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. All significant intercompany balances and transactions have been eliminated in consolidation.

[2]	Revenue recognition:

In May 2014 and in subsequent updates, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (“Topic 606”) to clarify the principles for recognizing revenue. Topic 606 replaced Topic 605, which was the revenue recognition standard in effect through December 31, 2017. Topic 606 amended existing revenue recognition guidance and required more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. We adopted Topic 606 on January 1, 2018, using the modified retrospective basis and applied it to the Company’s sole contract with NYU at the date of adoption. The adoption of Topic 606 did not result in any significant changes to our historic revenue accounting. Our revenue is primarily generated from a leasing arrangement with New York University, which is not within the scope of Topic 606, and from the sale of maintenance services with a single performance obligation, under which revenue is recognized in a similar manner to the prior revenue standard. No cumulative change to retained earnings was required upon adoption of Topic 606.

As discussed below, following the adoption of Topic 606, we recognized revenue in accordance with two different accounting standards: 1) Topic 606 and 2) Accounting Standards Codification (“ASC”) Topic 840, Leases (which addresses lease accounting). We will adopt ASC Topic 842, Leases which will replace Topic 840, on January 1, 2019. We have concluded that no significant changes are expected to our revenue accounting upon adoption of Topic 842 (see significant account policies, item 18, for further discussion).

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 the 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. We recognize revenue when we satisfy a performance obligation by transferring control over a product or service to a customer. The amount of revenue recognized reflects the consideration we expect to be entitled to in exchange for such products or services.

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.

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. This agreement required USN to reload the cobalt in the gamma knife and to reimburse NYU for certain costs NYU incurred due to the cobalt reload. Payments received before USN satisfied its obligations to reload the cobalt and pay these costs were recorded as deferred revenue.

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 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. . The patient revenue under the tiered schedule continues to be considered contingent income under the sales type lease and is recognized on a systematic basis using an average fee per procedure.

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 and $264,000 for 2018 and 2017, respectively, and was recognized ratably over each year. For the remaining term of the NYU agreement, the Company expects to recognize $316,000 of maintenance revenue ratably per annum.

[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 include amounts owed to the Company from the NYU Agreement. The Company considers these accounts receivable to be collectible at December 31, 2018 and 2017. The Company continuously monitors its relationship with NYU and would provide a charge to income, if necessary, to absorb any expected losses.

[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 Statement 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. As such, the recorded balance of Corona Gamma Knife, LLC and NeuroPartners, LLC, FOP, 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]	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.

[7]	Depreciation and amortization:

Up until the determination that the Company’s arrangement with NYU is a sales type lease, effective October 1, 2018, the Company’s gamma knife was depreciated on the straight-line method over an estimated useful life of 7 years. Leasehold improvements were also amortized on the straight-line method over 7 years, which is the shorter of the useful life, or the life of the NYU Agreement. Office furniture and computers are being depreciated on the straight-line method over their estimated useful lives ranging from 3 to 7 years.

[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:

Capital lease obligations are amortized ratably over the original term of the lease agreement, beginning with the earlier of the date the leased assets are placed in service or the effective date of the lease as defined in the lease agreement.

[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 adopted the accounting provisions for Accounting for Uncertainty in Income Taxes. 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 return. 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, 2018 and 2017. Tax years from January 1, 2015 to the current year remain open for examination by federal and state tax authorities.

In November 2015, FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes, which requires entities to present deferred tax assets and deferred tax liabilities as noncurrent in a classified balance sheet. Previously, entities were required to separately present deferred tax assets and deferred tax liabilities as current and noncurrent in a classified balance sheet. The ASU was effective in the first quarter of 2017. We adopted the guidance related to balance sheet classification on a prospective basis. Prior periods were not retrospectively adjusted.

[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 2018 and 2017, 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 2018 and 2017.

[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, 2018 and 2017 because of the short maturity of these financial instruments. The carrying values of the notes receivable and the obligations under capital leases, approximate fair value because the interest rates on these instruments approximate the market rates at December 31, 2018 and 2017.

[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 consist of amounts due from the medical centers. Historically, credit losses on accounts receivable have not been significant. At December 31, 2018 and 2017, substantially all of the Company’s accounts receivable were due from one customer, NYU.

[17]	Reclassifications:

Certain amounts reported in the prior year consolidated financial statements have been reclassified to conform to the current year’s presentation.

[18]	Future Accounting Pronouncements:

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 is 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 this guidance at the adoption date of January 1, 2019, using the transition method that allows us to initially apply Topic 842 as of January 1, 2019 and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We did not have a material adjustment to retained earnings upon adoption. We are additionally assessing the impact of Topic 842 on our internal controls over financial reporting.

As discussed in item 2 of the Company’s significant accounting policies, most of our revenue for the year ended December 31, 2018 was accounted for under the current lease accounting standard, Topic 840, and will be accounted for under Topic 842 upon adoption on January 1, 2019. We have concluded that no significant changes are expected to our revenue and lease income recognition upon adoption of Topic 842.

The Company determines if an arrangement is a lease at its inception. The Company’s current operating lease relates to office space. The Company’s current capital lease obligations are related to the NYU gamma knife.

The capital lease obligations addressed in Note E to the consolidated financial statements are expected to be accounted for as finance lease obligations upon adoption of Topic 842, and the Company does not expect any significant changes to the accounting for such leases upon adoption.

Under Topic 842, operating leases result in the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. ROU assets represent our right to use the leased asset for the lease term and lease liabilities represent our obligation to make lease payments. Under Topic 842, operating lease ROU assets and 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 operating lease ROU assets will also 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 will be recognized on a straight-line basis over the lease term.

The adoption of Topic 842 will have a material impact on the Company’s Consolidated Balance Sheet due to the recognition of the ROU assets and lease liabilities. Although a significant amount of our revenue is now accounted for under Topic 842, this guidance did not have a material impact on our consolidated statement of operations or cash flow statement. Because of the transition method we used to adopt Topic 842, Topic 842 will not be applied to periods prior to adoption and the adoption of Topic 842 had no impact on our previously reported results.

The future minimum lease payments for the Company’s operating lease as of December 31, 2018 are discussed in Note K to the consolidated financial statements. The undiscounted total of such payments is $200,000. Upon adoption of Topic 842, we expect to recognize operating lease ROU assets and lease liabilities that reflect the present value of these future payments. After the adoption of Topic 842, we will first report the operating lease ROU assets and lease liabilities as of March 31, 2019 based on our lease portfolio as of that date.