U.S. NeuroSurgical Holdings, Inc. - Annual Report: 2019 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

or

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                     .

Commission file number:  0-15586

U.S. NeuroSurgical Holdings, Inc.

(Name of small business issuer in its charter)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐     No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.

Yes ☐    No ☒

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☒   No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  ☒     No ☐

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐   No  ☒

As of June 30, 2019, the aggregate market value of issuer’s Common Stock held by non-affiliates was approximately $811,000, based upon the closing price as reported on the OTC Pink marketplace for that day.

As of April 13, 2020, there were outstanding 7,792,185 shares of the issuer’s Common Stock. $.01 par value.

Documents incorporated by reference:  None

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FORM 10-K

U.S. NeuroSurgical Holdings, Inc.

Form 10-K for the Fiscal Year Ended December 31, 2019

Table of Contents

PART I

Item 1.

Business.

U.S. NeuroSurgical Holdings, Inc. owns and operates, through its wholly-owned subsidiaries, stereotactic radiosurgery centers, utilizing gamma knife technology, and holds other interests in radiological treatment facilities.  As used herein, unless the context indicates otherwise, the term “Company”, “Registrant” and “Holdings” means U.S. NeuroSurgical Holdings, Inc. and its wholly-owned subsidiary, U.S. NeuroSurgical, Inc. (“USN”), and the wholly-owned subsidiaries of USN, U.S. NeuroSurgical Physics, Inc. and USN Corona, Inc.

USN, a Delaware corporation, was formed in July 1993.  Until September 1999, USN was a wholly owned subsidiary of GHS, Inc. (“GHS”).  Effective  September 17, 1999, GHS distributed its shares of USN to the stockholders of GHS.

On September 3, 2015, pursuant to the Agreement and Plan of Reorganization (the “Merger Agreement”), dated as of September 3, 2015, by and among USN, Holdings and U.S. NeuroSurgical Merger Sub, Inc. (“Merger Sub”), the Company adopted a new holding company organizational structure whereby USN is now a wholly owned subsidiary of Holdings. This structure did not result in any changes to the assets or operations of the Company, but management believes that it will create a more flexible framework for possible future transactions and organizational and operational adjustments.

The holding company organizational structure was effected by a merger (the “Merger”) conducted pursuant to Section 251(g) of the Delaware General Corporation Law (the “DGCL”), which provides for the formation of a holding company structure without a vote of the stockholders of the constituent corporations.  Because the holding company organizational structure occurred at the parent company level, the remainder of the Company’s subsidiaries, operations and customers were not affected by this transaction.

In order to effect the Merger, USN formed Holdings as its wholly owned subsidiary and Holdings formed Merger Sub as its wholly owned subsidiary.  Under the terms of the Merger Agreement, Merger Sub merged with and into USN, with USN surviving the merger and becoming a direct, wholly owned subsidiary of Holdings.   Immediately prior to the Merger, Holdings had no assets, liabilities or operations.

Pursuant to the Merger Agreement, all of the outstanding capital stock of USN was converted, on a share for share basis, into capital stock of Holdings.  As a result, each former stockholder of USN became the owner of an identical number of shares of capital stock of Holdings, evidencing the same proportional interests in Holdings and having the same designations, rights, powers and preferences, qualifications, limitations and restrictions, as those that the stockholder held in USN.

Following the Merger, Holdings’ common stock continued to trade on the over-the-counter market and continued to be quoted on the OTC Pink marketplace under the same symbol, “USNU.”  The conversion of shares of capital stock under the Merger Agreement occurred without an exchange of physical certificates.  Accordingly, physical certificates formerly representing shares of outstanding capital stock of USN are deemed to represent the same number of shares of capital stock of Holdings.

Pursuant to Section 251(g) of the DGCL, the provisions of the certificate of incorporation and bylaws of Holdings are substantially identical to those of USN prior to the date on which the Merger Agreement took effect.  The authorized capital stock of Holdings, the designations, rights, powers and preferences of such capital stock, and the qualifications, limitations and restrictions thereof are also substantially identical to those of the capital stock of USN immediately prior to the date of the Merger.  Further, the directors and executive officers of Holdings are the same individuals who were directors and executive officers, respectively, of USN immediately prior to the date of the Merger.

The Company’s executive offices are located at 2400 Research Boulevard, Suite 325, Rockville, Maryland 20850, and its telephone number is (301) 208-8998.

Statements contained in this Annual Report on Form 10-K that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Investors are cautioned that forward-looking statements are inherently uncertain.  Actual performance and results may differ materially from that projected or suggested herein due to certain risks and uncertainties including, without limitation, the timing and ultimate collectability of accounts receivable for gamma knife procedures from different payor groups such as Medicare and private payors; competition; technological obsolescence; government regulation and malpractice liability.  Additional information concerning certain risks and uncertainties that could cause actual results to differ materially from that projected or suggested are included in Item 1A, Risk Factors, and may also be identified from time to time in the Company’s filings with the Securities and Exchange Commission (the “SEC”) and the Company’s public announcements, copies of which are available from the SEC or from the Company upon request.

The Company and its predecessors have owned and operated stereotactic radiosurgery centers, utilizing gamma knife technology since 1993. The Company currently holds an interest in and operates one gamma knife center on the premises of New York University Medical Center (“NYU”) in New York, New York.  In January 2009, the Company, through its noncontrolling interest in Corona Gamma Knife, LLC, participated in the opening of a new center, the Southern California Regional Gamma Knife Center, at the San Antonio Regional Hospital (“SARH”) in Upland, California.

Management continues to explore opportunities to organize and participate in additional gamma knife centers.  The Company’s business strategy is to provide cost-effective approaches that allow hospitals, physicians, and patients access to gamma knife treatment capability, a high capital cost item.  The Company provides the gamma knife to medical facilities on a “cost per treatment” basis.  The Company’s business model is to own, or hold an interest in, the gamma knife units, and charge the medical facility, where the unit is housed and maintained, based on utilization. During 2018, the Company’s arrangement with its only customer met the criteria for classification as a sales type lease, and the Company was deemed to have sold its sole gamma knife.

During the fourth quarter of 2007, the Company formed a new wholly owned subsidiary, USN Corona, Inc. (“USNC”), to carry investments in Corona Gamma Knife, LLC and NeuroPartners, LLC.  Those business units were formed to develop and manage the gamma knife center at SARH.

The Company’s principal target market is medical centers in major health care catchment areas that have physicians experienced with and dedicated to the use of the gamma knife.  As it has with the NYU and SARH gamma knife centers, if circumstances support the opening of additional centers, the Company would seek, through the formation of  a joint venture,  cooperative ventures with these facilities.

The Company estimates that, as of December 31, 2019, there were approximately 120 gamma knife treatment centers in the U.S.

During 2010, through the formation of a joint venture, in which it has a noncontrolling interest, the Company expanded its market strategy to include opportunities to develop cancer centers featuring radiation therapy.  These centers utilize linear accelerators with IMRT (Intensity Modulated Radiation Therapy) and IGRT (Image Guided Radiation Therapy) capabilities.  In 2010, the Company formed Florida Oncology Partners, LLC (“FOP”) in partnership with local physicians and other investors.  USNC owns a 24% interest in the venture.  FOP’s first center was located in Miami, Florida and opened in the second quarter of 2011. The Company entered into an arrangement to sell this center to 21st Century Oncology in December of 2015.  The recognition of the sale had not occurred as of December 31, 2018.

In 2015, Medical Oncology Partners LLC (“MOP”), was formed in partnership with local physicians and other investors. MOP was established to acquire a 100% equity interest in United Oncology Medical Associates of Florida, LLC (“UOMA”) USNC was not initially a member of MOP as it was legally not able to participate due to the fact that USNC was not a physician. Paperwork was filed for a waiver and on December 22, 2016, USNC was cleared to become a part owner of MOP. USNC currently owns 35.83% of MOP.

Late in 2016, FOP took initial steps toward the development of a new radiation therapy center in Homestead, Florida.  However, late in the third quarter of 2017, it was determined that the business opportunity at this new location should be pursued by a different investor group, and FOP arranged to sell the opportunity to this group.  CB Oncology Partners, LLC, (“CBOP”)  was organized September 1, 2017 to acquire the rights of the new center from FOP.

In June 2017, FOP entered into an agreement with a third-party owner of a radiation therapy center located in Miami, Florida, whereby FOP took over the operation of the center effective September 22, 2017, for a ten-year initial term, and up to three additional terms of five years each. This agreement has been accounted for as a capital lease and, accordingly, FOP recorded assets and capital lease liabilities totaling $14,321,000 at September 22, 2017. The lease required monthly payments in the first year of $160,000, increasing by 2% each year; currently the payment is $164,000.  FOP abandoned its operations at this radiation center on June 28, 2019 due to continued losses at the site and lack of success in good faith efforts to renegotiate the agreement after several months of discussion.  FOP could be considered in default of the agreement and the third-party owner could pursue action against FOP.  Due to the circumstances, FOP derecognized the associated assets and liabilities and calculated a contingent liability equal to the net liabilities derecognized. FOP has not, however, been released from its contractual obligation to the third-party owner.  At December 31, 2019, FOP was obligated to make a further $17.6 million of lease payments for the period from July 2019 to September 2027, with no payments made in July to December 2019.  Due to abandoning the operations of the Miami center as well as continued working capital deficits, FOP’s ability to continue as a going concern will require FOP to restructure debt, raise new capital, and successfully settle the agreement at the center in Miami, Florida. Since these plans are preliminary and have not been approved at this date, there is substantial doubt about FOP’s ability to continue as a going concern within the next twelve months from the date these consolidated financial statements are available to be issued.

The Company, through its noncontrolling interest in joint ventures, is currently exploring other opportunities for the establishment of cancer centers using IMRT and/or IGRT in Florida and other parts of the U.S.

The gamma knife is a unique stereotactic radiosurgical device used to treat brain tumors and other malformations of the brain without invasive surgery.  The gamma knife delivers a single, high dose of ionizing radiation emanating from 201 cobalt-60 sources positioned about a hemispherical, precision machined cavity.  The lesion is first targeted with precision accuracy using advanced imaging and three dimensional treatment planning techniques such as CT Scans, MR Scans, conventional X-rays, or angiography.  Each individual beam is focused on a common target producing an intense concentration of radiation at the target site, destroying the lesion while spreading the entry radiation dose uniformly and harmlessly over the patient’s skull.  The mechanical precision at the target site is +/- 0.1mm (1/10 of 1 millimeter).  Because of the steep fall-off in the radiation intensity surrounding the target, the lesion can be destroyed, while sparing the surrounding tissue.

The procedure, performed in a single treatment, sharply reduces hospital stay times and eliminates post-surgical bleeding and infection.  When compared with conventional neurosurgery, gamma knife treatment is less expensive.  However, not all patients are candidates for radiosurgery since the decision to use the gamma knife depends on the type, size, and location of the lesion.

A linear particle accelerator (LINAC) is a type of particle accelerator that greatly increases the velocity of charged subatomic particles or ions by subjecting the charged particles to a series of oscillating electric potentials along a linear beamline. LINACs accelerate electrons using a tuned-cavity waveguide, in which the RF (radio frequency) power creates a standing wave. Some LINACs have short, vertically mounted waveguides, while higher energy machines tend to have a horizontal, longer waveguide and a bending magnet to turn the beam vertically towards the patient. Medical LINACs use monoenergetic electron beams between 4 and 25 MeV, giving an X-ray output with a spectrum of energies up to and including the electron energy when the electrons are directed at a high-density (such as tungsten) target. The electrons or X-rays can be used to treat both benign and malignant disease.

The intensity of the radiation in IMRT can be changed during treatment to spare more adjoining normal tissue than is spared during conventional radiation therapy. Because of this an increased dose of radiation can be delivered to the tumor using IMRT. IMRT is a type of conformal radiation, which shapes radiation beams to closely approximate the shape of the tumor.

IGRT is used to help better deliver radiation therapy to cancerous tumors. This is very useful since tumors can move between treatments due to differences in organ filling or movements while breathing. IGRT involves conformal radiation treatment guided by specialized imaging tests, such as CT scans, ultrasound or X-rays. These tests are done in the treatment room just before the patient is to receive his or her daily radiation therapy treatment.

The Company’s New York gamma knife treatment center was opened in July 1997 on the campus of NYU.  The Company installed a new Leksell gamma knife, the PERFEXION model, at the NYU Medical Center in March 2009 in replacement of the older gamma knife equipment.  In connection with this upgrade, the Company modified its arrangement with NYU to extend the term for 12 years from March 2009.

In October 2012, the Company’s facility at NYU was totally destroyed as a result of flooding from Hurricane Sandy. The gamma knife had to be removed to prevent any cobalt leakage that might occur due to rusting of the equipment. The removal cost was $525,000. The Company paid a lease settlement of the outstanding principal balance only and received from insurance coverage $930,000 above the lease principal payments and removal costs.

The Company finalized arrangements with NYU regarding the restoration of the gamma knife center and entered into an amendment to the original Gamma Knife Neuroradiosurgery Equipment Agreement (“NYU Agreement”).  The NYU facility was rebuilt and reopened in the Tisch Hospital of NYU Langone Medical Center.  The first patient was treated on April, 29, 2014. The Company expects to generate revenue from the restored gamma knife center under the NYU contract until March 2021, at which time the NYU contract ends and title to the gamma knife will transfer to NYU.

The Company is responsible for the maintenance and insurance for the gamma knife equipment at the NYU facility and earns income for use of the gamma knife based on a fee per procedure performed with the equipment.  NYU provides the medical and technical staff to operate the facility.

The Company entered into a six year lease in the amount of $4.7 million for the purchase of the replacement equipment and associated leasehold improvements. The lease payments commenced in September 2014 and end in May 2020. The Company entered into a second two year lease in the amount of $250,000 for the cost of the construction required at the relocated site. The lease ended in 2016.

NYU pays the Company a scheduled fee based on the number of patient procedures performed. There were 559 patients treated during the year ended December 31, 2019, whereas in the prior year there were 592 patients treated at the facility. Total revenue in 2019 from NYU was $3,070,000 as opposed to total revenue of $3,424,000 in 2018.

In 2016, the Company entered into an agreement with Elekta for the installation of new ICON imaging technology for the NYU Gamma Knife equipment with a total cost, including sales taxes, of $816,000. This ICON technology was installed during the month of July 2016 and the gamma knife center reopened on August 5, 2016. The Company entered into a four-year lease for $879,000 to finance the acquisition of the ICON technology and associated installation costs. A monthly maintenance agreement commenced a year after the installation date for $6,000 per month. The two parties also agreed for USN to receive a fixed monthly payment of $30,000 for the remaining term of the agreement through March 2021.

In September 2017, the Company 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, with 41 monthly installments of $50,000 from October 2017 through February 2021, and a final payment of $350,000 on March 31, 2021.  Previously, the NYU agreement ended on March 17, 2021 and NYU had an option to purchase the gamma knife equipment at the appraised value of the equipment at that time.  In June 2017, the Company obtained an independent estimate of $2,570,000 for the fair value of the equipment in March 2021.  The Company believes that the accelerated payments amounting to $2,400,000 represent fair consideration considering all aspects of the transaction.

With the September 2017 amendment, the Company became obligated to reload the cobalt for the gamma knife at its own expense and bear the cost of site work involved in reloading the cobalt, up to a maximum of $1,088,000.  In July 2018, the Company entered into an agreement with Elekta for the cobalt reload on the NYU gamma knife equipment with a cost, including sales taxes, of $925,000. This cobalt reload occurred in July 2018, and the gamma knife center reopened on August 6, 2018. The Company obtained lease financing of $833,000 to partially finance the reload of the cobalt, and paid the remaining balance directly to Elekta. In addition, the Company incurred costs of $578,000 to install the new cobalt to be paid directly to the contractor. All cobalt related costs were finalized by October 1, 2018, and totaled $1,503,000. As a result of the Company satisfying its obligation to reload the cobalt, the agreement with NYU met the criteria to be classified as a sales type lease. In addition, the Company is now no longer obligated to restore the NYU facility to its original condition. Accordingly, all related assets and the asset retirement obligation were derecognized effective October 1, 2018.

During 2007, the Company, through a noncontrolling interest in joint ventures,  managed the formation of the Southern California Regional Gamma Knife Center at SARH in Upland, California.  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 LLC negotiated a new five- year lease to fund the reloading of cobalt and related construction services.  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 thus expects any exposure from this guarantee to be remote.

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, through its joint ventures, 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.

During the year ended December 31, 2019, the Company received $20,000 of repayments from NeuroPartners LLC and CGK, and advanced $13,000 to these entities. During the year ended December 31, 2018, the Company received no amounts from and made no advances to, NeuroPartners LLC and CGK. During the years ended December 31, 2019 and 2018, the Company received $76,000 and $60,000 in distributions, respectively.  For the years ended December 31, 2019 and 2018, the Company’s equity in earnings of NeuroPartners LLC and CGK was $92,000 and $181,000, respectively, but only $76,000 for the year ended December 31, 2019, and $80,000 for the year ended December 31, 2018, was recorded due to distributions or the reversal of previously unrecognized losses. At December 31, 2019, amounts due from related parties includes $20,000 of distributions receivable from CGK and $11,000 of other advances.

The Company is currently exploring other opportunities for gamma knife centers and centers that provide related healthcare services located near hospitals throughout the United States.  Discussions regarding such centers is preliminary and there can be no assurance that any such discussions will result in the opening of new centers.

During 2010, the Company expanded its market strategy to include opportunities to develop cancer centers featuring radiation therapy.  These centers utilize linear accelerators with IMRT and IGRT capabilities.  In 2010, the Company formed FOP in partnership with local physicians and other investors.  USNC owns a 24% interest in the venture.  FOP’s first center was located in Miami, Florida and opened in the second quarter of 2011.

During 2011, FOP entered into a seven-year capital lease with Key Bank for $5,800,000.  Under the terms of the capital lease, USN agreed to guarantee a maximum of $1,433,000, approximately 25% of the original lease obligation in the event of default.  USN was a guarantor jointly with most of the other members of FOP.  The guarantee was eliminated upon repayment of the outstanding lease balance in May 2018.

In December 2015, FOP entered into an agreement with 21st Century Oncology for the sale of FOP’s Varian Rapid Arc linear accelerator and other medical equipment at the FOP location.  21st Century Oncology paid FOP $1,000,000 as a down payment for the equipment and agreed to make monthly payments of $172,000 for the equipment and all monthly payments due under the equipment lease with Key Bank.  As of this date, 21st Century Oncology has not satisfied all of the terms of the agreement.  In late May 2017, 21st Century Oncology filed for Chapter 11 bankruptcy protection and FOP was listed as an unsecured creditor. As a result, since June 2017, FOP has not received the agreed rental payments beyond the monthly payments for the equipment lease.  As noted above, the equipment lease was repaid in May 2018 and title to the equipment was transferred to 21st Century Oncology. In December 2018, FOP was awarded 10,820 shares of 21st Century Oncology Holdings Inc. common stock as part of the bankruptcy proceedings. The market value of these shares is unclear at this time as there is no readily available market for them and, accordingly, no value has been recorded for these shares at December 31, 2019 or 2018.  FOP will continue to monitor the impact of 21st Century’s bankruptcy and pursue amounts that it is owed.  However, there can be no assurance that FOP will be successful in these efforts.

Late in 2016, FOP took initial steps toward the development of a new radiation therapy center in Homestead, Florida.   In December 2016, FOP entered into a ten-year lease agreement for office space located at 20405 Old Cutler Towne Center.  FOP had to deliver an $88,000 letter of credit in conjunction with this office lease which collateral is being held in a restricted certificate of deposit. FOP began incurring architecture costs for planning/refitting the new space.  During the first half of 2017, a financing agreement with BB&T Bank for the medical equipment and leasehold improvements was negotiated and then signed on August 31, 2017.  In November 2017, the amounts for the equipment and leasehold improvements costs were finalized and paid under this financing agreement for a total loan of $4,106,000 to be paid over seven years.  Under the terms of the financing agreement, USN agreed to guarantee the amount initially borrowed. USN is the guarantor with several other members of FOP. The outstanding balance on the financing facility was $3,273,000 at December 31, 2019, and $3,660,000 at December 31, 2018. Effective November 15, 2019, FOP transferred this loan, along with the equipment acquired with the loan proceeds, to CBOP. The Company expects any potential liability from this guarantee to be reduced by the recoveries of the respective collateral.  Late in the third quarter of 2017, it was determined that the business opportunity at this new location should be pursued by a different investor group, and FOP arranged to sell the opportunity to this group.  CBOP was organized on September 1, 2017, to acquire the assets and rights in this new center from FOP.

In June 2017, FOP entered into an agreement with a third-party owner of a radiation therapy center located in Miami, Florida, whereby FOP took over the operation of the center effective September 22, 2017, for a ten-year initial term, and up to three additional terms of five years each. This agreement has been accounted for as a capital lease and, accordingly, FOP recorded assets and capital lease liabilities totaling $14,321,000 at September 22, 2017. The lease required monthly payments in the first year of $160,000, increasing by 2% each year; currently the payment is $164,000.  FOP abandoned its operations at this radiation center on June 28, 2019 due to continued losses at the site and lack of success in good faith efforts to renegotiate the agreement after several months of discussion.  FOP could be considered in default of the agreement and the third-party owner could pursue action against FOP.  Due to the circumstances, FOP derecognized the associated assets and liabilities and calculated a contingent liability equal to the net liabilities derecognized. FOP has not, however, been released from its contractual obligation to the third-party owner.  At December 31, 2019, FOP was obligated to make a further $17.6 million of lease payments for the period from July 2019 to September 2027, with no payments made in July to December 2019.  Due to abandoning the operations of the Miami center as well as continued working capital deficits, FOP’s ability to continue as a going concern will require FOP to restructure debt, raise new capital, and successfully settle the agreement at the center in Miami, Florida. Since these plans are preliminary and have not been approved at this date, there is substantial doubt about FOP’s ability to continue as a going concern within the next twelve months from the date these financial statements are available to be issued.

The Company’s recorded investment in FOP at December 31, 2019 and 2018 has been reduced to zero due to losses incurred in 2019 and 2018.  No equity in earnings has been recorded by the Company for the years ended December 31, 2019 and 2018, due to FOP’s deficit at December 31, 2019 and 2018.

Amounts due from FOP at December 31, 2019, total $649,000 of outstanding principal, less $588,000 of allowances, for a net receivable balance of $61,000, all of which is included in due from related parties on the accompanying consolidated balance sheet. At December 31, 2018, FOP owed the Company $223,000 included in amounts due from related parties, and $735,000 of principal, less an allowance of $218,000, for a net amount of $517,000, included in term loan receivable – related parties. These balances accrue interest at 6% per annum. Interest earned by the Company from the amounts owed by FOP totaled $38,000 and $30,000 for the years ended December 31, 2019 and 2018, respectively. At December 31, 2019 and 2018, total accrued interest was $68,000 and $30,000, respectively. The Company has recorded an allowance against the accrued interest of $68,000 and $0 at December 31, 2019 and 2018, respectively. The Company recorded increases in the allowances as component of loss from investments in unconsolidated entities, net for interest recorded in prior years, and as a deduction in current year interest income for interest earned in the current year.

Because of loans made to FOP, FOP is considered a variable interest entity of the Company.  However, as the Company is not deemed to be the primary beneficiary of FOP, since it does not have the power to direct the operating activities that most significantly affect FOP’s economic performance, the entity is not consolidated, but certain disclosures are provided herein.

During the quarter ended June 30, 2011, the Company participated in the formation of Boca Oncology Partners, LLC (“BOP”), for the purpose of owning and operating a cancer center in Boca Raton, Florida.  In June 2011, Boca Oncology Partners RE, LLC (“BOPRE”), an affiliated entity, purchased a 20% interest in Boca West IMP, LLC (“Boca West IMP”), owner of a medical office building in West Boca, Florida in which BOP operates.  BOP occupies 6,000 square feet of the 32,000 square foot building.  The Company invested $225,000 initially and had a 22.5% interest in BOP and BOPRE. In February 2014, the Company and other members sold their interests in BOP.

In June 2012, BOPRE purchased an additional 3.75% of Boca West IMP from another investor bringing its total interest to 23.75%. BOPRE accounts for this investment under the cost method since it does not exercise significant influence over Boca West IMP.

During the years ended December 31, 2018 and 2017, several investors relinquished part of their ownership interest in BOPRE, and those interests were distributed among the remaining investors in relationship to their percentages owned. As a result, the Company now holds a 21.22% ownership interest in BOPRE, which it accounts for under the equity method, at December 31, 2019. The Company’s recorded investment in BOPRE is $179,000 and $168,000 at December 31, 2019 and 2018, respectively, which includes $11,000 in equity earnings during the year ended 2019.

USNC is a 10% guarantor of 50% of the outstanding balance of Boca West IMP’s ten-year mortgage.  This mortgage had an original balance of $3,000,000 and is secured by the medical office building in which BOP operates. The outstanding balance on the mortgage is $2,179,000 and $2,303,000 at December 31, 2019 and 2018, respectively.  Any liability from this guarantee would be mitigated by the recovery from the underlying real estate, and the Company expects its potential exposure from this guarantee to be remote.

In April 2015 MOP, was formed in partnership with local physicians and other investors. MOP was established to acquire a 100% equity interest in UOMA. USNC was not a member of MOP at the time of formation as it was not able to participate due to the fact that USNC was not a physician. Nevertheless, USNC wished to eventually obtain an equity interest in MOP and loaned Dr. Jaime Lozano, the principal investor in MOP and a co-investor in FOP, $173,000.  Dr. Lozano used these funds, along with an equal amount of his own funds (a total of $345,000), to purchase a 76.67% interest in MOP. Other investors paid a further $105,000 for the remaining equity in MOP. MOP used the $450,000 of financing to acquire a 100% equity interest in UOMA.  An application was filed for a waiver to allow USNC to hold an equity interest notwithstanding the physician requirement and on December 22, 2016, USNC was cleared to become a part owner of MOP. Dr. Lozano agreed to exchange half of his membership interest to USNC in settlement of the note to USNC.  USNC and Dr. Lozano also agreed to share equally in providing a 5% equity interest in MOP to an additional investor as a consulting fee for services rendered in the administration of MOP and UOMA. At December 22, 2016, USNC owned 35.83% of MOP with an initial carrying value of $161,000. The Company recorded its share of losses of $12,000 for the period from December 22, 2016 to December 31, 2016, against its investment which resulted in a reduction of its equity investment to $149,000.

Due to increasing costs, continued net losses since April 2015, and reliance on related party and other debt for operating cash flows, the fair value of UOMA is less than its carrying amount. The Company tested its investment for impairment at December 31, 2016 and determined that the investment was impaired, and an impairment loss was recorded against the entire equity balance in MOP, as well as loans from USN and USNC to MOP and UOMA. For the years ended December 31, 2019 and 2018, the Company’s equity in loss of MOP was $156,000 and $101,000 respectively but was not recorded due to prior losses.

Amounts due from MOP and UOMA at December 31, 2019, total $1,126,000 of outstanding principal, less $796,000 of allowances, for a net receivable of $330,000, all of which is included in due from related parties on the accompanying consolidated balance sheet. At December 31, 2018, MOP and UOMA owed the Company $497,000, all of which had been reserved for. These balances accrue interest at 6% per annum. Interest earned by the Company from the amounts owed by MOP and UOMA totaled $38,000 and $20,000 for the years ended December 31, 2019 and 2018, respectively. At December 31, 2019 and 2018, total accrued interest was $58,000 and $20,000, respectively. The Company has recorded an allowance against the accrued interest of $58,000 and $20,000, at December 31, 2019 and 2018, respectively. The Company recorded increases in the allowance as a component of loss from investments in unconsolidated entities, net for interest recorded in prior years, and as a deduction in current year interest income for interest earned in the current year.

During the years ended December 31, 2019 and 2018, the Company recorded $299,000 and $245,000 respectively of allowances against advances to MOP. These charges have been recorded as losses from investments in unconsolidated entities.

Due to loans made to MOP and UOMA, MOP and UOMA are considered to be variable interest entities of the Company.  However, as the Company is not deemed to be the primary beneficiary of MOP or UOMA, since it does not have the power to direct the operating activities that most significantly affect MOP’s or UOMA’s economic performance, the entities are not consolidated, but certain disclosures are provided herein.

CBOP was organized September 1, 2017 to acquire the rights of the new center from FOP.  USNC has a 24% equity interest in CBOP.  Beginning in October of 2017, CBOP began paying the remainder of the costs associated with opening the center. CBOP had no assets at the end of 2017. The medical center opened and treated its first patient in January of 2018.

Effective November 15, 2019, FOP transferred to, and CBOP assumed, a loan with BB&T bank, that it had entered into in order to finance the purchase of equipment and build out of the new center, as well as the associated property and equipment. In addition, CBOP and BB&T agreed to reduce the monthly loan repayments for the next nine months, and to extend the term of the loan from November 2024 to July 2025.

During the year ended December 31, 2019, the Company contributed $25,000 as an additional investment in CBOP, all of which has been written off due to cumulative losses incurred by CBOP to date. Amounts due from CBOP at December 31, 2019, total $2,207,000 of outstanding principal, less $1,207,000 of allowances, for a net receivable of $1,000,000, all of which is included in due from related parties on the accompanying consolidated balance sheet. At December 31, 2018, CBOP owed the Company $1,401,000, of which $503,000 had been reserved for. These balances accrue interest at 6% per annum. Interest earned by the Company from the amounts owed by CBOP totaled $103,000 and $45,000 for the years ended December 31, 2019 and 2018, respectively. At December 31, 2019 and 2018, total accrued interest was $148,000 and $48,000, respectively. The Company has recorded an allowance against the accrued interest of $148,000 and $48,000 at December 31, 2019 and 2018, respectively. The Company recorded increases in the allowance a component of loss from investments in unconsolidated entities, net for interest recorded in prior years, and as a deduction in current year interest income for interest earned in the current year.

Due to loans made to CBOP, CBOP is considered a variable interest entity of the Company.  However, as the Company is not deemed to be the primary beneficiary of CBOP, since it does not have the power to direct the operating activities that most significantly affect CBOP’s economic performance, the entity is not consolidated, but certain disclosures are provided herein.

As a result of the Company’s experiences over the past few years, the Company, through unconsolidated joint ventures, has expanded its focus to the broader based cancer treatment market.  In order to reduce the risk and broaden its opportunities for profitable growth, the Company, through unconsolidated joint ventures, where possible, has been pursuing partnerships with local investors/providers to develop and operate oncology centers that utilize LINACs to treat cancers in the whole body.  The Company also continues to evaluate opportunities to develop additional gamma knife facilities.  FOP, BOP and the Southern California Regional Gamma Knife Center typify this strategy.

USN has three full-time employees and relies on consultants for certain services as required from time-to-time.  All of its full-time employees are engaged in sales, marketing and administration.

The levels of revenues and profitability of companies involved in the health services industry, such as the Company, may be affected by the continuing efforts of governmental and third party payors to contain or reduce the costs of health care through various means.  Although the Company does not believe that its business activities will be materially affected in the foreseeable future, it is not possible to predict the long term effect of recent and future changes in the regulatory environment, or the responses of federal, state or private payors for healthcare goods and services in response to healthcare proposals or legislation.

In March 2010, significant reforms to the healthcare system were adopted in the form of the Patient Protection and Affordable Care Act (the “PPACA”). The PPACA includes provisions that, among other things, reduce and/or limit Medicare reimbursement to certain providers, require all individuals to have health insurance (with limited exceptions) and impose new and/or increased taxes.  The Company cannot predict the effects these changes may have on its business, and no assurance can be given that any such changes will not have a material adverse effect on the Company.

In addition, the provision of medical services in the United States is dependent on the availability of reimbursement to consumers from third party payors, such as government and private insurance companies.  Although patients are ultimately responsible for services rendered, the Company expects that the majority of its revenues will be derived from reimbursements by third party payors.  Medicare has authorized reimbursement for gamma knife and other forms of cancer treatment.  Over the last several years, such third party payors are increasingly challenging the cost effectiveness of medical products and services and taking other cost containment measures.  Therefore, although treatment costs using the gamma knife compare favorably to traditional invasive brain surgery, it is unclear how this trend among third party payors and future regulatory reforms affecting governmental reimbursement will affect procedures in the higher end of the cost scale.

In the future, the Company may establish additional gamma knife or other types of cancer treatment centers.  Completion of future centers would require approvals and arrangements with hospitals, health care organizations, or other third parties, including certain regulatory authorities.  The Food and Drug Administration has issued the requisite pre-market approval for the gamma knife utilized by the Company.  In addition, many states require hospitals to obtain a Certificate of Need (“CON”) before they can acquire a significant piece of medical equipment.  Should the Company enter into future ventures such “need” will be demonstrable, but it can have no assurance that CONs will be granted.  In addition, the Nuclear Regulatory Commission (the “NRC”) must issue a permit to the Company to permit loading the cobalt at each gamma knife site.  While the Company believes that it can obtain an NRC permit for each gamma knife unit, there is no assurance that it will.

Although the Company does not directly provide medical services, it has obtained professional medical liability insurance, and has general liability insurance as well. The Company’s professional medical liability and general liability policies have limits of $3 million each.  The Company believes that its insurance is adequate for providing treatment facilities and non-medical services, although there can be no assurance that the coverage limits of such insurance will be adequate or that coverage will not be reduced or become unavailable in the future.

The health care industry, in general, is highly competitive and the Company expects to have substantial competition from other independent organizations, as well as from hospitals in establishing future gamma knife or other types of cancer treatment centers.  There are other companies that provide gamma knife or other types of cancer treatment on a “cost per treatment basis”.  In addition, larger hospitals may be expected to maintain a gamma knife as well as competing technologies as part of their regular inpatient services, which could have the effect of reducing the number of gamma knife procedures performed at such facility.  Principal competitive factors include quality and timeliness of test results, ability to develop and maintain relationships with referring physicians, facility location, convenience of scheduling and availability of patient appointment times.  The Company believes that cost containment measures will encourage hospitals to seek companies that are providing the technology, instead of incurring the capital cost of establishing their own treatment centers.

The gamma knife is an expensive piece of equipment, presently costing from $3.0 to $4.5 million, depending on features.  Therefore, the Company’s development of new gamma knife centers is dependent on its ability to secure favorable financing.  In addition, after a number of years of use, the radioactive cobalt contained in the gamma knife requires replacement.  This is also an expensive process.  For example, the cobalt for the Company’s current gamma knife in the NYU facility was reloaded in July 2018 and the costs were approximately $1,500,000.

To date, the Company has purchased all of its gamma knife equipment from Elekta Instruments, Inc., a subsidiary of AB Elekta of Stockholm, Sweden.  Elekta is responsible for the installation and testing of the equipment and the training of the hospital staff in the operation of the equipment.  the Company arranges for maintenance services for its gamma knife units, including the necessary services related to cobalt replacement, through Elekta.  Any interruption in the supply of equipment or services from Elekta would adversely affect the Company’s ability to maintain its gamma knife treatment centers.

Also, should restrictions be imposed on the operations of Elekta, such as restrictions relating to the handling and disposal of radioactive materials, necessary support services could become more costly and more difficult to obtain.

Gamma knife technology may be subject to technological change.  Consequently, the Company will have to rely on the leading gamma knife’s manufacturer, Elekta, to introduce improvements or upgrades in order to keep pace with technological change.  Any such improvements or upgrades which the Company may be required to introduce will require additional financing.  In addition, newly developed techniques and devices for performing brain surgery may render the gamma knife less competitive or obsolete.

In establishing new gamma knife centers, the Company must reach an arrangement with a hospital or other medical center for the installation and operation of a gamma knife facility and then to purchase the gamma knife equipment and construct and operate the facility.  Before entering into such an agreement, the Company must make an assessment of the economic feasibility of operating the gamma knife at that location.  The Company retains no control or influence over the medical staff or decisions regarding the treatment of patients.  In that regard, the Company’s economic success is highly dependent on its initial determinations of the viability of the gamma knife’s location.  Should the medical center or the physicians at that medical center ultimately use the gamma knife facility for significantly fewer patients than initially projected, the Company could be required to operate the gamma knife center at a loss for an extended period of time.

With respect to other cancer centers in which the Company has an interest, the Company participates with other physician groups and other investors in planning and constructing the facility and purchasing the necessary equipment, such as an IMRT or IGRT.  The Company plays a lead role in the initial planning and establishment of those centers, but does not control the day-to-day operations thereafter.  The long term success of those centers depends to a significant degree on the operating decisions made by the physicians and administrators at those centers.

While it is the Company’s objective to expand activities to additional cancer centers that rely on a broad range of diagnostic and radiation treatments, the Company has relied on the NYU gamma knife for substantially all of its revenue.  In recent periods, services provided at NYU have represented over 90% of the Company’s revenues.  Unless and until the Company is successful in building its activities at other centers and at new locations, disruptions at NYU could have a materially adverse effect on the Company.

In October 2012, the Company’s facility at NYU was totally destroyed as a result of flooding from Hurricane Sandy. The gamma knife had to be removed to prevent cobalt leakage that might occur due to rusting of the equipment.

In addition, the cost of the removal of the damaged equipment was $525,000. The Company paid a lease settlement of the outstanding principal of the loan balance only and received from insurance coverage $930,000 above the lease principal payments and removal costs.

The Company has finalized arrangements with NYU regarding the restored gamma knife center and the Company’s long term contract with NYU.  The location of the restored facility, with the new Leksell PERFEXION gamma knife, is in the Tisch Hospital of NYU Langone Medical Center. The center reopened and the first patient was treated on April, 29, 2014.  Substantially all of the Company’s revenue for 2019 and 2018 resulted from patients treated at this facility. The Company’s lease with NYU ends in March 2021, and it has agreed to sell its gamma knife to NYU at the end of the lease term. Effective October 1, 2018 the Company’s arrangement with NYU met the criteria to be classified as a sales-type lease, resulting in the derecognition of the gamma knife and related assets and obligations.

The recent outbreak of the novel coronavirus COVID-19 has spread across the globe and has been declared a public health emergency by the World Health Organization and a National Emergency by the President of the United States.  Most states and municipalities in the U.S., including New York, California and Florida, have announced aggressive actions to reduce the spread of the disease, including limiting non-essential gatherings of people, ceasing all non-essential travel, ordering certain businesses and government agencies to cease non-essential operations at physical locations and issuing “shelter-in-place” orders, which direct individuals to shelter at their places of residence (subject to limited exceptions).  Across the healthcare industry, resources are being prioritized for the treatment and management of the outbreak.  Consequently, there are delays in delivering Gamma Knife and other radiation therapy treatments.  In addition, the COVID-19 pandemic poses the risk that the Company and its employees, contractors, customers, government and third party payors and others may be prevented from conducting business activities for an indefinite period of time, including due to spread of the disease within these groups or due to shutdowns that have been and may continue to be requested or mandated by governmental authorities.

While the healthcare treatments that are provided by the Company are generally critical to the well-being of the patients it serves, a broad, sustained outbreak of COVID-19 could negatively impact results for the following reasons: (i) operations at medical facilities, including those operated by the Company, could be subject to reduced operation or prolonged closure; (ii) medical facilities may defer Gamma Knife and other cancer therapy treatments for non-urgent patient cases in order to allocate resources to the care of patients with COVID-19; (iii) patients may defer or cancel treatments due to real or perceived concerns about the potential spread of COVID-19 in a medical facility setting; (iv) the outbreak could materially impact operations for a sustained period of time due to the current travel bans and restrictions, quarantines, shelter-in-place orders and shutdowns; and/or (v) members of the Company’s workforce may become ill or have family members who are ill and are absent as a result, or they may elect not to come to work due to the illness affecting others in our office or facilities.

The occurrence of any of the foregoing events could have a material adverse effect on our business, financial condition and results of operations. The COVID-19 outbreak and mitigation measures have had and may continue to have an adverse impact on global economic conditions which could have an adverse effect on our business and financial condition.  The extent to which the COVID-19 outbreak impacts our results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact.

To date, we have earned sufficient income from operations to fund periodic operating losses and support efforts to pursue new gamma knife or other types of cancer treatment centers.  If the Company experiences operating losses in the future, we will be required to seek additional capital to support continued operations and the development of new centers, but we cannot assure you, however, that we will be able to raise such additional capital as and when required.

The Company’s common stock is thinly traded.  At present, trades are reported on the OTC Pink marketplace only several days a month.  This thin trading and relatively small non-affiliate float lead to a high level of volatility in reported sale prices.  Investors in the Company’s Common Stock will have a limited ability to trade shares on the open market and, even if able to sell shares, could suffer significant market losses due to large swings in the prices of the shares.

None

The Company’s base facility, from which it conducts substantially all of its administrative operations, is located in Rockville, Maryland and occupies approximately 1,300 square feet. The rent is approximately $42,000 per year.  The Company occupies about 3,800 square feet at the NYU Medical Center in New York, New York.  Pursuant to the facility agreements with NYU, the Company is not required to pay separate rent for the premises occupied by its gamma knife center.  This arrangement will continue through March 2021, notwithstanding the derecognition of the gamma knife and related assets, effective October 1, 2018, as the Company continues to earn contingent lease income from NYU on a per procedure basis through March 31, 2021.

The Company is subject to lawsuits, investigations and potential claims arising out of the ordinary conduct of its business.  The Company is not currently involved in any material litigation.

Not applicable

PART II

The Company’s Common Stock is traded on the over-the-counter market and quoted on the OTC Pink marketplace.

The following table displays the range of high and low closing prices for the Company’s Common Stock for the period from January 1, 2018 through December 31, 2019.

The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions.

As of April 10, 2020, there were approximately 66 holders of record of the Company’s Common Stock.

To date the Company has declared no dividends on its Common Stock and does not anticipate declaring dividends in the foreseeable future.

During the year ended December 31, 2019, the Company did not purchase any of its own equity securities.

Not required for smaller reporting companies.

The recent outbreak of the novel coronavirus COVID-19 has spread across the globe and has been declared a public health emergency by the World Health Organization and a National Emergency by the President of the United States.  The extent of the impact of the COVID-19 outbreak on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak and its impact on our customers, which are uncertain and cannot be fully predicted at this time.  We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, or local authorities, or that we determine are in the best interests of our employees, customers and stockholders.  At this point, the extent to which the COVID-19 outbreak may impact our financial condition or results of operations is uncertain.  While we are unable to quantify the impact at this time, we have observed some increases in patient cancellations and requests to reschedule appointments due to circumstances relating to the outbreak, such as the difficulties faced by some patients in traveling to our treatment centers and fear of exposure to the virus.  The full effect of the COVID-19 outbreak, however, will not be fully reflected in our results of operations until future periods.

2019 Compared to 2018

Patient revenue in 2019 was $3,070,000 as compared to $3,424,000 in 2018. The decrease in revenue is primarily due to a lower average rate per procedure, due to part of the NYU lease payments being applied against the Company’s investment in sales-type sublease, and due to fewer procedures being performed in 2019, compared to 2018.

Patient expenses in 2019 were $350,000 as compared to $1,341,000 in 2018. Patient expenses do not vary materially with the number of procedures performed, but are tied to depreciation and amortization, maintenance and other fixed expenses. Maintenance expenses, over extended periods of time, tend to increase with higher usage rates. The decrease experienced in 2019 over 2018 is mainly because the NYU agreement was reclassified to a sales-type sublease on October 1, 2018, therefore the cost or carrying amount of the leased property was netted against the gross investment in the sublease. As a result, depreciation and amortization expense did not occur after October 1, 2018.

SG&A decreased by $50,000 or approximately 5% from $1,289,000 in 2018 to $1,230,000 in 2019.  This decrease is primarily due to a recharge of $50,000 of SG&A expenses to CGK in 2019 but not in 2018, as permitted by a management agreement between the Company and CGK.  Interest expense decreased to $91,000 in 2019 from $113,000 in 2018, due mainly to lower principal amounts outstanding in 2019.  Loss from investments in unconsolidated entities increased from $743,000 in 2018 to $1,386,000 in 2019, primarily due to allowances recorded against advances to FOP, MOP, and CBOP.  The Company reported a net income of $142,000 in 2019, as compared to a net loss of $421,000 in the prior year, primarily due to no depreciation expense in 2019 compared with the $983,000 of depreciation expense in 2018, and a one-time charge against income of $663,000 relating to the reclassification of the NYU agreement as a  sales-type lease in 2018, offset by $643,000 of increased losses from investments in unconsolidated entities, net.  The Company incurred an income tax charge of $9,000 in 2019, compared with an income tax benefit of $192,000 in 2018.

At December 31, 2019, the Company had working capital of $1,043,000 as compared to $2,180,000 at December 31, 2018. Total assets decreased by $1,208,000 from 2018 to 2019 principally due to impairments recorded against advances to unconsolidated entities. Cash and cash equivalents at December 31, 2019 were $1,335,000 as compared to $1,519,000 at December 31, 2018.

Net cash provided by operating activities was $1,547,000 in 2019 as compared to $2,288,000 in 2018.  Net cash used in financing activities was $1,397,000 in 2019 as compared to $1,084,000 in 2018. There was no depreciation and amortization expense in 2019 as compared to $983,000 in 2018.

For the year ended December 31, 2019, net cash used in investing activities was $334,000 in 2019 as compared to $2,369,000 in 2018, primarily due to $855,000 lower net advances to unconsolidated entities, and $631,000 more in principal payments received under sales-type sublease in 2019. In addition, the Company incurred no fixed asset additions in 2019 as compared to $1,503,000 of fixed asset additions during 2018, of which $833,000 was financed through a capital lease, $100,000 is included in accrued expenses at December 31, 2019 and 2018, and $570,000 was paid in cash.

None

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 will pass 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 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 these 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 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 for 2019 and 2018, 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.

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 recoded 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.

Not required for smaller reporting companies.

The financial statements and supplementary data required by this item are set forth in this Annual Report on Form 10-K beginning at page F-1.

None

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, as appropriate, to allow timely decisions regarding required disclosure.  Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.  We do realize that we are a very small company and as a small company with only the officers and directors participating in the day to day management, with the ability to override controls, each officer and director has multiple positions and responsibilities that would normally be distributed among several employees in larger organizations with adequate segregation of duties to ensure the appropriate checks and balances.  Because the Company does not currently have a separate chief financial officer, the President performs these functions with the support of one of the Company’s outside directors who assists in the reporting and disclosure process (the “Lead Director”).

Our management evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report.  Based upon that evaluation, the Company’s President concluded that the Company’s disclosure controls and procedures were not effective as of the end of the period covered by this report for the information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934, as amended, to be recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, due to the material weakness in internal control over financial reporting described below.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934).  Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America.  The Company’s internal control over financial reporting includes those policies and procedures that:

(i)    pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

(ii)   provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

(iii)  provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

All internal control systems, no matter how well designed, have inherent limitations and can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.  Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Our management, including our President, and assisted by our Lead Director, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. A material weakness is a control deficiency, or a combination of control deficiencies in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. In connection with the assessment described above, management has identified the following material weakness as of December 31, 2019: the Company did not maintain sufficient qualified personnel with the appropriate level of knowledge, experience and training in the application of accounting principles generally accepted in the United States of America and in internal controls over financial reporting commensurate with its financial reporting requirement. Specifically, effective controls were not designed and in place to ensure that the Company maintained, or had access to, appropriate resources with adequate experience and expertise in the area of financial reporting for transactions such as investments in unconsolidated entities, related party receivables, impairments, lease accounting, and income taxes. The Company is in the process of developing efficient approaches to remediate this material weakness.

Management is in the process of reviewing and developing plans to remediate the material weakness identified above.  Otherwise, there have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Not applicable.

PART III

The directors and executive officers of the Company are as follows:

Alan Gold has served as President and Chairman of the Board of the Company since 1996. Mr. Gold has also been a director of the Company since its formation in 1993. Mr. Gold served as President of GHS from 1983 through May 1999 and director of GHS since its formation through November 1999. Mr. Gold was one of the founders of Global Health Systems, the predecessor of GHS, serving as its President since its formation in July 1983.  From 1981 to 1983, he served as Executive Vice President of Libra Group, a company located in Rockville, Maryland, engaged in health care automation, where he was President of Global Health Foundation and Libra Research and Executive Vice President of Libra Technology. From July 1997 through March 1998 Mr. Gold was also an employee of Health Management Systems.

William F. Leimkuhler has served as director of the Company since May 1999.  He currently serves as Lead Director of the Company’s Board of Directors.  He also served as a director of GHS since its inception in 1984 through November 1999.  Since November 2017, Mr. Leimkuhler has served as the Chief Financial Officer of Mutualink, Inc., a provider of communications interoperability solutions for public safety agencies, critical infrastructure, schools and private enterprise.  He also serves as General Counsel of Paice LLC, the developer of an advanced hybrid electric powertrain for passenger vehicles, a position he has held since October 1999.  In recent years, he has also acted as a consultant to several emerging growth companies on corporate and business development matters.  From January 1994 until October 1999, he served as Vice President and General Counsel of Allen & Company Incorporated, an investment banking firm.  Mr. Leimkuhler also serves as a director of Argan, Inc.

Charles H. Merriman, III has served as a director of the Company since May 1999. He also served as a director of GHS from October 1997 to November 1999. Mr. Merriman retired at the close of the year 2001 from service as Senior Vice President and Managing Director of BB&T Capital Markets (“BB&T”), an investment banking enterprise, where he was employed in various capacities since 1972 by BB&T and its predecessor. Mr. Merriman has extensive knowledge of the Company’s primary focus on healthcare and technology.

Susan Greenwald has served as Vice President of Marketing Communications and as Secretary of the Company since May 1999. She performed services for GHS in the same capacity from its inception in 1983 through May 1999. Ms. Greenwald was one of the founders of Global Health Systems, the predecessor of GHS, and served as its Vice President of Marketing Communications since 1983. From 1981 through 1983 she was the Proposal Manager for Libra Technology and Global Health Foundation, sister companies engaged in federal contracting and private enterprise, respectively, in the healthcare information technology business. From July 1997 through February 1998, Ms. Greenwald was an employee of Health Management Systems.

Mr. Gold and Ms. Greenwald are married.

Pursuant to the Company’s bylaws, the Company’s Board of Directors is elected by the stockholders at each annual meeting to serve until the next annual meeting or until  their successors are elected and qualified.  In the case of a vacancy, a director will be appointed by a majority of the remaining directors then in office to serve the remainder of the term left vacant.  Directors do not receive any fees for attending board meetings.  Directors are entitled to receive reimbursement for traveling costs and other out-of-pocket expenses incurred in attending board meetings.  During the year ended December 31, 2019, the Board of Directors did not meet. In view of the small size of the Company’s Board, it does not operate through committees.  Instead, the full Board of Directors performs the functions typically performed by the audit, compensation and nominating committees.

Pursuant to the Company’s bylaws, officers of the Company hold office until the first meeting of directors following the next annual meeting of stockholders and until their successors are chosen and qualified.

Based solely upon a review of the copies of the forms furnished to the Company, or written representations from certain reporting persons, the Company believes that during the year ended December 31, 2019, all filing requirements applicable to its officers and directors were complied with by such individuals.

Item 11.

Executive Compensation.

The information below sets forth the compensation for the years ended December 31, 2019, 2018, and 2017 for the President of the Company.

Mr. Gold is also entitled to reimbursement of up to $1,000 per month for automobile expenses.  In addition, as with other full-time employees, Mr. Gold is entitled to participate in the Company’s health and life insurance program.  The Company also pays the premiums for an additional policy of life insurance in the amount of $500,000, naming Mr. Gold’s wife as beneficiary.

The Company and Mr. Gold are parties to an employment agreement giving either party the option to terminate employment by giving the other party six-months written notice.

During 2019, our directors who are not officers or employees were entitled to an annual retainer of $3,000.  Mr. Leimkuhler, the Lead Director, received a retainer of $3,000 per month in view of the higher level of activity required of him.  Our directors of the Company who are officers or employees do not receive any additional compensation for serving on the Board.

The following table sets forth, as of April 13, 2020, certain information with respect to each beneficial owner of more than 5% of the Company’s Common Stock and each director and executive officer of the Company:

---

None

Audit Fees.  Audit Fees represent fees for services rendered in connection with the annual audit and quarterly reviews of the Company’s financial statements.  For the years ended December 31, 2019, and 2018, the Company paid $135,000 and $137,000, respectively, to Aronson, LLC for Audit Fees.

Audit-Related Fees.  Audit-Related Fees represent fees for services rendered in connection with assurance and related services that are reasonably related to the performance of the audit or review of the financial statements and are not reported as Audit Fees.  For the years ended December 31, 2019, and 2018, the Company incurred $14,000 and $0 respectively  for Audit Related Fees.

Tax Fees.  Tax Fees represent fees for services rendered in connection with tax compliance, tax advice and tax planning.  For the years ended December 31, 2019, and 2018, the Company paid $33,000 and $39,000 for Tax Fees to Dixon Hughes Goodman LLP.

All Other Fees.  All Other Fees represent fees for services rendered by the Company’s principal accountants other than those described above.  For the years ended December 31, 2019, and 2018, the Company did not pay or accrue any amounts for these services.

The Board of Directors has established a policy requiring pre-approval by the Board of Directors of all audit and non-audit services provided by its registered independent public accounting firm.  The policy requires the general pre-approval of annual audit services and all other permitted services.  All of the audit and non-audit services described above were approved by the Board.

PART IV

Item 15.

Exhibits, Financial Statement Schedules.

(a)	(1) Financial Statements and Financial Statement Schedules.  The following are filed as part of this report:

(2) Financial Statement Schedules.  All financial statement schedules as required by Item 8 and Item 15 of Form 10-K have been omitted because the information requested is not required, not applicable, or is shown in the Consolidated Financial Statements or Notes thereto.

(b)

Exhibits:

---

*

Filed herewith

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

	Page
Consolidated Financial Statements	F-1
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2019 and 2018	F-3
Consolidated Statements of Operations for the years ended December 31, 2019 and 2018	F-4
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2019 and 2018	F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018	F-6
Notes to Consolidated Financial Statements	F-7

		December 31,
		2019				2018
ASSETS
Current assets:
Cash and cash equivalents		$	1,335,000			$	1,519,000
Accounts receivable			356,000				318,000
Due from related parties			-				1,141,000
Investment in sales-type sublease - current			888,000				828,000
Income taxes receivable			-				101,000
Other current assets			102,000				154,000
Total current assets			2,681,000				4,061,000
Other assets:
Notes receivable			38,000				38,000
Term loan receivable-related parties			-				517,000
Due from related parties			1,422,000				-
Investment in sales-type sublease - net of current portion			532,000				1,421,000
Investments in unconsolidated entities			179,000				168,000
Deferred tax asset			17,000				-
Total other assets			2,188,000				2,144,000
Property and equipment:
Operating lease right-of-use asset			128,000				-
Total property and equipment			128,000				-
TOTAL ASSETS		$	4,997,000			$	6,205,000
LIABILITIES
Current liabilities:
Obligations under finance lease - current portion		$	901,000			$	1,399,000
Operating lease right-of-use liability - current portion			36,000				-
Accounts payable and accrued expenses			255,000				227,000
Deferred revenue			226,000				255,000
Income taxes payable			220,000				-
Total current liabilities			1,638,000				1,881,000
Obligations under finance lease - net of current portion			89,000				988,000
Operating lease right-of-use liability - net of current portion			106,000				-
Deferred tax liability			-				314,000
Guarantee liability			11,000				11,000
Total liabilities			1,844,000				3,194,000
STOCKHOLDERS’ EQUITY
Common stock - par value $.01; 25,000,000 shares authorized; 7,792,185 shares issued and outstanding  at December 31, 2019 and 2018.			78,000				78,000
Additional paid-in capital			3,100,000				3,100,000
Accumulated deficit			(25,000	)			(167,000	)
Total stockholders’ equity			3,153,000				3,011,000
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	4,997,000			$	6,205,000

		Years Ended December 31,
		2019				2018
Revenue		$	3,070,000			$	3,424,000
Costs and expenses:
Patient expenses			350,000				1,341,000
Selling, general and administrative			1,230,000				1,289,000
Loss on derecognition of gamma knife and related assets			-				663,000
Total			1,580,000				3,293,000
Operating income			1,490,000				131,000
Interest expense			(91,000	)			(113,000	)
Interest income			6,000				70,000
Interest income - sales-type sublease			132,000				42,000
Loss from investments in unconsolidated entities, net			(1,386,000	)			(743,000	)
Income (loss) before income taxes			151,000				(613,000	)
Income tax (provision) benefit			(9,000	)			192,000
Net income (loss)		$	142,000			$	(421,000	)
Basic and diluted net income (loss) per share		$	0.02			$	(0.05	)
Weighted average common shares outstanding			7,792,185				7,792,185

		Common Stock
		Number of Shares				Amount				Additional Paid-In Capital				Retained Earnings (Accumulated Deficit)				Total
Balance - December 31, 2017			7,792,185			$	78,000			$	3,100,000			$	254,000			$	3,432,000
Net loss for the year ended December 31, 2018			-				-				-				(421,000	)			(421,000	)
Balance - December 31, 2018			7,792,185			$	78,000			$	3,100,000			$	(167,000	)		$	3,011,000
Net income for the year ended December 31, 2019			-				-				-				142,000				142,000
Balance - December 31, 2019			7,792,185			$	78,000			$	3,100,000			$	(25,000	)		$	3,153,000

		Years Ended December 31,
		2019				2018
Cash flows from operating activities:
Net income (loss)		$	142,000			$	(421,000	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization of property and equipment			-				983,000
Amortization of operating lease right-of-use asset			33,000				-
Loss from investments in unconsolidated entities, net			1,386,000				743,000
Distributed earnings from unconsolidated entities			76,000				60,000
Loss on derecognition of gamma knife and related assets			-				663,000
Accrued interest from notes receivable			(200,000	)			-
Accretion of asset retirement obligations			-				20,000
Deferred income taxes			(331,000	)			(361,000	)
Changes in:
Accounts receivable			(38,000	)			449,000
Income taxes receivable/payable			321,000				(165,000	)
Other current assets			178,000				(87,000	)
Accounts payable and accrued expenses			43,000				(81,000	)
Deferred revenue			(29,000	)			485,000
Operating lease right-of-use liability			(34,000	)			-
Net cash provided by operating activities			1,547,000				2,288,000
Cash flows from investing activities:
Advances to unconsolidated entities			(1,572,000	)			(1,557,000	)
Repayments from (advances made) under loans to unconsolidated entities			434,000				(436,000	)
Purchase of gamma knife equipment			-				(570,000	)
Captial contributions to unconsolidated entities			(25,000	)			(4,000	)
Principal payments received under sales-type sublease			829,000				198,000
Net cash used in investing activities			(334,000	)			(2,369,000	)
Cash flows from financing activities:
Repayment of finance lease obligations			(1,397,000	)			(1,084,000	)
Net cash used in financing activities			(1,397,000	)			(1,084,000	)
Net change in cash and cash equivalents			(184,000	)			(1,165,000	)
Cash and cash equivalents - beginning of year			1,519,000				2,684,000
Cash and cash equivalents - end of year		$	1,335,000			$	1,519,000
Supplemental disclosures of cash flow information:
Cash paid for:
Interest		$	94,000			$	122,000
Income taxes		$	158,000			$	339,000
Supplemental disclosure of noncash investing and financing activities:
Purchase of gamma knife equipment included in finance lease obligations		$	-			$	833,000
Recognition of a right-of-use asset		$	161,000			$	-
Recognition of a right-of-use liability		$	176,000			$	-
Derecognition of deferred rent liability (previously included in accounts payable and accrued expenses)		$	15,000			$	-
Distributions accrued from unconsolidated entities		$	20,000			$	20,000
Fixed asset additions included in accrued expenses		$	-			$	100,000

	Classification		December 31, 2019
Assets
Current
Finance lease assets	Investment in sales-type sublease - current		$	888,000
Long-term
Finance lease assets	Investment in sales-type sublease - net of current portion			532,000
Operating lease assets	Operating lease right-of-use asset			128,000
Total leased assets			$	1,548,000

Liabilities
Current
Finance lease liabilities	Obligations under finance lease - current portion		$	901,000
Operating lease liabilities	Operating lease right-of-use liability - current portion			36,000
Long-term
Finance lease liabilities	Obligations under finance lease - net of current portion			89,000
Operating lease liabilities	Operating lease right-of-use liability - net of current portion			106,000
Total lease liabilities			$	1,132,000

Lease Cost
Operating lease cost	Selling, general and administrative		$	43,000
Finance lease cost
Interest on lease liabilities	Interest expense			89,000
Sublease income	Interest income - sales-type sublease			132,000
Net lease cost			$	-

Maturity of lease liabilities (as of December 31, 2019)		Operating lease				Finance lease
2020			43,000				923,000
2021			45,000				90,000
2022			46,000				-
2023			24,000				-
Total		$	158,000			$	1,013,000
Less amount representing interest			16,000				23,000
Present value of lease liabilities		$	142,000			$	990,000
Discount rate			5.850	%			4.555	%

Neuro Partners LLC and CGK Combined Condensed Income Statement Information
		Year Ended December 31,
		2019				2018
Patient revenue		$	1,020,000			$	1,141,000
Net income		$	303,000			$	590,000
USNC’s equity in income of Neuro Partners LLC and CGK		$	92,000			$	181,000

Neuro Partners LLC and CGK Combined Condensed Balance Sheet Information
		December 31,
		2019				2018
Current assets		$	163,000			$	304,000
Noncurrent assets			807,000				1,064,000
Total assets		$	970,000			$	1,368,000
Current liabilities		$	380,000			$	399,000
Noncurrent liabilities			593,000				924,000
(Deficit) equity			(3,000	)			45,000
Total liabilities and (deficit) equity		$	970,000			$	1,368,000

FOP Condensed  Income Statement Information
		Year Ended December 31,
		2019				2018
Patient revenue		$	1,922,000			$	2,953,000
Rental Income		$	543,000			$	1,252,000
Net loss		$	(1,377,000	)		$	(1,918,000	)
USNC’s equity in loss of FOP		$	(334,000	)		$	(465,000	)

FOP Condensed Balance Sheet Information
		December 31,
			2019				2018
Current assets		$	165,000			$	401,000
Noncurrent assets			1,202,000				16,570,000
Total assets		$	1,367,000			$	16,971,000
Current liabilities		$	4,003,000			$	3,974,000
Noncurrent liabilities			1,091,000				15,360,000
Equity			(3,727,000	)			(2,363,000	)
Total liabilities and equity		$	1,367,000			$	16,971,000

BOPRE Condensed Income Statement Information
		Years Ended December 31,
		2019				2018
Rental Income		$	-			$	-
Net income (loss)		$	46,000			$	(4,000	)
USNC’s equity in income (loss) in BOPRE		$	11,000			$	(1,000	)

BOPRE Condensed Balance Sheet Information
		December 31,
		2019				2018
Current assets		$	64,000			$	18,000
Noncurrent assets			935,000				935,000
Total assets		$	999,000			$	953,000
Current liabilities		$	-			$	-
Noncurrent liabilities			-				-
Equity			999,000				953,000
Total liabilities and equity		$	999,000			$	953,000

MOP Condensed  Consolidated Income Statement Information
	Years Ended December 31,
	2019				2018
Patient revenue		$	2,669,000			$	2,257,000
Net loss		$	(435,000	)		$	(282,000	)
USNC’s equity in loss in MOP		$	(156,000	)		$	(101,000	)

MOP Condensed Consolidated Balance Sheet Information
		December 31,
		2019				2018
Current assets		$	247,000			$	41,000
Noncurrent assets			807,000				159,000
Total assets		$	1,054,000			$	200,000
Current liabilities		$	1,907,000			$	1,002,000
Noncurrent liabilities			427,000				33,000
Deficit			(1,280,000	)			(835,000	)
Total liabilities and deficit		$	1,054,000			$	200,000

CBOP Condensed Income Statement Information
		Years Ended December 31,
		2019				2018
Patient revenue		$	1,637,000			$	956,000
Net loss		$	(418,000	)		$	(1,230,000	)
USNC’s equity in loss of CBOP		$	(101,000	)		$	(298,000	)

CBOP Condensed Balance Sheet Information
		December 31,
		2019				2018
Current assets		$	380,000			$	140,000
Noncurrent assets			4,869,000				-
Total assets		$	5,249,000			$	140,000
Current liabilities		$	3,026,000			$	1,618,000
Noncurrent liabilities			4,019,000				-
Deficit			(1,796,000	)			(1,478,000	)
Total liabilities and deficit		$	5,249,000			$	140,000

Sales Price		$	2,447,000
Less: Assets Derecognized
Gamma knife			(3,349,000	)
Leasehold improvements			(898,000	)
			(4,247,000	)
Add: Liabilities Derecognized
Deferred revenue			600,000
Asset retirement obligations			537,000
			1,137,000
Loss on Derecognition		$	(663,000	)

Year Ending December 31,
2020			960,000
2021			540,000
			1,500,000
Less interest			(80,000	)
Present value of net minimum obligation		$	1,420,000

	December 31,
	2019				2018
Finance leases - Gamma Knife		$	990,000			$	2,387,000
Less current portion			(901,000	)			(1,399,000	)
		$	89,000			$	988,000

Year Ending December 31,
2020			923,000
2021			90,000
			1,013,000
Less interest			(23,000	)
Present value of net minimum obligation		$	990,000

		Year Ended December 31,
		2019				2018
Current taxes:
Federal		$	271,000			$	32,000
State			69,000				137,000
Current taxes			340,000				169,000
Deferred taxes:
Federal		$	(288,000	)		$	(201,000	)
State			(43,000	)			(160,000	)
Deferred taxes			(331,000	)			(361,000	)
Income tax provision (benefit)		$	9,000			$	(192,000	)

		Year Ended December 31,
		2019				2018
Income tax at the federal statutory rate		$	32,000			$	(128,000	)
State income tax, net of federal taxes			10,000				(55,000	)
Permanent differences and other			(7,000	)			(9,000	)
Change in estimated effective state tax rate			(26,000	)			-
Income tax provision (benefit)		$	9,000			$	(192,000	)

		December 31,
		2019				2018
Deferred tax asset:
Basis differences in unconsolidated entities, including advances and loans to those entities.		$	569,000			$	373,000
Net effect of conversion from the accrual basis of accounting to the cash basis of accounting for tax purposes primarily related to accounts receivable, prepaid expense, deferred revenue, and accounts payable			18,000				-
			587,000				373,000
Deferred tax liability:
Deferred gain on disposal of gamma knife			(526,000	)			(577,000	)
Excess of tax depreciation over book depreciation			(44,000	)			(108,000	)
Net effect of conversion from the accrual basis of accounting to the cash basis of accounting for tax purposes primarily related to accounts receivable, prepaid expense, deferred revenue, and accounts payable			-				(2,000	)
Net deferred tax asset (liability)		$	17,000			$	(314,000	)

Year Ending December 31,
2020			43,000
2021			45,000
2022			46,000
2023			24,000
			158,000
Less interest			(16,000	)
Present value of net minimum obligation		$	142,000