Results of operations
2020 Compared to 2019
Patient revenue in 2020 was $3,173,000 as compared to $3,070,000 in 2019. The
increase in revenue is primarily due to a higher effective rate per procedure.
This is in turn due to a reduction in procedures in contract year 2019/20 due to
COVID-19, and in contract year 2020/21, due to the NYU contract ending in March
2021 This effect more than offset the decrease in the number of procedures
performed from 2019 (559) to 2020 (462).
Patient expenses in 2020 were $361,000 as compared to $350,000 in 2019. Patient
expenses do not vary materially with the number of procedures performed, but are
tied to maintenance and other fixed expenses. The increase in patient expenses
is due to an increase in supplies to maintain and run the gamma knife and
marginally higher maintenance costs.
SG&A decreased by $33,000 or approximately 3% from $1,230,000 in 2019 to
$1,197,000 in 2020. This decrease is primarily due to a decease in travel,
entertainment, and consulting fees due to the COVID Pandemic. Interest expense
decreased to $25,000 in 2020 from $91,000 in 2019, due mainly to lower principal
amounts outstanding in 2020. Loss from investments in unconsolidated entities
decreased from $1,386,000 in 2019 to $809,000 in 2020, primarily due to lower
impairments of amounts advanced to FOP, MOP and CBOP, in turn due to lower
advances to those entities in 2020. The Company reported a net income of
$533,000 in 2020, as compared to a net income of $142,000 in the prior year,
primarily due to the $577,000 reduction of loss from investments in
unconsolidated entities. The Company incurred an income tax charge of $323,000
in 2020, compared with $9,000 in 2019.
Liquidity and capital resources
At December 31, 2020, the Company had working capital of $2,597,000 as compared
to $1,043,000 at December 31, 2019. Total assets decreased by $824,000 from 2019
to 2020 principally due to the reduction of the investment in sales-type
sublease and amounts due from related parties, partly offset by increased cash
held at December 31, 2020. Cash and cash equivalents at December 31, 2020 were
$2,030,000 as compared to $1,335,000 at December 31, 2019.
Net cash provided by operating activities was $1,117,000 in 2020 as compared to
$1,547,000 in 2019. Net cash used in financing activities was $901,000 in 2020
as compared to $1,397,000 used in 2019 mainly due to lower finance lease
principal payments.
For the year ended December 31, 2020, net cash provided by investing activities
was $479,000 in 2020 as compared to $334,000 used in 2019, primarily due to
$1,113,000 lower net advances to unconsolidated entities.
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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 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 2021 contract renewal in October of 2020,
the patient revenue under the tiered schedule had been considered contingent
income under the sales type lease and until October 31, 2020 was recognized on a
systematic basis using an average fee per procedure. The Company has recorded
patient revenue based on procedures performed at the applicable billing rate for
each procedure since November 1, 2020 for the current contract year, since the
Company does not expect to exceed the threshold at which billing rates decrease
before the completed sale of the equipment on March 31, 2021.
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NYU Maintenance Revenue
The NYU agreement, which ends in March 2021, specifies that USN is obligated to
maintain the gamma knife equipment in good operating condition. This maintenance
obligation is incurred through the term of the agreement while patient
procedures are performed. Usage of the gamma knife machine is directly linked to
the maintenance of the machine. USN bills NYU monthly for the maintenance and
gamma knife services provided. The portion of the total contract consideration
allocated to the maintenance services was $316,000 for 2020 and $316,000 for
2019 and was recognized ratably over each year.
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.
In 2014 the Company estimated that the cost to remove the gamma knife at the end
of the agreement to be approximately $620,000. The estimated costs of these
obligations are capitalized as costs of the assets subject to the retirement
obligations and amortized over the lives of the assets. The Company had
previously recorded an asset retirement obligation associated with the gamma
knife at NYU. This obligation was derecognized when the NYU agreement was
recharacterized as a sales type lease.
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.
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