Note A - Basis of Preparation

The accompanying condensed consolidated financial statements of U.S. NeuroSurgical Holdings, Inc. and Subsidiaries (the “Company”) as of June 30, 2019 and 2018, are unaudited. However, in the opinion of management, such statements include all adjustments necessary for a fair statement of the information presented therein. The Balance Sheet at December 31, 2018 has been derived from the audited financial statements at that date appearing in the Company's Annual Report on Form 10-K.

Pursuant to accounting requirements of the Securities and Exchange Commission applicable to quarterly reports on Form 10-Q, the accompanying condensed consolidated financial statements and notes do not include all disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. Accordingly, these statements should be read in conjunction with the Company's most recent annual financial statements.

Consolidated results of operations for interim periods are not necessarily indicative of those to be achieved for full fiscal years.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“Topic 606”), amending existing revenue recognition guidance and requiring 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. 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. We adopted the provisions of Topic 606 as of January 1, 2018 on a modified retrospective basis and applied it to the Company's sole contract at the date of adoption. We concluded that the impact to the manner in which we recognize revenue is immaterial. Our revenue is primarily generated from a leasing arrangement with New York University (“NYU”), 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 as compared to the method under the prior revenue standards. The Company recognizes maintenance income ratably over time as patient procedures are performed.

Prior to October 2018, the Company’s agreement with NYU primarily consisted of an operating lease, and the associated patient revenue from the use of the gamma knife was primarily operating lease income. In October 2018, the agreement was reevaluated to be a sales-type sublease between the Company, the lessor, and NYU, the lessee. The present value of all fixed future minimum lease payments payable by NYU to the Company were recorded as an investment in sublease effective October 1, 2018. The patient revenue under the tiered schedule (“Note B”) continues to be considered contingent income and is recognized on a systematic basis using an average fee per procedure.

We adopted the provisions of ASU 2016-02, Leases ("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 our revenue is now accounted for under Topic 842, this guidance did not have a material impact on our Consolidated Statements of Operations or Cash Flows. 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, or on opening equity at January 1, 2019.

The tables below present financial information associated with our leases. This information is only presented as of, and for the six months ended, June 30, 2019, because, as noted above, we adopted Topic 842 using a transition method that does not require application to periods prior to adoption.

	Classification	June 30, 2019
Assets
Current
Finance lease assets	Investment in sales-type sublease - current	$	858,000

Long-term
Finance lease assets	Investment in sales-type sublease - net of current portion		984,000
Operating lease assets	Operating lease right-of-use asset		144,000
Total leased assets		$	1,986,000

Liabilities
Current
Finance lease liabilities	Obligations under finance lease - current portion	$	1,391,000
Operating lease liabilities	Operating lease right-of-use liability - current portion		34,000

Long-term
Finance lease liabilities	Obligations under finance lease - net of current portion		323,000
Operating lease liabilities	Operating lease right-of-use liability - net of current portion		125,000
Total lease liabilities		$	1,873,000

Lease Cost
Operating lease cost	Selling, general and administrative	$	21,000

Finance lease cost
Interest on lease liabilities	Interest expense		52,000

Sublease income	Interest income - sales-type sublease		73,000
Net lease cost		$	-

Maturity of lease liabilities (as of June 30, 2019)	Operating lease			Finance lease
2019	$	21,000		$	759,000
2020		43,000			923,000
2021		45,000			90,000
2022		46,000			-
2023		24,000			-
Total	$	179,000		$	1,772,000
Less amount representing interest		20,000			58,000
Present value of lease liabilities	$	159,000		$	1,714,000
Discount rate		5.850	%		4.555	%