by the audit, compensation and nominating committees.

Pursuant to the Company’s bylaws, officers of the Company hold office until the first meeting of directors following the next annual meeting of stockholders and until their successors are chosen and qualified.

Section 16 (a) Beneficial Ownership Reporting Compliance

Based solely upon a review of the copies of the forms furnished to the Company, or written representations from certain reporting persons, the Company believes that during the year ended December 31, 2021, all filing requirements applicable to its officers and directors were complied with by such individuals.

Item 11.
Executive Compensation.

The information below sets forth the compensation for the years ended December 31, 2021, 2020, and 2019 for the President of the Company.

Summary Compensation Table
Name and
Annual Compensation
Principal Position
Year
   Salary
Alan Gold
2021
$300,000
President & Chairman
2020
$300,000
  of the Board
2019
 $300,000

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Employee Benefits; Employment Agreement

Mr. Gold is also entitled to reimbursement of up to $1,000 per month for automobile expenses.  In addition, as with other full-time employees, Mr. Gold is entitled to participate in the Company’s health and life insurance program.  The Company also pays the premiums for an additional policy of life insurance in the amount of $500,000, naming Mr. Gold’s wife as beneficiary.

The Company and Mr. Gold are parties to an employment agreement giving either party the option to terminate employment by giving the other party six-months written notice.

Director Compensation

During 2021, our directors who are not officers or employees were entitled to an annual retainer of $3,000.  Mr. Leimkuhler, the Lead Director, received a retainer of $3,000 per month in view of the higher level of activity required of him.  Our directors of the Company who are officers or employees do not receive any additional compensation for serving on the Board.

Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table sets forth, as of April 15, 2022 certain information with respect to each beneficial owner of more than 5% of the Company’s Common Stock and each director and executive officer of the Company:

 
Number of Shares
  
Name and Address
Beneficially
Percent of
of Beneficial Owner
Owned (1)
Class
     
Alan Gold (2)
1,140,246
14.6%
2400 Research Blvd.
    
Rockville, MD  20850
    
     
William F. Leimkuhler
100,000
1.3%
43 Salem Straits Road
    
Darien, CT 06820
    
     
Charles H. Merriman III
130,672
1.7%
5507 Cary St. Road
    
Richmond, VA 23226
    
     
Stanley S. Shuman (3)
2,367,734
30.4%
711 Fifth Avenue
    
New York, NY  10022
    
     
Allen & Company Incorporated
1,578,489
20.2%
711 Fifth Avenue
    
New York, NY  10022
    
     
All Directors and officers of the Company as a group (2) (four persons)
1,370,918
17.6%


(1)
Unless otherwise indicated, all shares are beneficially owned and sole voting and investment power is held by the person named above.

(2)
Includes 1,140,246 shares held jointly by Mr. Gold and his wife, Susan Greenwald, as joint tenants with right of survivorship.

(3)
Includes 1,578,489 shares owned by Allen & Company Incorporated, Mr. Shuman disclaims beneficial ownership in such shares, except to the extent of his pecuniary interest therein.

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Item 13.
Certain Relationships and Related Transactions, and Director Independence.

None

Item 14.
Principal Accounting Fees and Services.

Audit Fees.  Audit Fees represent fees for services rendered in connection with the annual audit and quarterly reviews of the Company’s financial statements.  For the years ended December 31, 2021, and 2020, the Company paid $178,000 and $132,000 respectively, to Aronson, LLC for Audit Fees.

Audit-Related Fees.  Audit-Related Fees represent fees for services rendered in connection with assurance and related services that are reasonably related to the performance of the audit or review of the financial statements and are not reported as Audit Fees.  For the years ended December 31, 2021, and 2020, the Company incurred $44,000 and $49,000 respectively for Audit Related Fees.

Tax Fees.  Tax Fees represent fees for services rendered in connection with tax compliance, tax advice and tax planning.  For the years ended December 31, 2021, and 2020, the Company paid $28,000 and $34,000 for Tax Fees to Dixon Hughes Goodman LLP and KatzAbosch, respectively.

All Other Fees.  All Other Fees represent fees for services rendered by the Company’s principal accountants other than those described above.  For the years ended December 31, 2021, and 2020, the Company did not pay or accrue any amounts for these services.

The Board of Directors has established a policy requiring pre-approval by the Board of Directors of all audit and non-audit services provided by its registered independent public accounting firm.  The policy requires the general pre-approval of annual audit services and all other permitted services.  All of the audit and non-audit services described above were approved by the Board.

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PART IV

Item 15.
Exhibits, Financial Statement Schedules.

(a)          (1) Financial Statements and Financial Statement Schedules.  The following are filed as part of this report:

 
Page No.
Consolidated Financial Statements of the Company
25
Reports of Independent Registered Public Accounting Firm
26
Consolidated Balance Sheets as of December 31, 2021, and 2020
27
Consolidated Statements of Operations for the years ended December 31, 2021, and 2020
28
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2021, and 2020
29
Consolidated Statements of Cash Flows for the years ended December 31, 2021, and 2020
30
Notes to Consolidated Financial Statements
31

(2) Financial Statement Schedules.  All financial statement schedules as required by Item 8 and Item 15 of Form 10-K/A have been omitted because the information requested is not required, not applicable, or is shown in the Consolidated Financial Statements or Notes thereto.

(b)          Exhibits:

Share Exchange Agreement and Plan of Reorganization, dated as of October 1, 2021, between U.S. NeuroSurgical, Inc., Elite Health Plan, Inc. and all of the shareholders of Elite Health Plan, Inc. (incorporated herein by reference to Exhibit 2.1 to our Form 8-K Current Report as filed October 6, 2021)
Form of Amended and Restated Certificate of Incorporation of U.S. NeuroSurgical, Inc. (“USN”) (incorporated herein by reference to Exhibit 3.1 to our Form 10 Registration Statement as filed July 1, 1999)
Form of Amended and Restated Bylaws of USN (incorporated herein by reference to Exhibit 3.2 to our Form 10 Registration Statement as filed July 1, 1999)
Form of Stock Certificate of Common Stock (incorporated herein by reference to Exhibit 4.1 to our Form 10 Registration Statement as filed July 1, 1999)
Distribution Agreement dated May 27, 1999 between GHS, Inc. (“GHS”) and USN (incorporated herein by reference to Exhibit 10.1 to our Form 10 Registration Statement as filed July 1, 1999)
Tax Matters Agreement dated May 27, 1999 between GHS and USN (incorporated herein by reference to Exhibit 10.2 to our Form 10 Registration Statement as filed July 1, 1999)
Assignment and Assumption Agreement dated May 27, 1999 between GHS and USN (incorporated herein by reference to Exhibit 10.3 to our Form 10 Registration Statement as filed July 1, 1999)
10.4
Employment Agreement dated December 14, 1984 between USN and Alan Gold, as amended March 7, 1986 (incorporated by reference to Exhibit 10.3 of GHS’s Registration Statement No. 33-4532-W on form S-18)
10.5
Agreement dated December 29, 1993 between USN and Elekta Instruments, Inc. (incorporated by reference to 10o to GHS’s 1994 Annual Report on Form 10-K)

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Agreement dated August 1, 1996 between USN and DVI, Inc. (incorporated by reference 10j to GHS’s 1997 Annual Report on Form 10-K)
Gamma Knife Neuroradiosurgery Equipment dated as of November 26, 1996 between New York University on behalf of New York University Medical Center and USN (incorporated herein by reference to Exhibit 10.10 to our Form 10 Registration Statement as filed July 1, 1999)
List of Subsidiaries (incorporated herein by reference to Exhibit 21.1 to our Form 10 Registration Statement as filed July 1, 1999)
Certifications of CEO and CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certifications of CEO and CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*  Filed herewith

(c)
Financial Statement Schedules.  None

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SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
U.S. NeuroSurgical Holdings, Inc.
  
 
(Registrant)
  
     
 
By
  
/s/ Alan Gold
  
     
Alan Gold
  
     
President & Chairman of the Board
  
     
and
  
     
Principal Financial Officer
  
     
 
Dated:  June 24, 2022
  

In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

June 24, 2022
/s/ Alan Gold
  
 
Alan Gold
  
 
President & Chairman of the Board
  
     
June 24, 2022
/s/ William F. Leimkuhler
  
 
William F. Leimkuhler
  
 
Director
  
     
June 24, 2022
/s/ Charles H. Merriman III
  
 
Charles H. Merriman III
  
 
Director