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ACCOUNTING POLICIES | 12 Months Ended
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Dec. 31, 2019
Accounting Policies [Abstract] |
ACCOUNTING POLICIES | ACCOUNTING P OLICIES Use of estimates in the preparation of financial statements – In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Significant accounting estimates reflected in the Company’s consolidated financial statements include the estimated useful lives of fixed assets and its salvage values, revenues and costs of sales for turn-key and revenue sharing arrangements. Actual results could differ from those estimates. Advertising costs – The Company expenses advertising costs as incurred. Advertising costs were $144,000, $113,000, and $140,000 during the years ended December 31, 2019, 2018 and 2017, respectively. Advertising costs are recorded in other direct operating costs and sales and administrative costs in the consolidated statements of operations. Cash and cash equivalents – The Company considers all liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents. Restricted cash is not considered a cash equivalent for purposes of the consolidated statements of cash flows. Restricted cash – Restricted cash represents the minimum cash that must be maintained in GKF to fund operations, per the subsidiary’s operating agreement, and the minimum cash that must be maintained in Orlando per the subsidiary’s financing agreement. Business and credit risk – The Company maintains its cash balances, which exceed federally insured limits, in financial institutions. The Company believes it is not exposed to any significant credit risk on cash, cash equivalents. The Company monitors the financial condition of the financial institutions it uses on a regular basis. All of the Company’s revenue was provided by seventeen, eighteen, and twenty customers in 2019, 2018, and, 2017, respectively. One customer accounted for approximately 30%, 26%, and 21% of the Company’s total revenue in 2019, 2018, and, 2017, respectively. At December 31, 2019 and 2018, three customers each individually accounted for more than 10% of total accounts receivable, respectively. The Company performs credit evaluations of its customers and generally does not require collateral. The Company has not experienced significant losses related to receivables from individual customers or groups of customers in any particular geographic area. All of the Company’s radiosurgery devices have been purchased through Elekta, to date. However, there are other manufacturers that also make radiosurgery devices. Accounts receivable and doubtful accounts – Accounts receivable are recorded at net realizable value. An allowance for doubtful accounts is estimated based on historical collections plus an allowance for probable losses. Receivables are considered past due based on contractual terms and are charged off in the period that they are deemed uncollectible. Recoveries of receivables previously charged off are offset against bad debt expense when received. Non-controlling interests - The Company reports its non-controlling interests as a separate component of shareholders’ equity. The Company also presents the consolidated net income and the portion of the consolidated net income allocable to the non-controlling interests and to the shareholders of the Company separately in its consolidated statements of operations. Property and equipment – Property and equipment are stated at cost less accumulated depreciation. Depreciation for Gamma Knife, IGRT, and other equipment is determined using the straight-line method over the estimated useful lives of the assets, which for medical and office equipment is generally 3 – 10 years, and after accounting for salvage value on the equipment where indicated. Salvage value is based on the estimated fair value of the equipment at the end of its useful life. Depreciation for PBRT and related equipment is determined using the modified units of production method, which is a function of both time and usage of the equipment. This depreciation method allocates costs considering the projected volume of usage through the useful life of the PBRT unit, which has been estimated at 20 years. The estimated useful life of the PBRT unit is consistent with the estimated economic life of 20 years. The Company capitalizes interest incurred on property and equipment that is under construction, for which deposits or progress payments have been made. When a rate is not readily available, imputed interest is calculated using the Company’s incremental borrowing rate. The interest capitalized for property and equipment is the portion of interest cost incurred during the acquisition periods that could have been avoided if expenditures for the equipment had not been made. The Company capitalized interest of $110,000, $115,000, and $138,000 in 2019, 2018, and, 2017, respectively, as costs of medical equipment. The Company leases Gamma Knife and radiation therapy equipment to its customers under arrangements typically accounted for as operating leases. At December 31, 2019, the Company held equipment under operating lease contracts with customers with an original cost of $92,135,000 and accumulated depreciation of $55,148,000. At December 31, 2018, the Company held equipment under operating lease contracts with customers with an original cost of $94,031,000 and accumulated depreciation of $53,716,000. In April 2017, an existing customer exercised their option to purchase the Gamma Knife unit at its hospital at the end of the lease term for a predetermined purchase price, pursuant to the lease agreement. The lease terminated in April 2017, at which time, the unit was depreciated to the purchase price of the sale. Based on the guidance provided in Accounting Standards Codification (“ASC”) 360 Property, Plant and Equipment (“ASC 360”), the Company did not classify or measure the asset as held for sale prior to the lease termination, because the Gamma Knife unit was not available for immediate sale. During the year ended December 31, 2018, the Company recorded a receivable of $1,137,000 for insurance coverage related to damage that was incurred on the Company’s PBRT unit. The Company contracted with Mevion Medical Systems, Inc. (“Mevion”), formerly Still River Systems, to repair the damaged unit and incurred repair costs of approximately $977,000, which is included in the Company’s consolidated balance sheet for the year ended December 31, 2018. The Company recorded $185,000 of income from its business interruption insurance for the period the PBRT unit was down undergoing repair. All insurance proceeds and related costs were received and paid during the year ended December 31, 2019. Fair value of financial instruments – The Company’s disclosures of the fair value of financial instruments is based on a fair value hierarchy which prioritizes the inputs to the valuation techniques used to measure fair value into three levels. Level 1 inputs are unadjusted quoted market prices in active markets for identical assets and liabilities that the Company has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for assets or liabilities, and reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the asset or liability. The estimated fair value of the Company’s assets and liabilities as of December 31, 2019 and 2018 were as follows (in thousands):
| Level 1 |  | Level 2 |  | Level 3 |  | Total |  | Carrying Value
December 31, 2019 |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |
Cash, cash equivalents, restricted cash | $ | 1,779 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,779 |  |  | $ | 1,779 |
Total | $ | 1,779 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,779 |  |  | $ | 1,779 |
Liabilities |  |  |  |  |  |  |  |  |
Debt obligations | $ | — |  |  | $ | — |  |  | $ | 3,075 |  |  | $ | 3,075 |  |  | $ | 3,480 |
Total | $ | — |  |  | $ | — |  |  | $ | 3,075 |  |  | $ | 3,075 |  |  | $ | 3,480 |
December 31, 2018 |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |
Cash, cash equivalents, restricted cash | $ | 1,792 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,792 |  |  | $ | 1,792 |
Total | $ | 1,792 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,792 |  |  | $ | 1,792 |
Liabilities |  |  |  |  |  |  |  |  |
Debt obligations | $ | — |  |  | $ | — |  |  | $ | 5,431 |  |  | $ | 5,431 |  |  | $ | 5,451 |
Total | $ | — |  |  | $ | — |  |  | $ | 5,431 |  |  | $ | 5,431 |  |  | $ | 5,451 |
Revenue recognition - The Company recognizes revenues under ASC 842 Leases (“ASC 842”) and ASC 606 Revenue from Contracts with Customers (“ASC 606”). Rental income from medical services – The Company recognizes revenues under ASC 842 when services have been rendered and collectability is reasonably assured, on either a fee per use or revenue sharing basis. The terms of the contracts do not contain any guaranteed minimum payments. The Company’s contracts are typically for a ten-year term and are classified as either fee per use or retail. Retail arrangements are further classified as either turn-key or revenue sharing. Revenues from fee per use contracts is determined by each hospital’s contracted rate. Revenues are recognized at the time the procedures are performed, based on each hospital’s contracted rate and the number of procedures performed. Under revenue sharing arrangements, the Company receives a contracted percentage of the reimbursement received by the hospital. The amount the Company expects to receive is recorded as revenue and estimated based on historical experience. Revenue estimates are reviewed periodically and adjusted as necessary. Under turn-key arrangements, the Company receives payment from the hospital in the amount of the hospital’s reimbursement from third party payors, and the Company is responsible for paying all the operating costs of the equipment. Operating costs are determined primarily based on historical treatment protocols and cost schedules with the hospital. The Company records an estimate of operating costs which are reviewed on a regular basis and adjusted as necessary to more accurately reflect the actual operating costs. For turn-key sites, the Company also shares a percentage of net operating profit. The Company records an estimate of net operating profit based on estimated revenues, less estimated operating costs. The operating costs and estimated net operating profit are recorded as other direct operating costs in the consolidated statement of operations. For the year ended December 31, 2019, the Company recognized revenues of approximately $19,396,000 under ASC 842. Patient income – The Company has a stand-alone facility in Lima, Peru, where a contract exists between GKPeru and the individual patient treated at the facility. Under ASC 606, the Company acts as the principal in this transaction and provides, at a point in time, a single performance obligation, in the form of a Gamma Knife treatment. Revenue related to a Gamma Knife treatment is recognized on a gross basis at the time when the patient receives treatment. There is no variable consideration present in the Company’s performance obligation and the transaction price is agreed upon per the stated contractual rate. Payment terms are typically prepaid for self-pay patients and insurance provider payments are paid net 30 days. The Company did not capitalize any incremental costs related to the fulfillment of its customer contracts. Accounts receivable earned by GKPeru were not significant for the year ended December 31, 2019. For the year ended December 31, 2019, the Company recognized revenues of approximately $1,209,000 under ASC 606. Stock-based compensation – The Company measures all stock-based compensation awards at fair value and records such expense in its consolidated financial statements over the requisite service period of the related award. See Note 9 for additional information on the Company’s stock-based compensation programs. Costs of revenue – The Company's costs of revenue consist primarily of maintenance and supplies, depreciation and amortization, and other operating expenses (such as insurance, property taxes, sales taxes, marketing costs and operating costs from the Company’s retail sites). Costs of revenues are recognized as incurred. Sales and Marketing – The Company markets its services through its preferred provider status with Elekta and a direct sales effort led by its Vice President of Sales and Business Development and its Chief Operating Officer. The Company’s current business is the outsourcing of stereotactic radiosurgery services and radiation therapy services. The Company typically provides the equipment, as well as planning, installation, reimbursement and marketing support services. Income taxes – The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company accounts for uncertainty in income taxes as required by the provisions of ASC 740 Income taxes (“ASC 740”), which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to estimate and measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as this requires the Company to determine the probability of various possible outcomes. The Company considers many factors when evaluating and estimating the Company’s tax positions and tax benefits, which may require periodic adjustments and may not accurately anticipate actual outcomes. See Note 8 for further discussion on income taxes. Functional currency – Based on guidance provided in accordance with ASC 830, Foreign Currency Matters (“ASC 830”), the Company analyzes its operations outside the United States to determine the functional currency of each operation. Management has determined that these operations are initially accounted for in U.S. dollars since the primary transactions incurred are in U.S. dollars and the Company provides significant funding towards the startup of the operation. When Management determines that an operation has become predominantly self-sufficient, the Company will change its accounting for the operation to the local currency from the U.S. dollar. The Company analyzed it’s Gamma Knife site in Peru under ASC 830 as of December 31, 2019 and concluded the functional currency was the U.S. dollar. As facts and circumstances change, the Company will revisit this conclusion. Asset Retirement Obligations – Based on the guidance provided in ASC 410 Asset Retirement Obligations (“ASC 410”), the Company analyzed its existing lease agreements and determined an asset retirement obligation (“ARO”) exists to remove the respective units at the end of the lease terms. The fair value of the ARO liability is not reasonable to estimate at this time, due to uncertainties about timing, cost and, outcome of the ARO, therefore no liability has been recorded as of December 31, 2019. The Company will re-evaluate this position on a periodic basis when facts and circumstances change that could affect this conclusion. Earnings per share – Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the year. The fully vested restricted stock units not issued and outstanding, are also included therein. Diluted earnings per share reflect the potential dilution that could occur if common shares were issued pursuant to the exercise of options or warrants. The following table illustrates the computations of basic and diluted earnings per share for the years ended December 31, 2019, 2018 and 2017.
| 2019 |  | 2018 |  | 2017
Numerator for basic and diluted earnings per share | $ | 659,000 |  |  | $ | 1,023,000 |  |  | $ | 1,923,000 |
Denominator: |  |  |  |  |
Denominator for basic and diluted earnings per share – weighted-average shares | 5,919,000 |  |  | 5,836,000 |  |  | 5,754,000 |
Effect of dilutive securities Employee stock options and restricted stock | 11,000 |  |  | 17,000 |  |  | 130,000 |
Denominator for diluted earnings per share – adjusted weighted-average shares | 5,930,000 |  |  | 5,853,000 |  |  | 5,884,000 |
Earnings per common share- basic | $ | 0.11 |  |  | $ | 0.18 |  |  | $ | 0.33 |
Earnings per common share- diluted | $ | 0.11 |  |  | $ | 0.17 |  |  | $ | 0.33 |
In 2019, options outstanding to purchase 387,000 shares of common stock at an exercise price range of $2.68 - $3.90 per share and 3,000 restricted stock units were not included in the calculation of diluted earnings per share because they would be anti-dilutive. In 2018, options outstanding to purchase 519,000 shares of common stock at an exercise price range of of $2.82 - $3.90 per share and 4,000 restricted stock units were not included in the calculation of diluted earnings per share because they would be anti-dilutive. In 2017, options outstanding to purchase 14,000 shares of common stock at an exercise price of $3.90 per share and 4,000 restricted stock units were not included in the calculation of diluted earnings per share because they would be anti-dilutive. Business segment information - Based on the guidance provided in accordance with ASC 280 Segment Reporting (“ASC 280”), the Company has analyzed its subsidiaries which are all in the business of leasing radiosurgery and radiation therapy equipment to healthcare providers, and concluded there is one reportable segment. The Company provides Gamma Knife, PBRT, and IGRT equipment to sixteen hospitals in the United States and owns and operates a single-unit facility in Lima, Peru as of December 31, 2019. These seventeen locations operate under different subsidiaries of the Company, but offer the same service, radiosurgery and radiation therapy. The operating results of the subsidiaries are reviewed by the Company’s Chief Executive Officer and Chief Financial Officer, who are also deemed the Company’s Chief Operating Decision Makers (“CODMs”) and this is done in conjunction with all of the subsidiaries and locations. Geographical information – The Company’s single-unit facility in Peru treated its first patient in July 2017. The following table provides a break out of domestic and foreign allocations of revenues and net property and equipment:
| 2019 |  | 2018 |  | 2017
Revenues |  |  |  |  |
Domestic | 94 | % |  | 96 | % |  | 99 | %
Foreign | 6 | % |  | 4 | % |  | 1 | %
Total | 100 | % |  | 100 | % |  | 100 | %
| 2019 |  | 2018 |  | 2017
Property and equipment, net |  |  |  |  |
Domestic | 93 | % |  | 93 | % |  | 93 | %
Foreign | 7 | % |  | 7 | % |  | 7 | %
Total | 100 | % |  | 100 | % |  | 100 | %
Long lived asset impairment – The Company assesses the recoverability of its long-lived assets when events or changes in circumstances indicate their carrying value may not be recoverable. Such events or changes in circumstances may include: a significant adverse change in the extent or manner in which a long-lived asset is being used, significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset, an accumulation of costs significantly in excess of the amount originally expected for the acquisition or development of a long-lived asset, current or future operating or cash flow losses that demonstrate continuing losses associated with the use of a long-lived asset, or a current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The Company performs impairment testing at the asset group level that represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. The Company assesses recoverability of a long-lived asset by determining whether the carrying value of the asset group can be recovered through projected undiscounted cash flows over their remaining lives. If the carrying value of the asset group exceeds the forecasted undiscounted cash flows, an impairment loss is recognized, measured as the amount by which the carrying amount exceeds estimated fair value. An impairment loss is charged to the consolidated statement of operations in the period in which management determines such impairment. No such impairment has been noted as of December 31, 2019 and 2018. Accounting pronouncement issued and adopted – In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02 Leases (“ASU 2016-02”) which requires lessees to recognize, for all leases, at the commencement date, a lease liability, and a right-of-use asset. Under the new guidance, lessor classification criteria for direct financing and sales-type leases is modified. In July 2018, the FASB issued ASU No. 2018-10 Leases (Topic 842) Codification Improvements to Topic 842, and ASU No. 2018-11 Leases (Topic 842) Targeted Improvements (“ASU 2018-11”), in December 2018 the FASB issued ASU No. 2018-20 Leases (Topic 842) Narrow-Scope Improvements, and in February 2019 the FASB issued ASU No. 2019-01 Leases (Topic 842) Codification Improvements. ASU 2018-11 provides a new transition method in which an entity can initially apply the new lease standards at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. This standard is effective for annual periods beginning after December 15, 2018. The Company performed an analysis to determine if its revenue agreements with customers fall under the scope of ASU 2016-02 or ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and concluded that, other than with respect to the Company’s stand-alone facility in Lima, Peru, ASU 2016-02 applied. The Company adopted ASU 2016-02 and related ASUs as of January 1, 2019 using the modified retrospective transition method. The Company elected to initially apply ASU 2016-02 and related ASUs beginning January 1, 2019 and elected to use the package of practical expedients upon adoption. The provisions of the package of practical expedients allowed the Company to not reassess whether any expired or existing contracts are or contain leases, the lease classification for expired or existing contracts, and the Company need not reassess the initial direct costs for any existing leases. The Company also used the hindsight expedient upon adoption which allowed the Company to examine its history when assessing lease term and whether it will exercise renewal options for certain contracts. The Company recognized lease liabilities and right-of-use assets of approximately $1,362,000 for its operating leases at January 1, 2019, with no initial material impact to its consolidated statements of operations. In July 2019, the FASB issued ASU 2019-07 Codification Updates to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates which clarifies or improves the disclosure and presentation requirements of a variety of codification topics by aligning with the SEC's regulations, thereby eliminating redundancies and making the codification easier to apply. The new guidance was effective immediately upon issuance and did not have a material impact on the Company's financial statements and related disclosures. Accounting pronouncement issued and not yet adopted – In February 2018, the FASB issued ASU No. 2018-03 Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2018-03”), which clarifies certain aspects of ASU 2016-1. These are: equity securities without a readily determinable fair value – discontinuation, equity securities without a readily determinable fair value – adjustments, forward contracts and purchased options, presentation requirements for certain fair value option liabilities, fair value option liabilities denominated in a foreign currency, and transition guidance for equity securities without a readily determinable fair value. In August 2018, the FASB issued ASU No. 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements to Fair Value Measurement (“ASU 2018-13”), which amended the effective date and other certain measurement aspects of ASU 2018-03. The new guidance is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. The Company does not expect ASU 2018-03 or ASU 2018-13 to have a significant impact on its consolidated financial statements and related disclosures. In December 2019, the FASB issued ASU 2019-12 Income taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”) which removes specific exceptions to the general principles in Topic 740 and eliminates the need for an organization to analyze whether the following apply in a given period: exception to the incremental approach for intraperiod tax allocation; exceptions to accounting for basis differences when there are ownership changes in foreign investments; exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. The new guidance is effective for fiscal years and interim periods beginning after December 15, 2020. The Company is currently evaluating ASU 2019-12 to determine the impact it may have on its consolidated financial statements.

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