UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 Form 10-KSB x
ANNUAL
  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2007oro
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, Inc.(Name of small
business issuer in its charter) Delaware

52-1842411(State
  of other jurisdiction of

(I.R.S.
  Employerincorporation
  or organization)

Identification
  No.)2400 Research Blvd, Suite 325,Rockville, Maryland

20850(Address of principal executive offices)

(Zip Code)  Issuers
  telephone number:


(301) 208-8998Securities registered
  under Section 12(b) of the Act:


NoneSecurities registered
  under Section 12(g) of the Act:


Common Stock, par value
  $.01 per share Check whether the issuer is
not required to file reports pursuant to Section 13 or 15(d) of the Exchange
Act. o Check 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 x No o Check if there is no
disclosure of delinquent filers in response to Item 405 of Regulation S-B
contained in this form, and no disclosure will 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-KSB or any amendment to
this Form 10-KSB. 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 issuers revenues for
its most recent fiscal year:  $1,638,000 As of March 14, 2008, the
aggregate market value of issuers Common Stock held by non-affiliates was
approximately $450,000, based upon the average of the bid and asked prices as
reported on the OTC Bulletin Board. As of March 14, 2008, there
were outstanding 7,697,185 shares of the issuers Common Stock. $.01 par value. Documents incorporated by
reference: None Transitional Small Business
Disclosure Format (Check one): Yes o No x    FORM 10-K

U.S. Neurosurgical, Inc.Form 10-K for the Fiscal Year
Ended December 31, 2007

Table of Contents

PART
I

3Item 1.
Description
  of Business
3Item 1A.
Risk
  Factors
7Item 2.
Description
  of Property
9Item 3.
Legal
  Proceedings
9Item 4.
Submission
  of Matters to a Vote of Security Holders
10PART
II

11Item 5.
Market
  For Common Equity and Related Stockholder Matters and Small Business Issuer
  Purchases of Equity Securities
11Item 6.
Managements
  Discussion and Analysis or Plan of Operation
12Item 7.
Financial
  Statements
15Item 8.
Changes
  in and Disagreements With Accountants on Accounting and Financial Disclosure
15Item 8A(T).
Controls
  and Procedures
15Item 8B.
Other
  Information
18PART
III

19Item 9.
Directors,
  Executive Officers, Promoters, Control Persons and Corporate Governance;
  Compliance With Section 16(a) of the Exchange Act
19Item 10.
Executive
  Compensation
20Item 11.
Security
  Ownership of Certain Beneficial Owners and Management and Related Stockholder
  Matters
21Item 12.
Certain
  Relationships and Related Transactions, and Director Independence
22PART
IV

23Item 13.
Exhibits
23Item 14.
Principal
  Accounting Fees and Services
252

PART I

Item 1.
Description of Business.U.S.
Neurosurgical, Inc. (USN or the Company) owns and operates stereotactic
radiosurgery centers, utilizing the Leksell Gamma Knife technology (the Gamma
Knife). As used herein, unless the context indicates otherwise, the term
Company, Registrant and USN. means U.S. Neurosurgical, Inc. and its
subsidiaries, U.S. Neurosurgical Physics, Inc. and USN Corona, Inc. The
Company, a Delaware corporation, was formed in July 1993. The Companys executive
offices are located at 2400 Research Boulevard, Suite 325, Rockville, Maryland
20850, and its telephone number is (301) 208-8998.

Disclosure Regarding Forward Looking Statements

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 outcome of the Companys payment, 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 may
be identified from time to time in the Company 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.

General

USN,
was organized in July 1993 to own and operate stereotactic radiosurgery
centers, utilizing the Gamma Knife technology. USN currently owns and operates
two Gamma Knife centers, one on the premises of Research Medical Center (RMC)
in Kansas City, Missouri, and one on the premises of New York University
Medical Center (NYU) in New York, New York. Management continues to explore
opportunities to open additional Gamma Knife centers. USNs business strategy
is to provide a mechanism whereby hospitals, physicians, and patients can have
access to Gamma Knife treatment capability, a high capital cost item. USN
provides the Gamma Knife to medical facilities on a cost per treatment basis.
USN owns the Gamma Knife units, and is reimbursed by the facility where it is
housed, based on utilization.

USN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 its RMC and NYU Gamma Knife centers, USN would seek
cooperative ventures with these facilities, if it were to explore opening
additional centers. USN believes that, as of

3

December 31,
2007, there were approximately 115 Gamma Knife treatment centers in the U.S.

Through
September 9, 1999, USN was a wholly owned subsidiary of GHS, Inc (GHS).
Effective on September 17, 1999, GHS distributed its shares of USN to the
stockholders of GHS.

Gamma Knife Technology

The
Leksell 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.

Kansas City and New York Centers

In
July 1993, USN purchased its first Leksell Gamma Knife from Elekta Instruments,
Inc. (Elekta), for the purpose of installing it at RMC in Kansas City,
Missouri. USN paid approximately $3,000,000 for the Gamma Knife through a
capital lease financing.

USN
opened its first Gamma Knife Center on the premises of RMC in September 1994.
RMC is part of Hospital Corporation of America (HCA). USN formed a cooperative
venture with RMC in September, 1993. Per an agreement with RMC, GHS sold
500,000 shares of its common stock for $500,000 to RMC to secure additional
working capital in order to enable USN to construct a Gamma Knife facility. USN
installed the Gamma Knife in the facility, where it is being utilized by
neurosurgeons credentialed by RMC. USN is reimbursed for use of the Gamma Knife
by RMC based on a percentage of the fees collected by RMC for Gamma Knife
procedures. USN is responsible for the maintenance and insurance for the Gamma
Knife equipment at the RMC facility. Pursuant to a ground lease agreement, RMC
leased to USN the land on which to build the Gamma Knife facility. USNs
facility agreements with RMC expire in 2015 and there are no renewal options.
Costs associated with closing and restoring the RMC facility to its original
condition are the responsibility of USN. For the year ended December 31, 2007,
2006 and 2005, USN derived revenues from the RMC

4

center of approximately
$1,031,000, $901,000 and $1,134,500, respectively, as a result of 164, 67 and
103 procedures performed, respectively, during such periods.

USN
opened its second treatment center in July 1997 on the campus of NYU in New
York, New York. Construction of the Gamma Knife suite was completed in July
1997. The Gamma Knife cost and the cost of the facility improvements totaled
approximately $4,700,000. In August 2003, the cobalt source was reloaded in the
New York Gamma Knife. After making the first 80% of payments equivalent to
$582,000 to Elekta Instruments, DVI, the leasing company that USN had used for
the previous six years on all transactions, filed for protection under Chapter
11 of the U.S. Bankruptcy Code. USN began making all lease payments into an
escrow account beginning in September 2003 while the Company continued to
negotiate with DVI and its successor. The Company refinanced the lease with SMT
Leasing in April 2004. During November 2002, the Company extended the term of
its agreement with NYU until 2010. The Company has a marketing representative
to help introduce the technology to neurosurgeons in the New York tri-state
region. Pursuant to USNs facility agreement with NYU, USN is responsible for
the maintenance and insurance for the Gamma Knife equipment at the NYU facility
and is reimbursed for use of the Gamma Knife based on a fee per procedure
performed with the equipment. Costs associated with closing and restoring the
NYU facility to its original condition are the responsibility of USN. NYU
provides the medical and technical staff to operate the facility. NYU pays USN
a scheduled fee based on the number of patient procedures performed. For the
years ended December 31, 2007, 2006, and 2005, USN derived revenues from the
NYU center of approximately $603,000, $968,000 and $973,500, respectively, as a
result of 44, 152 and 161 procedures performed, respectively, during such
periods.

In
August 2003, USN commenced payment on a $750,000 lease for the NYU cobalt
reload, that was originally thought to be fully funded by DVI, Inc. In August,
after making the first payment of $21,584 on August 10, 2003, USN found that
DVI, Inc. had failed to make the final 2 payments to Elekta that amounted to
$150,000. On August 15, 2003, DVI, Inc. filed for protection under Chapter 11
of the U.S. Bankruptcy Code seeking to reorganize. In September 2003 and the
months after, the Company made lease payments into an escrow account controlled
by counsel while it negotiated a resolution to the shortfall created by DVI.
The new financing was for approximately $728,000 that was payable over 36
months at $23,000 per month beginning in April 2004 and ending in March of
2007.

Future Gamma Knife Centers

During
the fourth quarter of 2007, a newly formed wholly-owned subsidiary of the USN,
USN Corona, Inc (USNC), entered into a contract with Corona Gamma Knife, LLC
(CGK) to develop and manage a Gamma Knife center at San Antonio Community
Hospital in Upland California. CGK is party to a 14-year agreement with the San
Antonio Community Hospital to renovate space in the hospital and install and
operate a Leksell Perfexion Gamma Knife. CGK will lease the Gamma Knife from
Neuropartners LLC. USNC is a 27% owner of CGK and a 20% owner of Neuropartners
LLC. The remaining interests in CGK and Neuropartners LLC are owned by local
investors.

5

There
remain a number of conditions that must be met before the Gamma Knife center at
San Antonio Community Hospital can be constructed. Building plans for the
project have been submitted to the State of California, but there can be no
assurance that such plans will be approved. A financing commitment has been
obtained, but the project has not yet been funded. Because of these factors,
there can be no assurance that this new center will be opened.

USN
is currently exploring other opportunities for Gamma Knife centers and centers
that provide related healthcare services located near hospitals throughout the
U.S. Discussions regarding such centers is preliminary and there can be no
assurance that any such discussions will result in the opening of new centers.

Employees

U.S.
Neurosurgical, Inc. has four full-time employees and relies on consultants for
certain services as required from time to time. Of its full-time employees,
three are engaged in sales, marketing and administration, and one is a
physicist.

6

Item 1A.
Risk Factors.Regulatory Environment

The
levels of revenues and profitability of companies involved in the health
services industry, such as USN, 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 by changes in the regulatory
environment, it is uncertain what legislative proposals will be adopted or what
actions federal, state or private payors for healthcare goods and services may
take in response to any healthcare reform proposals or legislation. The Company
cannot predict the effects healthcare reform may have on its business, and no
assurance can be given that any such reforms will not have a material effect on
USN.

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 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 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 USN. 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 USN to permit loading the cobalt
at each Gamma Knife site. While the Company believes that it can obtain a NRC
permit for each Gamma Knife machine, there is no assurance that it will.

Liability Insurance

Although
USN does not directly provide medical services, it has obtained professional
medical liability insurance, and has general liability insurance as well. USN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.

7

Competition

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 centers. There are other
companies that provide the Gamma Knife on a cost per treatment basis. In the
past two years a new technology called CyberKnife has also entered into the
noninvasive market. In addition, larger hospitals may be expected to install
Gamma Knife or competing technologies as part of their regular inpatient
services. Virtually all of these competitors have greater financial and other
resources than the Company. 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 Gamma Knife centers.

Gamma Knife Supply and Servicing

To
date, USN has purchased all of its Gamma Knife equipment from Elekta
Instruments, Inc., a subsidiary of AB Elekta of Stockholm, Sweden. In 1993, USN
entered into purchase agreements with Elekta for the purchase of the Gamma
Knives at its RMC and NYU centers. During 2004, the Company entered into an
agreement to upgrade to a new Gamma Knife at RMC. Elekta is responsible for the
installation and testing of the equipment and the training of the hospital
staff in the operation of the equipment. USN arranges for maintenance services
for its Gamma Knives through Elekta. Any interruption in the supply of
equipment or services from Elekta would adversely affect USNs ability to
maintain its Gamma Knife treatment centers.

Gamma Knife Financing

The
Gamma Knife is an expensive piece of equipment, presently costing from $3.0 to
$4.2 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. The cobalt at the NYU facility was reloaded in August 2003 and the
costs were approximately $800,000, which were partially financed. This capital
lease obligation was fully satisfied in March 2007.

8

New Technology/Possible Obsolescence

Gamma
Knife technology may be subject to technological change. Consequently, the
Company will have to rely on the 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.

Dependence on Hospital, Healthcare Organizations and Others

USN
business model is to reach an arrangement with a hospital or other medical
centers 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, USN 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, USN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.

Item 2.
Description of Property.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 $40,000 per year. USN
occupies approximately 1,600 square feet in its RMC facility. This facility is
located on the campus of RMC in Kansas City, Missouri. USN also occupies about
2,000 square feet at the NYU Medical Center in New York, New York. Pursuant to
the facility agreements with RMC and NYU, USN is not required to pay separate
rent for the premises occupied by its Gamma Knife centers. Rent is deducted up
front in the fee paid to USN for the use of the Gamma Knife. USNs agreements
with RMC expire in September 2015 and there are no renewal options. USNs
agreement with NYU was extended in 2002 and now expires in June 2009.

Item 3.
Legal Proceedings.During
2007, USN instituted a lawsuit against Midwest Division  RMC LLC, in the
Circuit Court of Jackson County, Missouri seeking damages against the defendant
as successor to USNs agreement with Research Medical Center relating to the
Kansas City Gamma Knife center. USN is seeking damages arising out of the
agreement, executed in December 1993. In the course of an audit, USN discovered
that the defendant had failed to make proper payments to USN under that
agreement. USN is now seeking damages for underpayments.

9

Management
is aggressively seeking the payments that it believes the Company is due under
the agreement. However, the case is early in the discovery stage and the
Company is unable to assess the prospects for recovery. There has been no
counterclaim by the defendant, so if there is an unfavorable outcome, at the
present time it appears that USN would not suffer material damages. In
addition, patients continue to receive treatment at the Kansas City center and
payments for those treatments are being made to USN in accordance with the
method that management of USN maintains should have applied in the prior
periods in dispute. Management believes that the only issue is whether USN will
benefit from any recovery through this lawsuit with respect to such prior
periods.

Item 4.
Submission of Matters to a Vote of Security Holders.None

10

PART II

Item 5.          Market For Common Equity and Related Stockholder Matters and Small
 Business Issuer Purchases of Equity Securities.The
Companys Common Stock is traded on the OTC Bulletin Board. The following table
displays the range of high and low bid quotations as reported by NASDAQ System
for the period from January 1, 2006 through December 31, 2007.

Period

High Bid

Low BidJanuary 1  March 31,
2006


.15



.11April 1 - June 30,
2006


.15



.11July 1  September 30,
2006


.12



.09October 1  December 31,
2006


.11



.08January 1  March 31,
2007


.11



.08April 1 - June 30,
2007


.08



.05July 1  September 30,
2007


.06



.05October 1  December 31,
2007


.07



.04The
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commissions and may not necessarily represent actual transactions.

As
of March 14, 2008, there were approximately 400 holders of record of the
Companys Common Stock.

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

During
the fourth quarter of 2007, the Company did not purchase any of its own equity
securities.

11

Item 6.
Managements Discussion and Analysis or Plan of Operation.Set
forth below is the selected financial data pertaining to the financial
condition and operations of the Company for the years ended December 31, 2003
through 2007. The latest financial statements of the Company are included in
Item 13 in Part IV of this report. The information set forth in this table and
the discussion below should be read in conjunction with such financial
statements and the notes thereto.

Year Ended December 31,(in thousands, except 
 per share amounts)

2007

2006

2005

2004

2003(As restated)Operating
Revenue

$
1,638

$
2,002

$
2,108

$
2,403

$
2,444Expenses:Patient
expense


766


908


816


780


820General and
administrative


1,052


1,245


1,447


1384


1411Interest
expense


168


228


252


59


86Cumulative
effect of accounting method
 change (net of applicable income tax of $56,000)














(84
)Net Income
(loss)


(335
)

(383
)

(285
)

123


(23
)Basic and diluted Income
 (loss) per common share:Income before
cumulative effect of
 accounting method change

$
(0.04
)
$
(0.05
)
$
(0.04
)
$
0.02

$
0.01Cumulative
effect of accounting method
 change













$
(0.01
)Net income
(loss)

$
(0.04
)
$
(0.05
)
$
(0.04
)
$
0.02

$
0.00December 31,2007

2006

2005

2004

2003Balance Sheet
Data:Cash and cash
equivalents

$
372

$
297

$
422

$
511

$
89Total assets


2,641


3,496


4,663


4,201


3,150Long-term obligations


1,377


1,811


2,300


1,652


542Stockholders equity


761


1,096


1,179


1,464


1,337Results of operations

2007
Compared to 2006

Patient
revenue declined 18% to $1,638,000 in 2007 as compared to $2,002,000 in 2006.
The decrease in revenue is primarily due to a decrease in patient volume at our
RMC site, resulting largely from competition from other stereotactic modalities
at other centers.

Patient
expenses declined 16% to $766,000 in 2007 from $908,000 in 2006. The decrease
was primarily due to lower maintenance costs for the equipment. Selling,
general

12

and
administrative expense (SG&A) decreased 16% to $1,052,000 in 2007 from
$1,245,000 in the previous year. This decrease in SG&A resulted principally
from lower payroll costs, as well as continued steps taken by the Company to
streamline overall administrative costs. Interest expense decreased 26% to
$168,000 in 2007 from $228,000 in 2006. This decrease was due to repayment of
the NYU loan. As a result of the above, principally the decrease in revenues in
2007, the Company experienced a net loss of $335,000, which compares to the net
loss of $333,000 in the prior year.

2006
Compared to 2005

Patient
revenue declined 5% to $2,002,000 in 2006 as compared to $2,108,000 in 2005.
The decrease in revenue is primarily due to a decrease in patient volume at our
RMC site, resulting largely from competition from other stereotactic modalities
at other centers. This decrease was particularly significant in view of the
fact that RMC site was closed for 5 weeks in March/April of 2005 when the Gamma
Knife was replaced with a new model

Patient
expenses rose 5% to $908,000 in 2006 from $816,000 in 2005. The increase was
partly due to higher depreciation charges beginning in the first half of 2005
resulting from the installation of the new machine at RMC. Selling, general and
administrative expense (SG&A) decreased 16% to $1,245,000 in 2006 from
$1,447,000 in the previous year. This decrease in SG&A resulted principally
from lower marketing costs for the RMC site, as well as steps taken by the
Company to streamline overall administrative costs. Interest expense decreased
10% to $228,000 in 2006 from $252,000 in 2005. This decrease was due to the
amortization of the gamma knifes and a loan was paid off completely during
2006. As a result of the above, principally the decrease in revenues in 2006,
the Company experienced a net loss of $383,000 as compared to net income of
$285,000 in the prior year.

13

Liquidity and capital resources

At
December 31, 2007 the Company had working capital of $62,000 as compared to
$121,000 at December 31, 2006. This reduction is due principally to the fact
that the capital lease obligation relating to the equipment at the NYU facility
was satisfied at the end of March of 2007.

Cash
and cash equivalents at December 31, 2007 were $372,000 as compared to $297,000
at December 31, 2006. Net cash provided by operating activities was $501,000 in
2007 as compared with $535,000 for the same period a year earlier. Depreciation
and amortization was $649,000 in 2007 as compared to $709,000 in 2006. Accounts
receivable decreased $23,000 during the year as compared to a decrease of
$48,000 in 2006. Accounts payable and accrued expenses decreased by $53,000
during 2007 as compared to an increase of $61,000 in 2006.

Net
cash provided by investing activities for the year ended 2007 was $41,000 as
compared to a use of $5,000 in the year ago period.

For
the year ended December 31, 2007, net cash used in financing activities was
$467,000 as compared to $655,000 in 2006.

Off-balance sheet arrangements

None

Tabular disclosure of contractual obligations

The
following is a summary of the Companys contractual obligations at December 31,
2007:

Payments due by periodContractual Obligations

Total

Less than 1
 year

1-3
 years

3-5
 years

More than
 5 yearsCapital (Finance) Lease
Obligations

$
1,611,000

$
434,000

$
994,000

$
183,000Asset retirement
obligation

$
200,000




$
100,000




$
100,000Total

$
1,811,000

$
434,000

$
1,094,00

$
183,000

$
100,00014

Critical accounting policies

Estimates and
assumptions

The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Asset
retirement obligations

In
June 2001, the Financial Accounting Standards Board (FASB), issued Statement
No. 143, Accounting for Asset Retirement Obligations, (FAS 143) effective
for the fiscal years beginning after June 15, 2002. Accordingly, the
Company recorded liabilities for legal obligations associated with the
retirement of tangible long-lived assets based the estimated fair value of such
liabilities. The estimated costs of these obligations is capitalized as costs
of the assets subject to the retirement obligations and amortized over the
lives of the assets.

Item 7.
Financial Statements.The
financial statements and supplementary data required by this item are set forth
in Item 13 in this Annual Report of Form 10-KSB beginning at page F-1.

Item 8.
Changes in and Disagreements With Accountants on Accounting and
  Financial Disclosure.There
have been no disagreements between the Company and its former accountant during
the past two fiscal years on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope of procedure, which have not
been resolved to the satisfaction of the former accountant.

Item 8A(T).
Controls and Procedures.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

15

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 (including
an evaluation of the updated procedures described above) the Companys Chief
Executive Officer concluded that the Companys disclosure controls and
procedures were 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.

Managements Annual Report on 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 generally accepted
accounting principles. 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 U.S. generally
  accepted accounting principles, 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.

16

Our
management assessed the effectiveness of the Companys internal control over
financial reporting as of December 31, 2007. 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, that results in more than a remote likelihood that a
material misstatement of annual or interim financial statements will not be
prevented or detected. In connection with the assessment described above,
management has identified the following material weaknesses as of December 31,
2007: (1) the Company did not maintain a sufficient complement of personnel
with the appropriate level of knowledge, experience and training in the
application of GAAP and in internal controls over financial reporting
commensurate with its financial reporting requirements, (2) the Company did not
maintain effective controls over the determination and reporting of its income
tax payable, deferred income tax assets and liabilities, the related valuation
allowances and income tax expenses. Specifically, effective controls were not
designed and in place to ensure that management maintained the appropriate
level of personnel resources with an adequate experience and expertise in the
area of GAAP accounting for income taxes. These material weaknesses contributed
to control deficiencies, as well as audit adjustments to the 2007 annual
consolidated financial statements in the financial reporting and close process.

Additionally,
the material weakness noted above could result in a material misstatement to
the Companys interim or annual consolidated financial statements and
disclosures which would not be prevented or detected. As a result of these
material weaknesses, Management has concluded that as of December 31, 2007, the
Companys internal control over financial reporting was not effective based on
the framework issued by COSO.

As
noted above, the Companys business and management infrastructure is relatively
small  only four full-time employees, and only two of which have accounting
and financial reporting responsibilities. In the interests of efficiency, and
given the Companys current size and the state of its operations, the Companys
Chief Executive Officer functions as chief financial officer and chief
accounting officer. An inherent challenge in a small business such as this is
that effective financial reporting is necessarily dependent upon the
performance of one or two individuals. Additionally, segregation of duties is
in most cases impractical. The Company endeavors to mitigate these limitations
by relying on and the Lead Director to assist in oversight of critical
corporate, accounting and financial reporting functions. With these limitations
in mind, management is taking steps to remediate the control deficiencies noted
above through the use of additional outside contractors with the requisite
experience and expertise in GAAP accounting.

This
annual report does not include an attestation report of the Companys
registered public accounting firm regarding internal control over financial
reporting. Managements report was not subject to attestation requirements by
the Companys registered public accounting firm pursuant to temporary rules of
the Securities and Exchange Commission that permit the Company to provide only
managements report in this annual report.

17

Changes in Internal Control over Financial Reporting

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, 2007 that have
materially affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting.

Item 8B.
Other Information.Not applicable.

18

PART III

Item
9.          Directors,
Executive Officers, Promoters, Control Persons and Corporate Governance;
Compliance With Section 16(a) of the Exchange Act.

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

Name

Age

PositionAlan Gold


63


President
 & ChairmanWilliam F.
 Leimkuhler


56


DirectorCharles H.
 Merriman, III


73


DirectorSusan
 Greenwald


62


Vice
 President and SecretaryAlan Goldhas
served as President and
Chairman of USN since 1996. Mr. Gold has also been a director of USN 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 USN since May 1999. He currently serves as lead director and as
chairman of USNs audit committee. He also served as a director of GHS since
its inception in 1984 through November 1999. Mr. Leimkuhler is currently
General Counsel & Director of Business Development for Paice Corporation,
the developer of an advanced hybrid electric powertrain for passenger vehicles,
a position he has held since October 1999. He also acts as a consultant on
corporate and business development matters to several emerging growth
companies. 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 Speedus Corp., Integral
Systems, Inc and Argan, Inc.

Charles H.
Merriman, IIIhas served as a
director of USN 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 USNs primary focus on healthcare and technology.

19

Susan Greenwaldhas served as Vice
President of Marketing Communications and as Secretary of USN 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.

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, 2005, the Board of
Directors held three meetings, which were attended by all incumbent directors.
The Company has a standing audit committee, but does not have a nominating or
compensation committee.

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.

Section 16 (a) Beneficial Ownership Reporting Compliance

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 years ended December 31, 2006, all filing requirements applicable to
its officers and directors were complied with by such individuals.

Item 10.
          Executive
Compensation.

The
information below sets forth the compensation for the year ended December 31,
2006, 2005, and 2004, for the Chief Executive Officer of the Company.

Summary Compensation TableAnnual CompensationName andPrincipal
 Position

Year

Salary($)Alan Gold


2007

$
225,000President
 & Director


2006

$
300,0002005

$
300,00020

Director Compensation

During
2007, our Directors who are not officers or employees (Non-Employee
Directors) were entitled to an annual retainer of $3,000. The Chairman of the
Companys Audit Committee, who also serves as 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 or on any Board
committee.

Employment Agreements

The
Company and Mr. Gold are parties to an employment agreement giving either the
Company or Mr. Gold the option to terminate the agreement by giving the other
party 6 months written notice.

Item
11.          Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.

The
following table sets forth, as of March 14, 2008, 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:

Name and
 Address
 of Beneficial Owner
Number of Shares
 Beneficially
 Owned (1)

Percent of
 ClassAlan Gold
 (2)
 2400 Research Blvd.
 Rockville, MD 20850
1,140,246


14.5%William F.
 Leimkuhler
 43 Salem Straits Road
 Darien, CT 06820
100,000


1.3%Charles H.
 Merriman III
 5507 Cary St. Road
 Richmond, VA 23226
130,672


1.7%Stanley S.
 Shuman (3)
 711 Fifth Avenue
 New York, NY 10022
2,688,000


34.2%Allen &
 Company Incorporated
 711 Fifth Avenue
 New York, NY 10022
1,847,000


23.4%All
 Directors and Officers of USN
 as a group (2) (three persons)
1,370,918


19.5%21


(1)
Unless
 otherwise indicated, all shares are beneficially owned and sole voting and
 investment power is held by the person named above.(2)
Includes
 1,140,246 shares held jointly by Mr. Gold and his wife, Susan Greenwald, as
 joint tenants with right of survivorship.(3)
Includes
 1,847,000 shares owned by Allen & Company Incorporated, Mr. Shuman
 disclaims beneficial ownership in such shares, except to the extent of his
 pecuniary interest therein.Item
12.          Certain
Relationships and Related Transactions, and Director Independence.

None

22

PART IV

Item 13.
          Exhibits.

(a)
Financial
  Statements and Financial Statement Schedules. The
  following are filed as part of this report:Page No.Consolidated Financial
Statements of the Company

F-1Report of
Independent Registered Public Accounting Firm

F-2,3Balance Sheets
as of December 31, 2006 and 2005

F-4Statements of
Operations for the years ended 
  December 31, 2006, 2005, and 2004.

F-5Statements of
Changes in Stockholders Equity 
  for the period January 1, 2004 through 
  December 31, 2006

F-6Statements of
Cash Flows for the year ended 
  December 31, 2006, 2005, and 2004.

F-7Notes to
Financial Statements

F-8All
schedules have been omitted as the conditions requiring their filing are not
present or the information required therein has been included in the notes to
the financial statements.

(b)
Exhibits:3.1
Form of
  Amended and Restated Certificate of Incorporation of U.S. Neurosurgical, Inc.
  (USN) (incorporated herein by reference to Exhibit 3.1 to our Form 10
  Registration Statement as filed July 1, 1999)3.2
Form of
  Amended and Restated Bylaws of USN (incorporated herein by reference to
  Exhibit 3.2 to our Form 10 Registration Statement as filed July 1, 1999)4.1
Form of
  Stock Certificate of Common Stock (incorporated herein by reference to
  Exhibit 4.1 to our Form 10 Registration Statement as filed July 1, 1999)10.1
Distribution
  Agreement dated May 27, 1999 between GHS, Inc. (GHS) and USN (incorporated
  herein by reference to Exhibit 10.1 to our Form 10 Registration Statement as
  filed July 1, 1999)10.2
Tax Matters
  Agreement dated May 27,1999 between GHS and USN (incorporated herein by
  reference to Exhibit 10.2 to our Form 10 Registration Statement as filed July
  1, 1999)10.3
Assignment
  and Assumption Agreement dated May 27, 1999 between GHS and USN (incorporated
  herein by reference to Exhibit 10.3 to our Form 10 Registration Statement as
  filed July 1, 1999)10.4
Employment
  Agreement dated December 14,1984 between USN and Alan Gold, as amended March
  7, 1986 (incorporated by reference to Exhibit 10.3 of GHSs Registration
  Statement No. 33-4532-W on form S-18)10.5
Gamma Knife
  Neuroradiosurgery Equipment Agreement dated August, 1993 between Research Medical
  Center and USN (incorporated by reference to23

Exhibit 10h
  to GHSs Quarterly Report or Form 10-Q for the quarter ended September 30,
  1993)10.6
Ground Lease
  Agreement dated August, 1993 between Research Medical Center and USN (incorporated
  by reference to Exhibit 10j to GHSs Quarterly Report on Form 10-Q for the
  quarter ended September 30, 1993)10.7
LGK
  Agreement dated July 12, 1993 between Elekta Instruments, Inc. and USN
  (incorporated by reference to Exhibit 10k to GHSs Quarterly Report on Form
  10-Q for the quarter ended September 30, 1993)10.8
Agreement
  dated December 29, 1993 between USN and Elekta Instruments, Inc.
  (incorporated by reference to 10o to GHSs 1994 Annual Report on Form 10-K)10.9
Agreement
  dated August 1, 1996 between USN and DVI, Inc. (incorporated by reference 10j
  to GHSs 1997 Annual Report on form 10-K)10.10
Gamma Knife
  Neuroradiosurgery Equipment dated as of November 26, 1996 between New York
  University on behalf of New York University Medical Center and USN
  (incorporated herein by reference to Exhibit 10.10 to our Form 10
  Registration Statement as filed July 1, 1999)21.1
List of
  Subsidiaries (incorporated herein by reference to Exhibit 21.1 to our Form 10
  Registration Statement as filed July 1, 1999)31.1*
Certifications
  of CEO and CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1*
Certifications
  of CEO and CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* Filed
herewith(c)
Financial
  Statement Schedules. None24

Item
14.          Principal
Accounting Fees and Services.

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, 2007, 2006 and 2005, the Company paid or accrued $56,052,
$39,336 and $47,586, respectively, for Audit Fees to Goodman and Company, LLP.

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, 2007, 2006 and 2005, the Company did not pay or accrue
any amounts for Audit Related Fees.

Tax
Fees represent fees for services rendered in connection with tax compliance,
tax advice and tax planning. For the years ended December 31, 2007, 2006 and
2005, the Company paid $9,500, $9,879 and $0 for Tax Fees to Goodman and
Company, LLP.

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,
2007, 2006 and 2005, the Company did not pay or accrue any amounts for these
services.

The
Audit Committee of the Companys Board of Directors has established a policy
requiring its pre-approval 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 Audit
Committee.

25

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.

U.S.
 Neurosurgical, Inc.(Registrant)By
/s/ Alan
 GoldAlan GoldPresident
 and Chief Executive OfficerandPrincipal Financial
 OfficerDated:
March 29,
 2008In
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.

March 29,
 2008
/s/ Alan
 GoldAlan GoldPresident
 and Director(Chief
 Executive Officer)March 29,
 2008
/s/ William
 F. LeimkuhlerWilliam F.
 LeimkuhlerDirectorMarch 29,
 2008
/s/ Charles
 H. Merriman IIICharles H.
 Merriman IIIDirectorU.S. NEUROSURGICAL, INC. AND SUBSIDIARIES

Contents

PageConsolidated
  Financial Statements

F-1Report of
  independent registered public accounting firm

F-2Consolidated
  balance sheets as of December 31, 2007 and 2006

F-3Consolidated
  statements of operations for the years ended December 31, 2007, 2006 and 2005

F-4Consolidated
  statements of stockholders equity for the years ended December 31, 2007,
  2006 and 2005

F-5Consolidated
  statements of cash flows for the years ended December 31, 2007, 2006 and 2005

F-6Notes to
  consolidated financial statements

F-7U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES

REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and
Stockholders
U.S. NeuroSurgical, Inc.
Rockville, Maryland

We have audited the
accompanying consolidated balance sheets of U.S. NeuroSurgical, Inc. and
subsidiaries (Company) as of December 31, 2007 and 2006, and the related
consolidated statements of operations, stockholders equity, and cash flows for
each of the years in the three-year period ended December 31, 2007.  U.S. NeuroSurgical, Inc. and subsidiaries
management is responsible for these consolidated financial statements.  Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.

We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board
(United States).  Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis of designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.

In our opinion, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of U.S. NeuroSurgical,
Inc. and subsidiaries as of December 31, 2007 and 2006,  and the results of their operations and
their cash flows for each of the years ended in the three-year period ended
December 31, 2007, in conformity with accounting principles generally accepted
in the United States of America.

Goodman and Company, LLP
Rockville, Maryland
March 26, 2008

U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES

Consolidated Balance sheets

December 31,2007

2006ASSETSCurrent assets:Cash and cash
equivalents

$
372,000

$
297,000Accounts
receivable (net of allowance for doubtful accounts of $36,000
  in 2007 and 2006)


96,000


119,000Accounts
receivable - RMC


45,000


175,000Other current
assets


52,000


119,000Total current
assets


565,000


710,000Property and
equipment:Gamma Knives
(net of accumulated depreciation of $5,242,000 in 2007
  and $4,599,000 in 2006)


1,758,000


2,370,000Leasehold
improvements (net of accumulated amortization of $1,771,000
  and $1,739,000 in 2006)


266,000


303,000Office
furniture and computers (net of accumulated depreciation of
  $107,000 in 2007 and $107,000 in 2006)





2,024,000


2,673,000Cash held in escrow


52,000


113,000$
2,641,000

$
3,496,000LIABILITIESCurrent liabilities:Accounts
payable and accrued expenses

$
69,000

$
122,000Obligations
under capital leases and loans payable - current portion


434,000


467,000Total current
liabilities


503,000


589,000Asset retirement
obligations


200,000


200,000Obligations under capital
leases and loans payable - net of current
  portion


1,177,000


1,611,000Total
liabilities


1,880,000


2,400,000Commitments, litigation and
other matters (Notes B[10], D, F, I and J)STOCKHOLDERS
EQUITYCommon stock - par value $.01;
25,000,000 shares authorized; 7,697,185
  shares issued at December 31, 2006 and 2005


77,000


77,000Additional paid-in
capital


3,097,000


3,097,000Accumulated deficit


(2,413,000
)

(2,078,000
)761,000


1,096,000$
2,641,000

$
3,496,000See notes to
consolidated financial statements
F-3U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

Year Ended December 31,2007

2006

2005Revenue (Notes C and D)

$
1,638,000

$
2,002,000

$
2,108,000Costs and expenses:Patient
expenses


766,000


908,000


816,000Selling,
general and administrative


1,052,000


1,245,000


1,447,0001,818,000


2,153,000


2,263,000Loss from operations


(180,000
)

(151,000
)

(155,000
)Interest expense


(168,000
)

(228,000
)

(252,000
)Interest income


11,000


20,000


12,000Other Income


2,000


26,000


(155,000
)

(182,000
)

(240,000
)Loss before income taxes


(335,000
)

(333,000
)

(395,000
)Provision for income tax
  expense (benefit)





50,000


(110,000
)Net loss

$
(335,000
)
$
(383,000
)
$
(285,000
)Basic and
  diluted net loss per share

$
(0.04
)
$
(0.05
)
$
(0.04
)Weighted
  average common shares outstanding


7,697,185


7,697,185


7,697,185See notes to
consolidated financial statements
F-4U.S.
NEUROSURGICAL, INC. AND SUBSIDIARIES

Consolidated
Statements of Stockholders Equity

Common StockNumber
 of
 Shares

Amount

Additional
 Paid-in
 Capital

Accumulated
 Deficit

TotalBalance -
January 1, 2005


7,697,185

$
77,000

$
2,797,000

$
(1,410,000
)
$
1,464,000Net loss for
the year ended
 December 31, 2005











(285,000
)

(285,000
)Balance -
December 31, 2005


7,697,185


77,000


2,797,000


(1,695,000
)

1,179,000Conversion
of due to stockholder to paid-in capital








300,000





300,000Net loss for
the year ended 
 December 31, 2006











(383,000
)

(383,000
)Balance -
December 31, 2006


7,697,185


77,000


3,097,000


(2,078,000
)

1,096,000Net loss for
the year ended 
 December 31, 2007











(335,000
)

(335,000
)Balance -
December 31, 2007


7,697,185

$
77,000

$
3,097,000

$
(2,413,000
)
$
761,000See notes
 to consolidated financial statements
F-5U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Adjustments to reconcile to net cash provided by operating 
 activities:Depreciation and amortization


649,000


709,000


682,000Deferred income tax provision





50,000


(110,000
)Changes in:Accounts receivable


23,000


48,000


124,000Accounts receivable - stockholder


130,000


17,000


(22,000
)Other current assets


87,000


33,000


47,000Accounts payable and accrued expenses


(53,000
)

61,000


23,000Other current liabilities








(39,000
)Net cash provided by operating activities


501,000


535,000


420,000Cash flows
 from investing activities:Investment in unconsolidated entities


(20,000
)




Property and equipment








(2,603,000
)Progress payments - RMC Gamma Knife








1,282,000Decrease (increase) in cash held in escrow


61,000


(5,000
)

(2,000
)Net cash used in investing activities


41,000


(5,000
)

(1,323,000
)Cash flows from financing
activities:Repayment of capital lease and loan obligations


(467,000
)

(655,000
)

(505,000
)Cash received on financing of equipment








1,319,000Net cash used in financing activities


(467,000
)

(655,000
)

814,000Net change
 in cash and cash equivalents


75,000


(125,000
)

(89,000
)Cash and cash equivalents -
 beginning of year


297,000


422,000


511,000Cash and
 cash equivalents - end of year

$
372,000

$
297,000

$
422,000Supplemental
 disclosures of cash flow information:Cash paid for:Interest

$
168,000

$
228,000

$
252,000Supplemental
 disclosures of noncash activities:Conversion of due to stockholder to paid-in-capital

$


$
300,000

$
See notes to
consolidated financial statements
F-6U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES

NOTE A  ORGANIZATION AND
BUSINESS

U.S. NeuroSurgical, Inc.
(USN), a Delaware Corporation, was organized in July 1993 for the purpose of
owning and operating stereotactic radiosurgery centers, utilizing the Gamma
Knife technology. USN currently owns and operates two Gamma Knife centers, one
on the premises of Research Medical Center (RMC) in Kansas City, Missouri, and
one on the premises of New York University Medical Center (NYU) in New York,
New York. Management continues to explore opportunities to open additional
Gamma Knife centers. USNs business strategy is to provide a mechanism whereby
hospitals, physicians, and patients can have access to Gamma Knife treatment
capability, a high capital cost item. USN provides the Gamma Knife to medical
facilities on a cost per treatment basis. USN owns the Gamma Knife units, and
is reimbursed by the facility where it is housed, based on utilization.

During the fourth quarter of
2007, USN formed a new wholly-owned subsidiary, USN Corona, Inc. There was no
activity within this subsidiary except for its investments in Corona Gamma
Knife, LLC and Neuropartners, LLC, which were formed to develop and manage a
Gamma Knife center in California.

NOTE B - THE COMPANY AND ITS
SIGNIFICANT ACCOUNTING POLICIES

[1]
Basis of
 presentation and consolidationThe consolidated financial
 statements include the accounts of USN and its wholly owned subsidiaries,
 U.S. NeuroSurgical Physics, Inc. and USN Corona, Inc. All significant intercompany
 balances and transactions have been eliminated in consolidation.[2]
Cash and
 cash equivalents:The Company considers all
 highly liquid debt instruments purchased with a maturity of three months or
 less to be cash equivalents.[3]
Revenue
 recognition:Patient revenue is
 recognized when the Gamma Knife procedure is rendered.[4]
Long-lived
 assets:The Company reviews its
 long-lived assets for impairment whenever events or changes in circumstances
 indicate that the carrying amount of an asset may not be recoverable.[5]
Depreciation
 and amortization:The Gamma Knives are being
 depreciated on the straight-line method over an estimated useful life of
 seven years. The related costs incurred to reload the cobalt are being
 amortized on a straight-line method over an estimated useful life of five
 years. Leasehold improvements are being amortized on the straight-line method
 over 7 to 20 years, the shorter of useful life, or the life of the leases.
 Office furniture and computers are being depreciated on the straight-line
 method over their estimated useful lives ranging from 3 to 7 years.
 Depreciation expense for 2007, 2006, and 2005 was $649,000, $709,000, and
 $682,000, respectively.[6]
Income
 taxes:Income taxes are accounted
 for under the asset and liability method. Deferred tax assets and liabilities
 are recognized for the future tax consequences attributable to differences
 between the financial statement carrying amounts of existing assets and liabilities
 and their respective tax bases. Deferred tax assets and liabilities are
 measured using enacted tax rates expected to apply to taxable income in the
 years in which those temporary differences are expected to be recovered or
 settled. The effect on deferred tax assets or liabilities of a change in tax
 rates is recognized in income in the period that includes the enactment date.F-7

U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES

Valuation allowances are
 established when necessary to reduce tax assets to amounts more likely than
 not to be realized.NOTE B - THE COMPANY AND ITS
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

[7]
Earnings
 per share:Earnings per share are
 computed by dividing earnings available to common stockholders by the weighted
 average shares outstanding for the period. There were no common stock
 equivalents during 2007, 2006, and 2005, and therefore, no potential dilution
 for the periods presented.[8]
Advertising
 costs:The Company follows the
 policy of charging the costs of advertising to expense as incurred. There
 were no advertising costs in 2007, 2006, or 2005.[9]
Bad
 debts:The Company evaluates each
 of its accounts receivable individually and provides a charge to income that
 is appropriate, in the opinion of management, to absorb probable credit
 losses.[10]
Estimates
 and assumptions:The preparation of
 financial statements in conformity with accounting principles generally
 accepted in the United States of America requires management to make
 estimates and assumptions that affect the reported amounts of assets and
 liabilities and contingent assets and liabilities at the date of the
 financial statements and the reported amounts of revenues and expenses during
 the reporting period. Actual results could differ from those estimates.[11]
Fair
 values of financial instruments:The estimated fair value
 of financial instruments has been determined based on available market
 information and appropriate valuation methodologies. The carrying amounts of
 cash, accounts receivable, other current assets and accounts payable
 approximate fair value at December 31, 2007 and 2006 because of the short
 maturity of these financial instruments. The carrying values of the
 obligations under capital leases and loans payable approximate fair value
 because the interest rates on these instruments approximate the market rates
 at December 31, 2007 and 2006.[12]
Credit
 risk:At times, the Company may
 have cash and cash equivalents at a financial institution in excess of
 insured limits. The Company places its cash and cash equivalents with high
 credit quality financial institutions whose credit ratings are monitored by
 management to minimize credit risk. The uninsured portion of cash balances
 held in two banks totals $20,967 at December 31, 2007. Accounts receivable
 consist primarily of amounts due from two medical centers. Historically,
 credit losses on accounts receivable have not been significant.[13]
Asset
 retirement obligations:In June 2001, the
 Financial Accounting Standards Board (FASB), issued Statement No. 143,
 Accounting for Asset Retirement Obligations, (FAS143) effective for the
 fiscal years beginning after June 15, 2002. Accordingly, the Company recorded
 liabilities for legal obligations associated with the retirement of tangible
 long-lived assets based on the estimated fair value of such liabilities. The
 estimated costs of these obligations is capitalized as costs of the assets
 subject to the retirement obligations and amortized over the lives of the
 assets.F-8

U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES[14]
Reclassifications:Certain prior year
 balances have been reclassified to conform to current year presentation.NOTE B - THE COMPANY AND ITS
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)[15]
Recent
 Accounting and Regulatory PronouncementsCurrently EffectiveIn February 2006, The FASB
 issued SFAS No. 155, Accounting for Certain Hybrid Financial Instrumentsan
 amendment of FASB Statements No. 133 and 140. This statement amends
 Statements No. 133 and 140 by: permitting fair value remeasurement for any
 hybrid financial instrument with an embedded derivative that otherwise would
 require bifurcation; clarifying which interest-only strips and principal-only
 strips are not subject to the requirements of Statement No. 133; establishing
 a requirement to evaluate interests in securitized financial assets to
 identify interests that are freestanding derivatives or that are hybrid
 financial instruments that contain an embedded derivative requiring
 bifurcation; clarifying that concentrations of credit risk in the form of
 subordination are not embedded derivatives; and amending Statement No. 140 to
 eliminate the prohibition on a qualifying special-purpose entity from holding
 a derivative financial instrument that pertains to a beneficial interest
 other than another derivative financial instrument. The statement is
 effective for fiscal years beginning after September 15, 2006. The adoption
 of this standard is not anticipated to have a material impact on financial
 condition, results of operations or cash flows.In July 2006, the FASB
 issued FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in
 Income Taxesan interpretation of FASB Statement 109, which provides
 guidance on the measurement, recognition, and disclosure of tax positions
 taken or expected to be taken in a tax return. The interpretation also
 provides guidance on derecognition, classification, interest and penalties,
 and disclosure. FIN 48 prescribes that a tax position should only be
 recognized if it is more-likely-than-not that the position will be sustained
 upon examination by the appropriate taxing authority. A tax position that
 meets this threshold is measured as the largest amount of benefit that is
 more likely than not (greater than 50 percent) realized upon ultimate
 settlement. The cumulative effect of applying FIN 48 is to be reported as an
 adjustment to the beginning balance of retained earnings in the period of
 adoption. FIN 48 is effective for fiscal years beginning after December 15,
 2006. The adoption of this standard did not have a material impact on
 financial condition, results of operations or cash flows.Effective in Future YearsIn September 2006, the FASB
 issued SFAS No. 157, Fair Value Measurements. SFAS 157 establishes a
 framework for measuring fair value in generally accepted accounting
 principles (GAAP), and expands disclosures about fair value measurements.
 While the Statement applies under other accounting pronouncements that
 require or permit fair value measurements, it does not require any new fair
 value measurements. SFAS No. 157 defines fair value as the price that would
 be received to sell an asset or paid to transfer a liability (an exit price)
 in an orderly transaction between market participants at the measurement
 date. In addition, the Statement establishes a fair value hierarchy, which
 prioritizes the inputs to valuation techniques used to measure fair value
 into three broad levels. Lastly, SFAS No. 157 requires additional disclosures
 for each interim and annual period separately for each major category of
 assets and liabilities. The Statement is effective for financial statements
 issued for fiscal years beginning after November 15, 2007, and interim
 periods within those fiscal years. Management does not expect the adoption of
 this Statement to have a material impact on the Companys financial
 statements.In February 2007, the FASB
 issued SFAS 159, The Fair Value Option for Financial Assets and Financial
 Liabilities, including an amendment of FASB Statement No. 115, which permits
 entities to choose to measure many financial instruments and certain other
 items at fair value and also establishes fair presentation and disclosure
 requirements designed to facilitate comparisons between entities that choose
 different measurement attributes for similar types of assets and liabilities.
 SFAS 159 is effective for financial statements issued for fiscal years
 beginning after November 15, 2007. The Company is currently evaluatingF-9

U.S. NEUROSURGICAL, INC. AND SUBSIDIARIESthe potential impact, if
 any, of the adoption of SFAS 159 on the Companys consolidated financial
 position and results of operations.NOTE B - THE COMPANY AND ITS
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)In December 2007, the FASB
 issued SFAS 141(R), Business Combinations, which replaces SFAS 141. This
 Statement establishes principles and requirements for how an acquirer
 recognizes and measures in its financial statements the identifiable assets
 acquired in the business combination, liabilities assumed and any
 non-controlling interest in the acquiree as well as the goodwill acquired in
 a business combination. SFAS 141(R) also establishes disclosure requirements
 which will enable users to evaluate the nature and financial effects of the
 business combinations. SFAS 141(R) is effective for fiscal years beginning
 after December 15, 2008. The Company is currently evaluating the potential
 impact of the adoption of SFAS 141(R) on the Companys consolidated financial
 position and results of operations.In December 2007, the FASB
 issued SFAS 160, Noncontrolling Interests in Consolidated Financial
 Statements  an Amendment of ARB No. 51, which establishes accounting and
 reporting standards for ownership interests in subsidiaries held by parties
 other than the parent, the amount of consolidated net income attributable to
 the parent and to the non-controlling interest, changes in a parents
 ownership interest, and the valuation of retained noncontrolling equity
 investments when a subsidiary is deconsolidated. SFAS 160 also establishes
 expanded disclosure requirements that clearly identify and distinguish
 between the interest of the parents owners and the interests of the
 noncontrolling owners of a subsidiary. SFAS 160 is effective for fiscal years
 beginning after December 15, 2008. The Company is currently evaluating the
 potential impact, if any, of the adoption of SFAS 160 on the Companys
 consolidated financial position and results of operations.NOTE C - AGREEMENTS WITH
RESEARCH MEDICAL CENTER (RMC)[1]
Gamma
 Knife neuroradiosurgery equipment agreement:USN entered into a
 neuroradiosurgery equipment agreement (the equipment agreement) with RMC, a
 stockholder of the Company, for a period of 21 years, which commenced, with
 the completion of the neuroradiosurgery facility (the facility) in
 September 1994. The equipment agreement, among other matters, requires USN to
 provide (i) the use of the Gamma Knife equipment (the equipment) to RMC,
 (ii) the necessary technical personnel for the proper operation of the
 equipment, (iii) sufficient supplies for the equipment, (iv) the operation,
 maintenance and repair of the equipment, (v) all basic hardware and software
 updates to the equipment and, (vi) an uptime guarantee. In return, RMC pays
 USN 80% of RMCs fees, subject to adjustments, for the use of the equipment
 and the facility. The agreement also provides for USN to establish for the
 benefit of RMC an escrow account funded with an amount equal to one months
 average of the compensation payable to USN. USN is the owner of and entitled
 to the income from the escrow account so long as no event of default has
 occurred. As of December 31, 2007 and 2006, the escrow account balance was
 $52,000 and $113,000, respectively. The equipment agreement terminates
 automatically upon termination of the ground lease agreement (see Note C[2]).
 The Company derived patient revenue from the RMC center of $603,000, $1,015,000,
 and $1,134,500, for 2007, 2006, and 2005, respectively.In April 2005, the Company
 purchased and installed a new Gamma Knife at RMC to replace the existing
 equipment. The cost to purchase and install the new equipment was $2,606,000.[2]
Ground
 lease agreement:USN constructed a facility
 in Kansas City, Missouri on property which the Company leases from RMC. The
 lease term is for a period of 21 years commencing September 1994. The lease
 provides for rent at $3,600 per annum. The terms of the lease include
 escalation clauses for increases in certain operating expenses and for
 payment of real estate taxes and utilities. Title to all improvements upon
 the land vests in RMC.F-10

U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES

NOTE D - AGREEMENT WITH
NEW YORK UNIVERSITY ON BEHALF OF NEW YORK
UNIVERSITY MEDICAL CENTER (NYU)

During November 1996, USN
entered into a neuroradiosurgery equipment agreement (NYU agreement) with NYU
for a period of seven years (the term), with an option for NYU to extend the
term for successive three-year periods or to purchase the Gamma Knife equipment
at an appraised market value price. USN may negotiate the purchase price and
upon failure of the parties to agree may request that the facility be closed.
All costs associated with closing and restoring the facility to its original
condition are the responsibility of USN. The equipment agreement, among other
matters, requires USN to provide (i) the use of the Gamma Knife equipment to
NYU, (ii) training necessary for the proper operation of the Gamma Knife
equipment, (iii) sufficient supplies for the equipment, (iv) the repair and
maintenance of the equipment, (v) all basic hardware and software upgrades to
the equipment and, (vi) an uptime guarantee. In return, NYU pays USN a
scheduled fee based on the number of patient procedures performed. The Company
derived patient revenue from the NYU center of $1,031,000, $968,000, and
$973,500, for 2007, 2006, and 2005, respectively.

The NYU agreement has been
extended from December 2004 and now expires March 2009. In addition, the fee
structure under the amendment has changed, effective December 1, 2004, to
provide for a payment to USN of a flat fee for each patient procedure
performed.

NOTE E - OBLIGATION UNDER
CAPITAL LEASE AND LOANS PAYABLE

In August 2003, USN
commenced payment on a $750,000 lease for the NYU cobalt reload, which was
originally thought to be fully funded by DVI Financial Services, Inc. (DVI).
Also in August 2003, DVI filed for protection under Chapter 11 of the U.S.
Bankruptcy Code and it was determined that DVI had failed to make payments of
$150,000 to the cobalt vendor, Elekta. Commencing September 2003, the Company
made all loan and lease payments, then owed to DVI or its successor, into an
escrow account held by the Companys attorney and commenced negotiations for a
resolution to the underfunding of the payments to Elekta. During February 2004,
the Company paid $50,000 of the amount owed to Elekta. The Company released the
escrowed amounts to DVI or its successor in payment of all loan and lease
obligations through March 15, 2004 and reached an agreement that the amount
owed to DVI or its successor for the NYU cobalt reload was equal to $560,000
representing the amount funded by DVI of $582,000 reduced by a payment made by
USN during August 2003. In April 2004, the Company refinanced the lease for
$728,000 which was used to repay $560,000 owed to DVI or its successor, to pay
the remaining $100,000 plus sales tax owed to Elekta and to refund $50,000 to
the Company for the payment made to Elekta during February 2004. The agreement
with SMT Leasing required 36 monthly payments of $23,107, interest at 8.883%
and was collateralized by the Gamma Knife at NYU. The final payment for this
lease was April, 2007.

In 2005, the Company
purchased a replacement Gamma Knife (Knife 3) at the RMC site and has financed
this purchase with a capital lease arrangement with SMT Leasing. The lease
agreement provides that any progress payments made to the Gamma Knife
manufacturer bear interest at the 60-day U.S. Treasury note rate, with interest
only payments every 30 days until installation is completed and accepted. Upon
equipment acceptance, the lease obligation repayment begins. Such lease terms
require 72 monthly payments of $46,602, at an implicit interest rate of 8.4%.

F-11

U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES

NOTE E - OBLIGATION UNDER
CAPITAL LEASE AND LOANS PAYABLE (CONTINUED)

The obligations under the
capital leases and loans payable are as follows:

December 31,2007

2006Capital leases - Gamma
Knife

$
1,611,000

$
2,078,000Less current portion


(434,000
)

(467,000
)$
1,177,000

$
1,611,000Future payments as of
December 31, 2006 on the equipment leases and loans are as follows:

Year EndingDecember 31,2008

$
559,0002009


559,0002010


559,0002011 and thereafter


187,0001,864,000Less interest


(253,000
)Present value of net
 minimum obligation

$
1,611,000The Companys Gamma Knives
are held under capital leases and amortization is included in depreciation
expense.

NOTE F - ASSET RETIREMENT
OBLIGATIONS

During 2003, the Company
adopted FAS 143 and recorded asset retirement obligations of $200,000 based
upon estimated amounts, consisting principally of removal of Gamma Knives and
disposal of regulated materials and the restoration of facilities at NYU and
RMC. The pro forma amount of the liability as of January 1, 2002 and December
31, 2002 would also approximate $200,000. Such liabilities have been measured
using current information, current assumptions and current interest rates and
have been recorded with a corresponding increase in the carrying value of the
Gamma Knives. The Company is amortizing such costs over the lives of the
respective useful lives from inception.

NOTE G - CONCENTRATIONS

For 2007, 2006, and 2005,
the Company derived all of its patient revenue from two hospitals. These two
hospitals also accounted for 100% of the accounts receivable at December 31,
2007 and 2006.

The Company has been
dependent on one manufacturer who sells, supplies and services the Gamma Knife.

F-12

U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES

NOTE H - TAXES

The components of the income
tax provision (benefit) are as follows:

Year Ended December 31,2007

2006

2005Current:Federal

$


$


$
State














Deferred:Federal





40,000


(78,000
)State





10,000


(32,000
)


50,000


(110,000
)$


$
50,000

$
(110,000
)A reconciliation of the tax
provision (benefit) calculated at the statutory federal income tax rate with
amounts reported follows:

Year Ended December 31,2007

2006

2005Income
  tax (benefit) at the federal statutory rate

$
(114,000
)
$
(113,000
)
$
(92,000
)State
  income tax (benefit), net of federal taxes


(17,000
)

(17,000
)

(18,000
)Other


(8,000
)

22,000


Change
  in valuation allowance


139,000


158,000


Income
  tax provision (benefit)

$


$
50,000

$
(110,000
)Items which give rise to
deferred tax assets and liabilities are as follows:

December 31,2007

2006Deferred tax asset:Net operating
loss

$
310,000

$
260,000Excess of book
depreciation over tax
  depreciation


35,000


15,000345,000


275,000Deferred tax
liability:Net effect of
the conversion from accrual
  basis of accounting to cash basis accounting for tax purposes primarily
  related to accounts receivable, prepaid expenses, and accounts payable


(48,000
)

(117,000
)297,000


158,000Valuation
allowance


(297,000
)

(158,000
)Net deferred
tax asset

$


$
The Company adopted the
provisions of FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, effective
January 1, 2007. FIN 48 provides a comprehensive model for how the Company
should recognize, measure, present, and disclose in its financial statements
uncertain tax positions that the Company
F-13
U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES

NOTE H  TAXES (CONTINUED)

has taken or expects to take
on tax return. The Company does not have any unrecognized tax benefits as
defined by FIN 48 and therefore there was no effect on the Companys financial
position or results of operations as a result of implementing FIN 48.

The Company files income tax
returns in the U.S. federal jurisdiction and the state of Maryland. With few
possible exceptions, the Company is no longer subject to U.S. or state income
tax examinations by tax authorities for years before 2004.

NOTE I - LITIGATION

The Company is involved in
certain claims and legal actions from time-to-time arising in the ordinary
course of business. In the opinion of management, the ultimate disposition of
any such matters has not, and is not expected to, have a material adverse
effect on the financial position of the Company.

NOTE J  COMMITMENTS
AND CONTINGENCIES

Leases:

The Company leases office
space under an operating lease expiring March 2008. The terms of the lease
include an escalation clause for a portion of certain operating expenses. At
December 31, 2007, the annual future minimum rental payments under the
operating lease and the ground lease referred to in Note C(2) are as follows:

Year Ending
  December 31,2008


$
13,6002009



3,6002010



3,6002011



3,6002012



3,600Thereafter



13,500$
41,500Rent expense was
approximately $52,000, $41,000, and $39,000, for 2007, 2006, and 2005,
respectively.

Gamma Knives:

The
Company purchased and installed a new Gamma Knife for $2,606,000 to replace the
existing equipment at the RMC site. The Company has obtained lease financing in
connection with this purchase of the Gamma Knife.

The
Company is required to reload cobalt at each facility approximately every 5
years. The cobalt at RMC was reloaded in 2000 at a cost of approximately
$800,000 and cobalt at NYU was reloaded in 2003 at a cost of approximately
$803,000.

Product liability:

Although USN
does not directly provide medical services, it has obtained professional
medical liability insurance, and has general liability insurance as well. USN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.
F-14
U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES

NOTEK- EMPLOYEES
401(K)ANDIRA PLANS

The Company discontinued its
401(k) on December 31, 2006. The Company established a Company IRA covering all
employees. The plan allows participants to make pre-tax contributions and the
Company may, at its discretion, match certain percentages of the employee
contribution. Amounts contributed to the plan are deposited into a trust fund
administered by independent trustees. The Company made no discretionary
matching 401(k) or IRA contribution for 2007 and 2006.

NOTEL- RELATEDPARTYTRANSACTIONS

[1]
The amount due to
  stockholder is due on demand without interest. This amount was converted to
  paid-in capital during 2006.[2]
The Company and its
  president are parties to an employment agreement giving either party the
  option to terminate employment by giving the other party six-months written
  notice. The presidents compensation for 2007, 2006, and 2005, was $225,000,
  $300,000 and $300,000, respectively. The president voluntarily accepted
  reduced compensation for three months in 2007.NOTEM QUARTERLYRESULTS OFOPERATIONS(UNAUDITED)

The following is a summary
of the unaudited 2007 quarterly results of operations: (in thousands)

Three Months EndedMarch 31

June 30

September 30

December 312007Revenue

$
462

$
392

$
376

$
408Income (loss)
from operations


(87
)

(157
)

62


2Net income
(loss)


(131
)

(196
)

26


(34
)Basic and
diluted income (loss) per common share

$
(0.02
)
$
(0.03
)
$
0.00

$
0.002006Revenue

$
506

$
528

$
414

$
554Income (loss)
from operations


(68
)

(24
)

(117
)

84Net income
(loss)


(86
)

(113
)

(169
)

35Basic and
diluted income (loss) per common share

$
(0.01
)
$
(0.01
)
$
(0.02
)
$
0.012005Revenue

$
476

$
664

$
546

$
432Income (loss)
from operations


(119
)

41


38


(115
)Net
loss


(151
)

(41
)

(3
)

(90
)Basic and
diluted loss per common share

$
(0.02
)
$
(0.01
)
$
0.00

$
(0.01
)F-15