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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