UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 Form 10-K x
ANNUAL
 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2008oro
TRANSITION
 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For 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
 incorporation or organization)

(I.R.S.
 Employer 
 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 Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes o No x Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Exchange Act. Yes o
No x Indicate by check mark
whether the issuer (1) has filed all reports required to be filed by Section 13
or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes x
No
o Indicate by check mark if disclosure of delinquent filers in response to
Item 405 of Regulation S-K is not contained herein and will not be contained,
to the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company.
 Large accelerated filer o
Accelerated filer oNon-accelerated filer o
 (Do not check if a smaller reporting
 company)
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 As of March 13, 2009, the
aggregate market value of issuers Common Stock held by non-affiliates was
approximately $182,000, based upon the average of the bid and asked prices as
reported on the OTC Bulletin Board. As of March 13, 2009, there were
outstanding 7,697,185 shares of the issuers Common Stock. $.01 par value. Documents incorporated by
reference:  None    FORM 10-K

U.S. Neurosurgical, Inc.Form 10-K for the Fiscal Year Ended December
31, 2008

Table of Contents

PART
 I

3Item
 1.
Business
3Item
 1A.
Risk
 Factors
6Item
 2.
Properties
8Item
 3.
Legal
 Proceedings
8Item
 4.
Submission
 of Matters to a Vote of Security Holders
9PART
 II

10Item
 5.
Market For Registrants Common Equity, Related Stockholder Matters and
 Issuer Purchases of Equity Securities
10Item
 6.
Selected
 Financial Data
11Item
 7.
Managements
 Discussion and Analysis of Financial Condition and Results of Operation
11Item
 8.
Financial
 Statements and Supplementary Data
13Item
 9.
Changes
 in and Disagreements With Accountants on Accounting and Financial Disclosure
13Item
 9A(T).
Controls
 and Procedures
14Item
 9B.
Other
 Information
16PART
 III

17Item
 10.

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

17Item
 11.
Executive
 Compensation
18Item
 12.
Security
 Ownership of Certain Beneficial Owners and Management and Related Stockholder
 Matters
19Item
 13.
Certain
 Relationships and Related Transactions, and Director Independence
20Item
 14.
Principal
 Accounting Fees and Services
20PART
 IV

22Item
 15.
Exhibits,
 Financial Statement Schedules
222

PART I

Item 1.
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 are included in Item 1A, Risk Factors, and may also 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. In January 2009, the Company
opened a new center, the Southern California Regional Gamma Knife Center, at
the San Antonio Community Hospital (SACH) in Upland, California.

Management
continues to explore opportunities to organize and participate in additional
Gamma Knife centers. USNs business strategy is to provide cost-effective
approaches that allow hospitals, physicians, and patients access to Gamma Knife
treatment capability, a high capital cost item. USN provides the Gamma Knife to
medical facilities on a cost per treatment basis. The Companys business
model is to own, or hold an interest in, the Gamma Knife units, and charge the
medical facility, where the unit is housed and maintained, based on
utilization.

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

3

with its RMC,
NYU and SACH Gamma Knife centers, if circumstances support the opening
additional centers, USN would seek cooperative ventures with these facilities,.

USN
believes that, as of 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.

4

For the year ended December 31, 2008, 2007 and 2006, USN derived
revenues from the RMC center of approximately $720,000, $603,000 and $901,000,
respectively, as a result of 64, 44 and 67 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. In 2008, in consideration for the Company upgrading the
Gamma Knife equipment to Leksells new Perfexion Gamma Knife system, NYU agreed
to an extension of the arrangements with respect to the NYU center though 2021.
The cost of the upgrade is approximately $3,600,000 and will be funded through
a 7-year lease with Elekta Finance.

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, 2008, 2007,
and 2006, USN derived revenues from the NYU center of approximately $1,031,000,
$1,031,000 and $968,000, respectively, as a result of 163, 164 and 152
procedures performed, respectively, during such periods.

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 in Upland, California. The
Company will participate 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 Neuropartners LLC, which purchased the Gamma Knife
equipment. USNC is a 27% owner of CGK and a 20% owner of Neuropartners LLC. In
addition, USNC will receive fees for management services relating to the
facility.

Construction
of the SACH Gamma Knife center was completed in December 2008 and the first
patient was treated in January of 2009. The project has been funded principally
by outside investors, and USNs investment to date in the SACH center has been
minimal.

Future Gamma Knife Centers

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.

5

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.

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.

6

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.

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. For
example, the cobalt for the previous Gamma Knife in the NYU facility was
reloaded in August 2003 and the costs were approximately $800,000.

7

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.
Properties.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 2008 and now expires in 2021.

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 RMC relating to the Kansas City Gamma
Knife center. This lawsuit arose out of USNs agreement with RMC, 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 sought to
recover amounts representing such underpayments.

8

On July 3,
2008, following the trial at the Circuit Court, the jury found in favor of USN
and assessed damages at $1,919,124. The Circuit Court ordered that judgment be
entered in favor of the Company in that amount. The defendants request for a
new trial was denied, and the defendant has appealed the verdict. With this
appeal pending, the prospects for payment of any amounts to the Company remain
uncertain.

Patients
continue to receive treatment at the Kansas City center, but payments for those
treatments are being calculated by RMC according to the method that USN has
contested, and which is the subject of the lawsuit. Management believes that
the only issue is the extent to which USN will benefit through this lawsuit
with respect to prior periods.

Although
patients continue to be treated in Kansas City, it is not clear how the
presence, or the ultimate outcome, of the lawsuit will impact the Companys
working relationship with RMC. RMC is a unit of HCA, Inc., a very large health
services organization which has substantially greater resources than are
available to USN. Nevertheless, USN has made a substantial investment in Kansas
City to build its business and provide quality healthcare to patients in the
Kansas City community in reliance on the RMCs performance under their
agreement, and thus USN intends to pursue its rights aggressively in an effort
to protect that business.

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

9

PART II

Item 5.
Market For Registrants Common Equity, Related Stockholder Matters
 and 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, 2007 through December 31, 2008.

Period

High Bid

Low BidJanuary 1 
 March 31, 2007

.11


.08April 1 -
 June 30, 2007

.08


.05July 1 
 September 30, 2007

.06


.05October 1 
 December 31, 2007

.07


.04January 1 
 March 31, 2008

.05


.05April 1 -
 June 30, 2008

.35


.09July 1 
 September 30, 2008

.25


.15October 1 
 December 31, 2008

.19


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

As of March
13, 2009, 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 2008, the Company did not purchase any of its own equity
securities.

10

Item 6.
Selected Financial Data.Set forth
below is the selected financial data pertaining to the financial condition and
operations of the Company for the years ended December 31, 2004 through 2008.
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 31,2008

2007

2006

2005

2004(in thousands, except per share amounts)Operating Revenue

$
1,751

$
1,638

$
2,002

$
2,108

$
2,403Expenses:Patient expense


671


766


908


816


780General and administrative


961


1,052


1,245


1,447


1384Interest expense


126


168


228


252


59Cumulative effect of accounting method
 change (net of applicable income tax of $56,000)Net Income (loss)


4


(335
)

(383
)

(285
)

123Basic and diluted Income
 (loss) per common share:

$
0.00

$
(0.04
)
$
(0.05
)
$
(0.04
)
$
0.02December 31,2008

2007

2006

2005

2004Balance Sheet Data:Cash
 and cash equivalents

$
605

$
372

$
297

$
422

$
511Total
 assets


2,197


2,641


3,496


4,663


4,201Long-term
 obligations


901


1,377


1,811


2,300


1,652Stockholders
 equity


765


761


1,096


1,179


1,464Item 7.
Managements Discussion and Analysis of Financial Condition and
 Results of Operation.Results of operations

2008
Compared to 2007

Patient
revenue increased 7% to $1,751,000 in 2008 as compared to $1,638,000 in 2007.
The increase in revenue is primarily due to an increase in patient volume at
both the NYU and RMC centers.

Patient
expenses declined 12% to $671,000 in 2008 from $766,000 in 2007. The decrease
was primarily due to lower maintenance costs for the equipment. Selling,
general and administrative expense (SG&A) decreased 9% to $961,000 in
2008 from $1,052,000 in the previous year. This decrease in SG&A resulted
principally from lower payroll costs, as


11



well as continued steps taken by the Company to streamline overall
administrative costs. Interest expense decreased 25% to $126,000 in 2008 from
$168,000 in 2007. This decrease was due to repayment of the NYU loan. The
Company reported a net profit of $4,000 in 2008, which compares to the net loss
of $335,000 in the prior year. This improvement was due to the increase in
patient revenue and decrease in patient expense and interest expense in 2008.

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 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.

Liquidity
and capital resources

At December
31, 2008 the Company had working capital of $164,000 as compared to $62,000 at
December 31, 2007. Cash and cash equivalents at December 31, 2008 were $605,000
as compared to $372,000 at December 31, 2007.

Net cash
provided by operating activities was $658,000 in 2008 as compared with $501,000
for the same period a year earlier. Depreciation and amortization was $574,000
in 2008 as compared to $649,000 in 2007.

Net cash
provided by investing activities for the year ended 2008 was $10,000 as
compared to $41,000 in the year ago period.

For the
year ended December 31, 2008, net cash used in financing activities was
$435,000 as compared to $467,000 in 2007.

Off-balance sheet arrangements

None

12

Tabular disclosure of contractual obligations

The
following is a summary of the Companys contractual obligations at December 31,
2008:

Contractual Obligations
 
 
 Payments due by periodTotal
 
 
 Less than 1
 year
 
 
 1-3
 years
 
 
 3-5
 years
 
 
 More than
 5 yearsCapital (finance) lease obligations
 
 
 $
 1,176,000
 
 
 $
 475,000
 
 
 $
 701,000Asset retirement obligation
 
 
 $
 200,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 $
 200,000Total
 
 
 $
 1,376,000
 
 
 $
 475,000
 
 
 $
 701,000
 
 
 
 
 
 
 $
 200,000Critical 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 8.
Financial Statements and Supplementary Data.The
financial statements and supplementary data required by this item are set forth
in this Annual Report on Form 10-K beginning at page F-1.

Item 9.
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

13

statement disclosure, or auditing scope of procedure, which have not
been resolved to the satisfaction of the former accountant.

Item 9A(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 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:

14

(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.

Our
management, including our Chief Executive Officer, and assisted by our Lead
Director, assessed the effectiveness of the Companys internal control over
financial reporting as of December 31, 2008. 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 as of December 31, 2008 that 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. This material weakness contributed to control deficiencies, as
well as a material audit adjustment to the 2008 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 this material
weakness, management has concluded that as of December 31, 2008, 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

15

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.

Changes in Internal Control over Financial Reporting

During
2008, the Company did 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.
Effective controls were 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.

Other than
the foregoing, 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, 2008 that have materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial reporting.

Item 9B.
Other Information.Not
applicable.

16

PART III

Item 10.
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

64

President
 & ChairmanWilliam F.
 Leimkuhler

57

DirectorCharles H.
 Merriman, III

74

DirectorSusan
 Greenwald

63

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, III has 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.

Susan
Greenwald has 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

17

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, 2008, the Board of
Directors held one meeting, which was 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, 2008, all filing requirements
applicable to its officers and directors were complied with by such
individuals.

Item 11.
Executive Compensation.The
information below sets forth the compensation for the year ended December 31,
2008, 2007, and 2006, for the Chief Executive Officer of the Company.

Summary
 Compensation TableName andPrincipal Position


Annual CompensationYear


Salary($)Alan Gold



2008


$
300,000President
 & Director



2007


$
225,0002006


$
300,00018

Director Compensation

During
2008, 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 12.
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)

1,140,246


14.5
%2400
 Research Blvd.Rockville,
 MD 20850William F.
 Leimkuhler

100,000


1.3
%43 Salem
 Straits RoadDarien, CT
 06820Charles H.
 Merriman III

130,672


1.7
%5507 Cary
 St. RoadRichmond, VA
 23226Stanley S. Shuman (3)

2,688,000


34.2
%711 Fifth
 AvenueNew York, NY
 10022Allen &
 Company Incorporated

1,847,000


23.4
%711 Fifth
 AvenueNew York, NY
 10022All
 Directors and Officers of USN

1,370,918


19.5
%as a group
 (2) (three persons)(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.19

Item 13.
Certain Relationships and Related Transactions, and Director
 Independence.None

Item 14.
Principal Accounting Fees and Services.Audit
Fees. Audit Fees represent fees for services rendered in connection with the
annual audit and quarterly reviews of the Companys financial statements. For
the years ended December 31, 2008, 2007 and 2006, the Company paid or accrued
$70,000, $56,052 and $39,336, respectively, for Audit Fees to Goodman and
Company, LLP.

Audit-Related
Fees. Audit-Related Fees represent fees for services rendered in connection
with assurance and related services that are reasonably related to the
performance of the audit or review of the financial statements and are not
reported as Audit Fees. For the years ended December 31, 2008, 2007 and 2006,
the Company did not pay or accrue any amounts for Audit Related Fees.

Tax Fees.
Tax Fees represent fees for services rendered in connection with tax
compliance, tax advice and tax planning. For the years ended December 31, 2008,
2007 and 2006, the Company paid $9,700, $9,500 and $9,879 for Tax Fees to
Goodman and Company, LLP.

All
Other Fees. All Other Fees represent fees for services rendered by the
Companys principal accountants other than those described above. For the years
ended December 31, 2008, 2007 and 2006, the Company did not pay or accrue any
amounts for these services.

20

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.

21

PART IV

Item 15.
Exhibits, Financial Statement Schedules.(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-2Balance Sheets as of December 31, 2008 and 2007

F-3Statements
 of Operations for the years ended
 December 31, 2008, 2007, and 2006.

F-4Statements
 of Changes in Stockholders Equity
 for the period January 1, 2006 through
 December 31, 2008

F-5Statements
 of Cash Flows for the year ended
 December 31, 2008, 2007, and 2006

F-6Notes to Financial Statements

F-7All
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 to22

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. None23

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
 30, 2009In
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 30,
 2009

/s/ Alan
 GoldAlan GoldPresident
 and Director(Chief
 Executive Officer)March 30,
 2009

/s/ William
 F. LeimkuhlerWilliam F.
 LeimkuhlerDirectorMarch 30,
 2009

/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, 2008 and
 2007
F-3Consolidated statements of operations
for the years
 ended December 31, 2008, 2007 and 2006
F-4Consolidated statements of
stockholders equity for the
 years ended December 31, 2008, 2007 and 2006
F-5Consolidated statements of cash flows
for the years
 ended December 31, 2008, 2007 and 2006
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. and Subsidiaries
Rockville, Maryland

We
have audited the accompanying consolidated balance sheets of U.S.
NeuroSurgical, Inc. and subsidiaries (Company) as of December 31, 2008 and
2007, 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, 2008. 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, 2008 and 2007, and the
results of their operations and their cash flows for each of the years ended in
the three-year period ended December 31, 2008, in conformity with accounting
principles generally accepted in the United States of America.

Goodman and Company, LLP
March 30, 2009

U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

December 31,2008

2007ASSETSCurrent assets:Cash and cash equivalents

$
605,000

$
372,000Accounts receivable (net of allowance for doubtful accounts of $36,000
 in 2008 and 2007)


4,000


96,000Accounts receivable - RMC


44,000


45,000Other current assets


42,000


52,000Total current assets


695,000


565,000Property and equipment:Gamma Knives (net of accumulated depreciation of $5,780,000 in 2008
 and $5,242,000 in 2007)


1,220,000


1,758,000Leasehold improvements (net of accumulated amortization of $1,812,000
 in 2008 and $1,771,000 in 2007)


230,000


266,0001,450,000


2,024,000Cash held in escrow


52,000


52,000$
2,197,000

$
2,641,000LIABILITIESCurrent liabilities:Accounts payable and accrued expenses

$
56,000

$
69,000Obligations under capital leases and loans payable - current
portion


475,000


434,000Total current liabilities


531,000


503,000Asset retirement obligations


200,000


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


701,000


1,177,000Total liabilities


1,432,000


1,880,000Commitments, 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, 2008 and 2007


77,000


77,000Additional paid-in capital


3,097,000


3,097,000Accumulated deficit


(2,409,000
)

(2,413,000
)765,000


761,000$
2,197,000

$
2,641,000See notes
 to consolidated financial statements
F-3U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

Year Ended December 31,2008

2007

2006Revenue (Notes C and D)

$
1,751,000

$
1,638,000

$
2,002,000Costs and expenses:Patient expenses


671,000


766,000


908,000Selling, general and administrative


961,000


1,052,000


1,245,0001,632,000


1,818,000


2,153,000Income (loss) from operations


119,000


(180,000
)

(151,000
)Interest expense


(126,000
)

(168,000
)

(228,000
)Interest income


11,000


11,000


20,000Other Income





2,000


26,000(115,000
)

(155,000
)

(182,000
)Income (loss) before income
 taxes


4,000


(335,000
)

(333,000
)Provision for income tax
 expense








50,000Net income
 (loss)

$
4,000

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

$
0.00

$
(0.04
)
$
(0.05
)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, 2006

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
)


761,000Net income for the year
 ended December 31, 2008










4,000



4,000Balance -
December 31, 2008

7,697,185

$
77,000

$
3,097,000

$
(2,409,000
)

$
765,000See notes
 to consolidated financial statements
F-5U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES

Consolidated
Statements of Cash Flows

Year Ended December 31,2008


2007


2006Cash flows
 from operating activities:Net income (loss)

$
4,000


$
(335,000
)

$
(383,000
)Adjustments to reconcile to net cash provided by operating
activities:Depreciation and amortization


574,000



649,000



709,000Deferred income tax provision










50,000Changes in:Accounts receivable


93,000



23,000



48,000Accounts receivable - stockholder






130,000



17,000Other current assets


10,000



87,000



33,000Accounts payable and accrued expenses


(13,000
)


(53,000
)


61,000Net
 cash provided by operating activities


668,000



501,000



535,000Cash flows
 from investing activities:Investment in unconsolidated entities






(20,000
)


Decrease (increase) in cash held in escrow






61,000



(5,000
)Net
 cash used in investing activities






41,000



(5,000
)Cash flows
 from financing activities:Repayment of capital lease and loan obligations


(435,000
)


(467,000
)


(655,000
)Net change
 in cash and cash equivalents


233,000



75,000



(125,000
)Cash and cash equivalents -
 beginning of year


372,000



297,000



422,000Cash and
 cash equivalents - end of year

$
605,000


$
372,000


$
297,000Supplemental
 disclosures of cash flow information:Cash paid for:Interest

$
126,000


$
168,000


$
228,000Supplemental
 disclosures of noncash activities:Conversion of due to stockholder to paid-in capital

$



$



$
300,000See notes to consolidated financial statements
F-6U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES

NOTEA  ORGANIZATION ANDBUSINESS

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., which carries
investments in Corona Gamma Knife, LLC and Neuropartners, LLC. Those
subsidiaries were formed to develop and manage a Gamma Knife center in
California.

NOTEB - THECOMPANY AND ITSSIGNIFICANTACCOUNTINGPOLICIES

[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 2008, 2007, and 2006 was $574,000,
 $649,000, and $709,000 respectively.F-7

U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES

NOTEB - THECOMPANY AND ITSSIGNIFICANTACCOUNTINGPOLICIES(CONTINUED)

[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. Valuation allowances are established when necessary
 to reduce tax assets to amounts more likely than not to be realized.[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 2008, 2007, and 2006, 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 2008, 2007, or 2006.[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, 2008 and 2007 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, 2008 and 2007.[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 $215,000 at December 31,
 2008. Accounts receivable consist primarily of amounts due from two medical
 centers. Historically, credit losses on accounts receivable have not been
 significant.F-8

U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES

NOTEB - THECOMPANY AND ITSSIGNIFICANTACCOUNTINGPOLICIES(CONTINUED)

[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.[14]
Reclassifications:Certain prior year
 balances have been reclassified to conform to current year presentation.[15]
Recent
 Accounting and Regulatory PronouncementsCurrently EffectiveIn
 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. The adoption of this
 Statement did not have a material impact on the Companys consolidated
 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 has not elected to implement fair value accounting for any balance
 sheet item as allowed by SFAS 159.Effective in Future YearsIn
 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 noncontrolling 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.F-9

U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES

NOTEB - THECOMPANY AND ITSSIGNIFICANTACCOUNTINGPOLICIES(CONTINUED)

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 noncontrolling
 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.In
 March 2008, the FASB issued SFAS 161, Disclosures about Derivative
 Instruments and Hedging Activities, an amendment of SFAS 133. The standard
 requires enhanced disclosures about derivative instruments and hedged items
 that are accounted for under SFAS 133 and related interpretations. The
 standard will be effective for periods beginning after November 15, 2008,
 with early adoption permitted. The standard expands the disclosure
 requirements for derivatives and hedged items and is not expected to have a
 material effect on the Companys consolidated financial position and results
 of operations.On
 October 10, 2008, the FASB issued FSP FAS 157-3, Determining the Fair Value
 of a Financial Asset When the Market for that Asset is Not Active. The FSP
 clarified the position of SFAS 157, Fair Value Measurements, in a market that
 is not active and provides an example to illustrate key consideration in
 determining the fair value of a financial asset when the market for that
 financial asset is not active. The FSP is effective upon issuance, including
 prior periods for which the financial statements have not been issued. The
 provisions of FSP FAS 157-3 did not have an impact on the Companys
 consolidated financial position and results of operations.NOTEC - AGREEMENTSWITHRESEARCHMEDICALCENTER(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, 2008 and 2007, the escrow
 account balance was $52,000. 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 $720,000, $603,000, and
 $901,000 for 2008, 2007, and 2006, 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 $3,600F-10

U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES

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.NOTED - AGREEMENTWITHNEWYORKUNIVERSITY ONBEHALF OFNEWYORKUNIVERSITYMEDICALCENTER(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, $1,031,000, and $968,000, for 2008, 2007, and 2006, respectively.

In
2004, the NYU agreement was extended through March 2009. In 2008, the NYU
agreement was extended for an additional 12 years through March 2021. To secure
this extension, USN agreed to install a new Gamma Knife Perfexion model. The
new equipment and certain space improvements, costing approximately $3,600,000
in total, was financed through a seven-year lease arrangement. The amendment
provides for a payment to USN of a flat fee for each patient procedure
performed.

NOTEE - OBLIGATIONUNDERCAPITALLEASE ANDLOANSPAYABLE

In
August 2003, USN commenced payment on a $750,000 lease for the NYU cobalt
reload, which was paid off in April 2007. In March 2009 the Company installed a
Perfexion model Gamma Knife at the NYU center with a seven year lease form
Elekta Finance. The amount financed, covering the cost of the new gamma knife
equipment and certain space improvements, is approximately $3,600,000. The
final monthly payment amount has not yet been finalized.

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%.

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

December 31,2008

2007Capital leases - Gamma
 Knife

$
1,176,000

$
1,611,000Less current portion


(475,000
)

(434,000
)$
701,000

$
1,177,000F-11

U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES

NOTEE - OBLIGATIONUNDERCAPITALLEASE ANDLOANSPAYABLE(CONTINUED)

Future payments as of
December 31, 2008 on the equipment leases and loans are as follows:

Year Ending
 December 31,2009

$
559,0002010


559,0002011 and thereafter


187,0001,305,000Less interest


(129,000
)Present value of net
 minimum obligation

$
1,176,000The
Companys Gamma Knives are held under capital leases and amortization is
included in depreciation expense.

NOTEF  ASSETRETIREMENTOBLIGATIONS

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. 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.

NOTEG - CONCENTRATIONS

For
2008, 2007, and 2006, 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, 2008 and 2007.

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

NOTEH - TAXES

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

Year Ended December 31,2008

2007

2006Current:Federal

$


$


$
State














Deferred:Federal








40,000State








10,000





50,000$


$


$
50,000F-12

U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES

NOTEH  TAXES(CONTINUED)

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

Year Ended December 31,2008

2007

2006Income tax (benefit) at the federal statutory rate

$
2,000

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





(17,000
)

(17,000
)Other


40,000


(8,000
)

22,000Change in valuation allowance


(42,000
)

139,000


158,000Income tax provision (benefit)

$


$


$
50,000Items
which give rise to deferred tax assets and liabilities are as follows:

December 31,2008

2007Deferred tax asset:Net operating loss

$
174,000

$
310,000Excess of book depreciation over tax
depreciation


88,000


35,000262,000


345,000Deferred 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


(7,000
)

(48,000
)255,000


297,000Valuation allowance


(255,000
)

(297,000
)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 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 2005.

NOTEI - 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.

F-13

U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES

NOTE J  COMMITMENTS AND CONTINGENCIES

Leases:

The
Company leases office space under an operating lease expiring March 2013. The
terms of the lease include an escalation clause for a portion of certain
operating expenses. At December 31, 2008, 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 31,2009

$
43,0002010


44,0002011


45,0002012


47,0002013


12,000$
191,000Rent
expense was approximately $ 45,000, $52,000, and $41,000, for 2008, 2007, and
2006, respectively.

Gamma
Knives:

In
2005, 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.

To
enable them to operate effectively, the radioactive cobalt in the Gamma Knives
must be replaced periodically  typically between five and seven 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.

Guarantee
of Lease Obligation

USN
Corona, Inc., the Companys wholly owned subsidiary that carries the
investments in Corona Gamma Knife, LLC and Neuropartners, LLC., is a 20%
guarantor on Neuropartners, LLCs $3.5 million seven-year lease with respect to
the Gamma Knife equipment and certain leasehold improvements at the San Antonio
Community Hospital (SACH) in Upland, California, where the equipment is
located. At the end of the seventh year, Neuropartners, LLC has the option to
purchase the Gamma Knife for $490,000.

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.

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 2008 and 2007.

F-14

U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES

NOTEL - RELATEDPARTYTRANSACTIONS

[1]
An
 amount due to stockholder of $300,000 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 2008, 2007, and
 2006, was $300,000, $225,000, and $300,000, respectively. The president
 voluntarily accepted reduced compensation for three months in 2007.NOTE M  QUARTERLY RESULTS OF OPERATIONS
(UNAUDITED)

The
following is a summary of the unaudited 2008 quarterly results of operations:
(in thousands)

Three Months EndedMarch 31

June 30

September 30

December 312008Revenue

$
535

$
390

$
497

$
329Income (loss) from operations


65


(23
)

110


(33
)Net income (loss)


31


(51
)

82


(58
)Basic and diluted income (loss) per common
share

$
0.00

$
(0.01
)
$
0.01

$
0.002007Revenue

$
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
)
$
0.01F-15