PINX:USNU U S Neurosurgical Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2012
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
For the transition period from                     to                     .

Commission file number:  0-15586

U.S. Neurosurgical, Inc.
(Exact name of registrant as specified in its charter)

Delaware
 
52-1842411
(State of other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

2400 Research Blvd, Suite 325, Rockville, Maryland 20850
(Address of principal executive offices)

(301) 208-8998
(Registrant's telephone number)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (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  x No  o
 
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  x No  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer o
Non-accelerated filer o
 
Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o No  x
 
The number of shares of the registrant’s common stock, $0.01 par value, outstanding as of August 6, 2012 was 7,797,185.
 


 
 

 
 
 
 

U.S. NEUROSURGICAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS

   
June 30,
   
December 31,
 
   
2012
   
2011
 
ASSETS
           
             
Current assets:
           
Cash and cash equivalents
  $ 956,000     $ 830,000  
Accounts receivable
    378,000       313,000  
Due from related parties
    177,000       208,000  
Other current assets
    13,000       7,000  
Total current assets
  $ 1,524,000     $ 1,358,000  
                 
Investment in unconsolidated entities
  $ 330,000     $ 471,000  
                 
Gamma Knife (net of accumulated depreciation of $1,613,000 in 2012 and  $1,372,000 in 2011)
    1,979,000       2,221,000  
Leasehold improvements (net of accumulated amortization of $149,000 in 2012 and $134,000 in 2011)
    101,000       115,000  
                 
Total property and equipment
    2,080,000       2,336,000  
                 
TOTAL
  $ 3,934,000     $ 4,165,000  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
                 
Current liabilities:
               
Accounts payable and accrued expenses
  $ 5,000     $ 24,000  
Obligations under capital lease - current portion
    566,000       539,000  
Total current liabilities
    571,000       563,000  
                 
Obligations under capital lease - net of current portion
    1,872,000       2,163,000  
Asset retirement obligations
    100,000       100,000  
Total long term liabilities
    1,972,000       2,263,000  
                 
Total liabilities
    2,543,000       2,826,000  
                 
Stockholders’ equity:
               
Common stock
    78,000       78,000  
Additional paid-in capital
    3,101,000       3,100,000  
Accumulated deficit
    (1,788,000 )     (1,839,000 )
Total stockholders’ equity
  $ 1,391,000     $ 1,339,000  
                 
TOTAL
  $ 3,934,000     $ 4,165,000  
 
The accompanying notes to financial statements are an integral part hereof.
 
 
U.S. NEUROSURGICAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
   
Three Months Ended
 
   
June 30,
 
   
2012
   
2011
 
             
Revenue:
           
Patient revenue
  $ 469,000     $ 548,000  
                 
Expenses:
               
Patient expenses
    220,000       149,000  
Selling, general and administrative
    210,000       226,000  
                 
Total
    430,000       375,000  
                 
Operating income
    39,000       173,000  
                 
Income from investment in unconsolidated entities
    6,000       -  
Interest expense
    (57,000 )     (67,000 )
Interest income
    1,000       -  
                 
Net income (loss)
  $ (11,000 )   $ 106,000  
                 
Basic and diluted income per share
  $ (0.00 )   $ 0.01  
                 
Weighted average shares outstanding
    7,797,185       7,747,185  
 
The accompanying notes to financial statements are an integral part hereof.


U.S. NEUROSURGICAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
   
Six Months Ended
 
   
June 30,
 
   
2012
   
2011
 
             
Revenue:
           
Patient revenue
  $ 1,064,000     $ 1,044,000  
                 
Expenses:
               
Patient expenses
    426,000       327,000  
Selling, general and administrative
    488,000       488,000  
                 
Total
    914,000       815,000  
                 
Operating income
    150,000       229,000  
                 
Interest expense
    (116,000 )     (136,000 )
Gain from sales of investments in unconsolidated entities
    24,000       -  
Loss from invesment in unconsolidated entities
    (15,000 )     -  
Interest income
    8,000       -  
                 
Income from continuing operations
    51,000       93,000  
                 
Discontinued operations
               
Impairment loss
    -       (89,000 )
Gain from operations
    -       28,000  
      -       (61,000 )
                 
                 
Net income
  $ 51,000     $ 32,000  
                 
Net income per common share from continuing operations – basic and diluted
  $ 0.01     $ 0.01  
                 
Net income per common share from discontinued operations – basic and diluted
  $ -     $ (0.01 )
                 
Net income (loss) per share - basic and diluted
  $ 0.01     $ -  
                 
Weighted average shares outstanding
    7,797,185       7,747,185  
 
The accompanying notes to financial statements are an integral part hereof.

 
U.S. NEUROSURGICAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
   
Six Months Ended
 
   
June 30,
 
   
2012
   
2011
 
Cash flows from operating activities:
           
Net income
  $ 51,000     $ 32,000  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    256,000       405,000  
Gain from sales of member interest in investments in unconsolidated entities
    (24,000 )     -  
Loss from investment in unconsolidated entities
    31,000       -  
Changes in:
               
Loss on impairment of Gamma Knife equipment at Kansas City center
    -       89,000  
Changes in:
               
Accounts receivable
    (65,000 )     202,000  
Due from related parties
    166,000       (40,000 )
Other current assets
    (6,000 )     (62,000 )
Accounts payable and accrued expenses
    (19,000 )     (31,000 )
Net cash provided by operating activities
    390,000       595,000  
                 
Cash flows from investing activities:
               
Investment in unconsolidated entities
    -       (233,000 )
Cash from settlement of Gamma Knife equipment at Kansas City center
    -       322,000  
Net cash used in investing activities
    -       89,000  
                 
Cash flows from financing activities:
               
Repayment of capital lease obligations
    (264,000 )     (519,000 )
Decrease of cash held in escrow
    -       51,000  
Net cash used in financing activities
    (264,000 )     (468,000 )
                 
Net change in cash and cash equivalents
  $ 126,000     $ 216,000  
                 
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
  $ 830,000     $ 820,000  
                 
CASH AND CASH EQUIVALENTS - END OF PERIOD
  $ 956,000     $ 1,036,000  
                 
Supplemental disclosures of cash flow information:
               
Cash paid for
               
Interest
  $ 116,000     $ 136,000  
                 
Supplemental disclosure of noncash investing and financing activities
               
Leasehold improvements financed by a capital lease
  $ -     $ 277,000  
Distribution from unconsolidated entities included in due from related parties
  $ 50,000     $ -  
Sales proceeds from sale of member interest in unconsolidated entities included in due from related parties
  $ 112,000     $ -  
Investment in unconsolidated entites included in due from related parties
  $ 28,000     $ -  
 
The accompanying notes to financial statements are an integral part hereof.


U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
Note A - Basis of Preparation

The accompanying condensed consolidated financial statements of U.S. Neurosurgical and subsidiaries (“USN” or the “Company”) at June 30, 2012, and for the three and six months ended June 30, 2012 and 2011, are unaudited.  However, in the opinion of management, such statements include all adjustments necessary for a fair statement of the information presented therein.  The balance sheet at December 31, 2011 has been derived from the audited financial statements at that date appearing in the Company's Annual Report on Form 10-K.

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

Consolidated results of operations for interim periods are not necessarily indicative of those to be achieved for full fiscal years..
 
Note B – Sale of Kansas City Gamma Knife Center and Focus on Continuing Businesses

In April 2011, the Company finalized certain transactions and agreements with Midwest Division – RMC, LLC (“RMC”), which owns the property and operates the medical facilities in Kansas City at which the Company’s Gamma Knife center is located.

Sale of Gamma Knife Equipment at Kansas City Center

The Company sold to RMC the Leksell Gamma Knife radiosurgery equipment, along with related supplies and inventory, located at the Kansas City Center for an aggregate purchase price of $250,000.  RMC has also indicated its intention to employ the physicist who, up to the time of the sale, operated the Gamma Knife equipment on the Company’s behalf.  The Company will, upon request of RMC and at RMC’s cost and expense, assist RMC in replenishing the Gamma Knife equipment’s radioactive cobalt 60 as is necessary for the proper operation of the Gamma Knife.
 
 
Termination of Arrangements with RMC and Settlement of Outstanding Claims

In connection with the sale of the Gamma Knife equipment described above, the Company and RMC entered into an agreement terminating the Gamma Knife Neuroradiosurgery Equipment Agreement and the Ground Lease Agreement, each originally entered into between the parties in 1993, and concluded all arrangements between the parties relating to the operation of the Gamma Knife center and the lease of the premises.  Immediately preceding the termination of these agreements, the Company and RMC satisfied all outstanding obligations between the parties, resulting in a net payment of $385,355 to the Company.  In connection with the agreement, the parties also entered into a mutual release respecting all other outstanding claims and disputes between them relating to the Kansas City center.

The Company agreed with RMC that through September 2015, it will not participate in Gamma Knife operations in the states of Missouri, Kansas, Nebraska, Iowa and Arkansas.

Effect of Discontinued Kansas City Operations

The amounts of revenue and pretax or loss reported in discontinued operations for the six months ended June 30, 2011 are as follow:
 
Revenue from operations
 
 $
        184,000
 
         
Pretax loss
   
        (61,000)
 
 
Included in the pretax loss for the six months ended June 30, 2011 is an impairment recorded on the Gamma Knife for the Kansas City Center totaling $161,000.  This impairment loss is being offset by $72,000 received by the Company attributed to revenues from prior years which had been disputed by RMC, and, as such, never recorded by the Company due to the uncertainty of collection.

Continuing Businesses and Business Strategy

The Company will continue to own and operate the Gamma Knife center at NYU Hospital and participate in the newer Gamma Knife and radiosurgery centers in California and Florida.

USN 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 are preliminary and there can be no assurance that any such discussions will result in the opening of new centers.

 
As a result of the Company’s experiences over the past few years, The Company 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, where possible, has been pursuing partnerships with local investors/providers to develop and operate oncology centers that utilize linear accelerators (LINACs) to treat cancers in the whole body.  The Company also continues to evaluate opportunities to develop additional Gamma Knife facilities.  Florida Oncology Partners and the Southern California Regional Gamma Knife Center typify this new strategy.
 
Note C – The Southern California Regional Gamma Knife Center

During 2007, the Company managed the formation of the Southern California Regional Gamma Knife center at San Antonio Community Hospital (“SACH”) in Upland, California.  The Company participates in the ownership and operation of the center through its wholly-owned subsidiary, USN Corona, Inc. (“USNC”).  Corona Gamma Knife, LLC (“CGK”) is party to a 14-year agreement with SACH to renovate space in the hospital and install and operate a Leksell PERFEXION Gamma Knife.  CGK leased the Gamma Knife from Neuro Partners 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 Neuro Partners LLC.  USNC also owned initially 27% of CGK, and increased its ownership to 44% during 2011 to accommodate a member who desired to transfer his interest.  Subsequently, in the first quarter of 2012, USNC sold a portion of its ownership to a new member, resulting in a decrease in its ownership to 39%.

Construction of the SACH 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 USN has led the effort in organizing the business and overseeing the development and operation of the SACH center, its investment to date in the SACH center has been minimal.


Because the Company’s interest in Neuro Partners LLC may be considered to be significant relative to its other assets and operations, the following summarized financial information with respect to Neuro Partners LLC is presented:
 
Neuro Partners LLC. Condensed Income Statement Information
     Six Months Ended  
     June 30,  
   
2012
   
2011
 
             
Net sales
  $ 444,000     $ 444,000  
                 
Net income (loss)
  $ (11,000 )   $ 1,000  
                 
USNC's equity in loss of Neuro Partners LLC
  $ (2,000 )   $ -  

   
Three Months Ended
 
   
June 30,
 
   
2012
   
2011
 
             
Net sales
  $ 222,000     $ 237,000  
                 
Net income (loss)
  $ (35,000 )   $ 14,000  
                 
USNC's equity in loss of Neuro Partners LLC
  $ (7,000 )   $ 3,000  

Neuro Partners LLC Condensed Balance Sheet Information

   
June 30,
   
December 31,
 
   
2012
   
2011
 
             
Current assets
  $ 445,000     $ 482,000  
                 
Noncurrent assets
    2,579,000       2,603,000  
                 
Total assets
  $ 3,024,000     $ 3,085,000  
                 
Current liabilities
  $ 591,000     $ 22,000  
                 
Noncurrent liabilities
    2,599,000       3,144,000  
                 
Equity
    (166,000 )     (81,000 )
                 
Total liabilities and equity
  $ 3,024,000     $ 3,085,000  

 
Note D –Gamma Knife at NYU Medical Center

The Company installed a Leksell Gamma Knife, the Perfexion model, at the NYU Medical Center in March 2009 in replacement of the older Gamma Knife equipment at that location.  The net cost to the Company of the machine was $3,593,000 after a credit for the trade-in of the older machine.  The purchase price was financed through a capital lease with Elekta Capital.  The Company incurred construction costs of $251,000 in connection with the installation of the equipment and the upgrades to the facility.  In connection with this upgrade, the Company modified its arrangement with NYU to extend the term for 12 years from March 2009.  The Company is responsible under the lease agreement with Elekta Capital for 81 months of lease payments which began in July 2009 of approximately $61,000 per month.  In addition, lease payments of $2,379 per month began in July 2010 and continue through June 2017 to cover construction costs.
 
Note E – Florida Oncology Partners

During the quarter ended September 30, 2010, the Company participated in the formation of Florida Oncology Partners, consisting of, Florida Oncology Partners, LLC (“FOP”), and Florida Oncology Partners RE, LLC, (“FOPRE”) (collectively referred to as “Florida Oncology Partners”), which operates a cancer center located in West Kendall, Florida.  The center diagnoses and treats patients utilizing a Varian Rapid Arc linear accelerator and a GE CT scanner.  USNC owns a 20% interest in Florida Oncology Partners and invested $200,000.  The remaining 80% is owned by other outside investors.  The center opened and treated its first patient in May 2011.  The Company's recorded investment in Florida Oncology Partners is $223,000 at June 30, 2012, consisting of a $155,000 investment in FOP and an $68,000 investment in FOPRE.

The Company entered into a note receivable with FOP for working capital purposes, for $200,000 in August 2011, bearing interest at 10% per annum and due in August 2012. The note receivable and accrued interest total $208,000 at December 31, 2011 and $215,000 at March 31, 2012.  This note (principal) was repaid in May 2012.

During 2011, FOP entered into a capital lease with Key Bank.  Under the terms of the capital lease, USNC agreed to guarantee 20% of the outstanding lease obligation of $5,332,278 at June 30, 2012 in the event of default.


Because the Company’s interest in FOP may be considered to be significant relative to its other assets and operations, the following summarized financial information with respect to FOP is presented:
 
Florida Oncology Partners LLC Condensed Income Statement Information
     
       
   
Six Months Ended
 
   
June 30,
 
   
2012
   
2011
 
             
Net sales
  $ 1,483,000     $ 156,000  
                 
Net income (loss)
  $ 186,000     $ (287,000 )
                 
USNC's equity in income (loss) of Florida Oncology Partners LLC
  $ 37,000     $ (57,000 )

   
Three Months Ended
 
   
June 30,
 
   
2012
   
2011
 
             
Net sales
  $ 922,000     $ 156,000  
                 
Net income (loss)
  $ 250,000     $ (287,000 )
                 
USNC's equity in income (loss) of Florida Oncology Partners LLC
  $ 50,000     $ (57,000 )
 
Florida Oncology Partners LLC Condensed Balance Sheet Information
           
             
   
June 30,
   
December 31,
 
   
2012
   
2011
 
             
Current assets
  $ 973,000     $ 1,297,000  
                 
Noncurrent assets
    5,296,000       5,467,000  
                 
Total assets
  $ 6,269,000     $ 6,764,000  
                 
Current liabilities
  $ 811,000     $ 905,000  
                 
Noncurrent liabilities
    4,607,000       4,944,000  
                 
Equity
    851,000       915,000  
                 
Total liabilities and equity
  $ 6,269,000     $ 6,764,000  
 
Note F – Boca Oncology Partners

During the quarter ended June 30, 2011, the Company participated in the formation of Boca Oncology Partners, LLC (“BOP”), which expects to own and operate a cancer care 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, the owner of a medical office building in West Boca, Florida in which BOP plans to operate.  BOP will occupy approximately 6,000 square feet of the 32,000 square foot building.  The Company’s wholly-owned subsidiary, USNC, invested $225,000 initially, giving it a 22.5% interest in BOP and BOPRE.  The remaining 77.5% was initially owned by other outside investors.  The Company currently expects the cancer center in Boca Raton to open in the third quarter of 2012.
 
 
During the first quarter of 2012, BOP sold a 50% interest to certain investors, reducing the ownership of USNC in BOP by 50% to 11.25% interest.  The price paid for such interest was $250,000, of which USNC received approximately $46,000 after legal expenses.  In addition, during the first quarter of 2012, BOPRE purchased an additional 3.75% of Boca West IMP and simultaneously sold a 30% interest to a new investor.  The net proceeds from the sale of the new interest in BOPRE was $124,000 after legal expenses, of which $27,000 was received by USNC.

 
Item 2.
Management Discussion and Analysis of Financial Condition and Results of Operations.

Critical Accounting Policies

The condensed consolidated financial statements of U.S. Neurosurgical, Inc. (“USN” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America.  As such, some accounting policies have a significant impact on amounts reported in the condensed consolidated financial statements.  A summary of those significant accounting policies can be found in Note B to the Consolidated Financial Statements, in our 2011 Annual Report on Form 10-K.  In particular, judgment is used in areas such as determining the allowance for doubtful accounts and asset impairments.

The following discussion and analysis provides information which the Company’s management believes is relevant to an assessment and understanding of the Company’s results of operations and financial condition. This discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere herein.

Results of Operation

In April 2011, the Company finalized certain transactions and agreements with Midwest Division – RMC, LLC, which resulted in the disposition of its assets and business at the Kansas City Gamma Knife center, as described in Note B to the unaudited condensed consolidated financial statements of the Company included in this report.  Previous Kansas City center operations are excluded from the presentation of results of continuing operations for the three months ended March 31, 2012 and 2011.

Three Months Ended June 30, 2012 Compared to Three Months Ended June 30, 2011

Patient revenue decreased 14% to $469,000 in the quarter ended June 30, 2012 from $548,000 for the quarter ended June 30, 2011.  This decrease was largely due to the large number of patients treated during second quarter of 2011 that were rescheduled from the first quarter as a result of flooding caused by Hurricane Irene in early 2011.  Patient expenses increased 48% to $220,000 for the second quarter of 2012 compared to $149,000 in the same period a year ago.  Patient expenses do not vary materially with the number of procedures performed, but are tied to depreciation, maintenance and other fixed expenses.  The increase in patient expenses for the second quarter of 2012 was due to increased depreciation expense and increased maintenance on the Gamma Knife at the Company’s New York center.

Selling, general and administrative expense of $210,000 for the second quarter of 2012 was 7% lower than the $226,000 incurred during the comparable period in 2011.  The decrease in SG&A expenses was largely due to a decrease in travel expenses.

The Company incurred interest expense of $57,000 in the second quarter of 2012 as compared to interest expense of $67,000 for the same period a year ago – a 15% decrease.  This reduction was due to the normal amortization schedule of the capital lease at the New York center.
 
 
For the three months ended June 30, 2012, the Company reported a net loss of $11,000 as compared to profit of $106,000 for the same period a year earlier.

Six Months Ended June 30, 2012 Compared to Six Months Ended June 30, 2011

Patient revenue increased 2% to $1,064,000 in the six months ended June 30, 2012 from $1,044,000 for the six month ended June 30, 2011.  This increase was largely the result of an increase of patients at the NYU Center.  Patient expenses increased 30% to $426,000 for the first six months of 2012 compared to $327,000 in the same period a year ago.  Patient expenses do not vary materially with the number of procedures performed, but are tied to depreciation, maintenance and other fixed expenses.  The increase in patient expenses for the first six months of 2012 was due to increased depreciation expense and increased maintenance on the Gamma Knife at the Company’s New York center.

Selling, general and administrative expense of $488,000 for the fisrt six months of 2012 was the same as the amount incurred during the comparable period in 2011.

The Company incurred interest expense of $116,000 in the first six months of 2012 as compared to interest expense of $136,000 for the same period a year ago – a 15% decrease.  This reduction was due to the normal amortization schedule of the capital lease at the New York center.

For the six months ended June 30, 2012, the Company reported income from continuing operations of $51,000 as compared to $93,000 for the same period a year earlier.

Liquidity and Capital Resources

At June 30, 2012, the Company had working capital of $953,000 as compared to $795,000 at December 31, 2011.  Cash and cash equivalents at June 30, 2012 were $956,000 as compared with $830,000 at December 31, 2011.  This increase in cash resulted from net cash provided by operating activities, offset partially by the repayment of capital lease obligations during the period.

Net cash provided by operating activities for the six  months ended June 30, 2012 was $390,000 as compared to the $595,000 that was provided in the same period a year earlier.  Depreciation and amortization was $256,000 for the six months ended June 30, 2012, as compared with $405,000 the same six months in 2011.

The Company paid $264,000 towards its capital lease obligations during the six months ended June 30, 2012 as compared to $519,000 in the same period a year ago.

With our current cash position, and continued collection on our accounts receivable, the Company believes that its cash position will be sufficient to support operations for at least the next twelve months.
 
 
Risk Factors

We desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.  The following factors, as well as the factors listed under the caption “Risk Factors” in our Form 10-K for the fiscal year ended December 31, 2011, have affected or could affect our actual results and could cause such results to differ materially from those expressed in any forward-looking statements made by us.  Investors should carefully consider these risks and speculative factors inherent in and affecting our business and an investment in our common stock.

Recent Operating Losses.  We have experienced operating losses in recent periods and may do so in the future.  With the increased obligations in connection with the capital lease financing established during 2009 for the new Gamma Knife at the New York center, the Company must now operate at a higher level of revenues to generate positive net income.

While the Company has taken steps to improve long term profitability, it is possible that the Company will experience material losses in future periods.

Availability of Working Capital.  To date, we have earned sufficient income from operations to fund periodic operating losses and support efforts to pursue new Gamma Knife and other centers.  If the Company experiences losses again, we will be required to seek additional capital to support continued operations and the development of new centers, but we cannot assure you that we will be able to raise such additional capital as and when required and on terms that will be acceptable.


Disclosure Regarding Forward Looking Statements

The Securities and Exchange Commission encourages companies to disclose forward looking information so that investors can better understand a company's future prospects and make informed investment decisions.  This document contains such "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, particularly statements anticipating future growth in revenues and cash flow.  Words such as "anticipates," "estimates," "expects," "projects," "intends," "plans," "believes," "will be," "will continue," "will likely result," and words and terms of similar substance used in connection with any discussion of future operating or financial performance identify such forward-looking statements.  Those forward-looking statements are based on management's present expectations about future events.  As with any projection or forecast, they are inherently susceptible to uncertainty and changes in circumstances, and the Company is under no obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements whether as a result of such changes, new information, future events or otherwise.
 
 
The Company operates in a highly competitive and rapidly changing environment and in business segments that are dependent on our ability to: achieve profitability; increase revenues; sustain our current level of operations; introduce new products on a timely basis; maintain satisfactory relations with our customers; attract and retain key personnel; maintain and expand our strategic alliances; and protect our intellectual property.  The Company's actual results could differ materially from management's expectations because of changes in such factors.  New risk factors can arise and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on the Company's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.  Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

Investors should also be aware that while the Company might, from time to time, communicate with securities analysts, it is against the Company's policy to disclose to them any material non-public information or other confidential commercial information. Accordingly, investors should not assume that the Company agrees with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, the Company has a policy against issuing or confirming financial forecasts or projections issued by others.  Thus, to the extent that reports issued by securities analysts or others contain any projections, forecasts or opinions, such reports are not the responsibility of the Company.

In addition, the Company’s overall financial strategy, including growth in operations, maintaining financial ratios and strengthening the balance sheet, could be adversely affected by increased interest rates, failure to meet earnings expectations, significant acquisitions or other transactions, economic slowdowns and changes in the Company’s plans, strategies and intentions.
 
Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.
 
 
Evaluation of Disclosure Controls and Procedures

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 Chief Executive Officer 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 Chief Executive Officer 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 Securities and Exchange Commission’s rules and forms, due to the material weakness in internal control over financial reporting described below.

Internal Control over Financial Reporting

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 accounting principles generally accepted 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 accounting principles generally accepted 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.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.
 
 
Our management assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2012. 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 identified the following material weakness as of June 30, 2012: 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 requirements. 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 investments in unconsolidated entities and discontinued operations.  The Company is in the process of considering steps to rectify this material weakness.

Changes in Internal Control over Financial Reporting

While 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 June 30, 2012, management is in the process of developing plans to remediate the material weakness identified above.
 
 

Legal Proceedings

None
 
Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.
 
Defaults Upon Senior Securities

Not applicable.
 
Item 4
Submission of Matters to a Vote of Security Holders

Not applicable.
 
Other Information

Not applicable.
 
Exhibits

31.1          Certification of President and Chief Executive Officer (Principal Executive Officer and Principal Financial Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

32.1          Certification of President and Chief Executive Officer (Principal Executive Officer and Principal Financial Officer) pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

101           Interactive Data Files providing financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 in XBRL (eXtensible Business Reporting Language).  Pursuant to Regulation 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, and are otherwise not subject to liability.
 
 
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
U.S. Neurosurgical, Inc.
 
 
(Registrant)
 
       
Date:  August 14, 2012
By:
/s/ Alan Gold  
   
Alan Gold
 
   
Director, President and
   
Chief Executive Officer
             and  
   
Principal Financial Officer
   
of the Registrant
 
 
21

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