Note D – The Southern California Regional Gamma Knife Center

During 2007, the Company managed the formation of the Southern California Regional Gamma Knife Center at San Antonio Regional Hospital (“SARH”) in Upland, California. The Company participates in the ownership and operation of the center through its wholly-owned subsidiary, USN Corona, Inc. (“USNC”). 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, negotiated a new five- year lease to fund the reloading of cobalt and the necessary construction to do so. The new lease of $1,663,000 includes a balance of $668,000 from the prior lease obligations. This new lease will be paid over 60 months. The first payment of $31,000 was paid on April 1, 2016 and the final payment will be due on March 1, 2021. The Company continues to be a 20% guarantor on the new lease and expects any potential obligations from this guarantee would be reduced by the recovery of the related collateral and expects any amounts arising from this guarantee to be insignificant.

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 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.

The Company’s share of cumulative losses associated with its investment in NeuroPartners LLC and CGK has exceeded its investment. Due to the outstanding loans made to NeuroPartners LLC and CGK, NeuroPartners LLC and CGK are considered to be variable interest entities of the Company. However, as the Company is not deemed to be the primary beneficiary of NeuroPartners LLC and CGK, since it does not have the power to direct the operating activities that most significantly affect NeuroPartners LLC’s and CGK’s economic performance, certain disclosures are required rather than consolidation. During the three months ended June 30, 2016, the Company received $20,000 of repayments of amounts previously advanced to NeuroPartners LLC and GCK. Those repayments reduce the amount of loses incurred on prior advances to NeruoPartners LLC and CGK and are included as additional income from investments in unconsolidated entities for the three and six months ended June 30, 2016. The Company has $116,000 of remaining advances to NeuroPartners LLC and CGK at June 30, 2016. For the three months ended June 30, 2016, the Company’s equity in earnings of NeuroPartners LLC and CGK was $9,000, but was not recorded due to prior losses.

The following tables present the aggregation of summarized financial information of NeuroPartners LLC and CGK:

Neuro Partners, LLC and CGK Condensed Income Statement Information

	Six Months Ended June 30,
	2016		2015

Patient revenue	$	516,000	$	498,000

Net income (loss)	$	176,000	$	(69,000	)

USNC's equity in earnings (loss) of Neuro Partners, LLC and CGK	$	9,000	$	(38,000	)

	Three Months Ended June 30,
	2016			2015

Patient revenue	$	211,000		$	295,000

Net income	$	50,000		$	1,000

USNC's equity in loss of Neuro Partners, LLC and CGK	$	(9,000	)	$	(5,000	)

NeuroPartners, LLC and CGK Condensed Balance Sheet Information

	June 30, 2016			December 31, 2015

Current assets	$	143,000		$	66,000

Noncurrent assets		980,000			394,000

Total assets	$	1,123,000		$	460,000

Current liabilities	$	567,000		$	1,359,000

Noncurrent liabilities		1,281,000			-

Deficit		(725,000	)		(899,000	)

Total liabilities and equity	$	1,123,000		$	460,000