UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549  FORM 10-QSB  x
        QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
 SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2006 or o
        TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
 EXCHANGE ACT
 For the transition period from
                           to
                          .  Commission file number:  0-15586  U.S. Neurosurgical, Inc. (Exact name of small business issuer as specified 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)  (301) 208-8998 (Issuers telephone number)  Not Applicable (Former name, former address and former fiscal year, if changed since last report)  Check whether the issuer (1) filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes x    No o  Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act). Yes  o
        No  x
  As of October 27, 2006, there were outstanding 7,697,185 shares of the registrants Common Stock. $.01 par value.  Transitional Small Business Disclosure Format (check one) Yes  o
        No  x
    PART 1 - FINANCIAL
INFORMATION U.S. NEUROSURGICAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS


September 30,
2006
     
     December 31,
2005ASSETSCurrent assets:Cash and cash equivalents
     $333,000
        
     $422,000Accounts receivable (net of allowance for doubtfulaccounts of $36,000 in 2006 and 2005)
     119,000
        
     280,000Accounts receivable - stockholder
     46,000
        
     79,000Other current assets
     156,000
        
     152,000Total current assets
     654,000
        
     933,000Gamma Knife (net of accumulated depreciation of$4,446,000 in 2006 and $3,987,000 in 2005)
     2,523,000
        
     2,982,000Leasehold improvements (net of accumulatedamortization of $1,714,000 in 2006 and $1,641,000 in 2005)
     327,000
        
     400,000Total property and equipment
     2,850,000
        
     3,382,000Deferred tax asset
     240,000
        
     240,000Cash held in escrow
     112,000
        
     108,000TOTAL
     $3,856,000
        
     $4,663,000LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued expenses
     $117,000
        
     $62,000Obligations under capital leaseand loans payable - current portion
     525,000
        
     632,000Due to stockholder
     300,000
        
     300,000Deferred tax liability
     190,000
        
     190,000Total current liabilities
     1,132,000
        
     1,184,000Obligations under capital lease and loans payable - netof current portion
     1,714,000
        
     2,100,000Asset retirement obligations
     200,000
        
     200,000Total liabilities
     3,046,000
        
     3,484,000Stockholders equity:Common stock
     77,000
        
     77,000Additional paid-in capital
     2,797,000
        
     2,797,000Accumulated deficit
     (2,064,000
        )
     (1,695,000
        )Total stockholders equity
     810,000
        
     1,179,000TOTAL
     $3,856,000
        
     $4,663,000



The accompanying notes
to financial statements are an integral part hereof.




2




U.S. NEUROSURGICAL,
INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS


Three Months Ended
September 30,2006
     
     2005Revenue:Patient revenue
     $414,000
        
     $546,000Expenses:Patient expenses
     231,000
        
     201,000Selling, general and administrative
     300,000
        
     307,000531,000
        
     508,000Operating income (loss)
     (117,000
        )
     38,000Interest expense
     (57,000
        )
     (84,000
        )Interest income
     5,000
        
     3,000Loss before income taxes
     (169,000
        )
     (43,000
        )Income tax provision
     
        
     40,000Net loss
     $(169,000
        )
     $(3,000
        )Proforma basic and diluted loss per share
     $(0.02
        )
     $(0.00
        )Proforma weighted average shares outstanding
     7,697,185
        
     7,697,185


The accompanying notes
to financial statements are an integral part hereof.




3




U.S. NEUROSURGICAL,
INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS


Nine Months Ended
September 30,2006
     
     2005Revenue:Patient revenue
     $1,448,000
        
     $1,686,000Expenses:Patient expenses
     676,000
        
     617,000Selling, general and administrative
     981,000
        
     1,109,0001,657,000
        
     1,726,000Operating loss
     (209,000
        )
     (40,000
        )Interest expense
     (173,000
        )
     (203,000
        )Interest income
     14,000
        
     8,000Loss before income taxes
     (368,000
        )
     (235,000
        )Income tax benefit (provision)
     
        
     40,000Net loss
     $(368,000
        )
     $(195,000
        )Proforma basic and diluted loss per share
     $(0.05
        )
     $(0.03
        )Proforma weighted average shares outstanding
     7,697,185
        
     7,697,185



The accompanying notes
to financial statements are an integral part hereof.




4




U.S. NEUROSURGICAL,
INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS


Nine Months Ended
September 30,2006
     
     2005Cash flows from operating activities:Net loss
     $(368,000
        )
     $(195,000
        )Adjustments to reconcile net income to net cashprovided by operating activities:Depreciation and amortization
     531,000
        
     478,000Changes in operating assets and liabilities:Decrease (increase) in receivables
     194,000
        
     (7,000
        )Decrease (increase) in other current assets
     (4,000
        )
     34,000Increase in payables and other current liabilitiesand deferred tax liability
     55,000
        
     11,000Net cash provided by operating activities
     408,000
        
     321,000Cash flows from investing activities:RMC Gamma Knife
     
        
     (2,606,000
        )Progress payments - RMC Gamma Knife
     
        
     1,282,000Increase in cash held in escrow
     (4,000
        )
     (2,000
        )Net cash used in investing activities
     (4,000
        )
     (1,326,000
        )Cash flows from financing activities:Proceeds from capital lease obligations and loans payable
     
        
     1,319,000Repayment of capital lease obligations and loans payable
     (493,000
        )
     (329,000
        )Net cash provide by (used in) financing activities
     (493,000
        )
     990,000Net change in cash and cash equivalents
     (89,000
        )
     (15,000
        )Cash and cash equivalents - beginning of period
     422,000
        
     511,000CASH AND CASH EQUIVALENTS - END OF PERIOD
     $333,000
        
     $496,000Supplemental disclosures of cash flow information:Cash paid for interest
     $173,000
        
     $203,000


The accompanying notes
to financial statements are an integral part hereof.




5




U.S. NEUROSURGICAL, INC. AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS



Note A - Basis of Preparation



The accompanying financial statements at September 30, 2006, and for the nine months ended September 30, 2006 and 2005, are unaudited.  However, in the opinion of management, such statements include all adjustments necessary for a fair statement of the information presented therein.  The balance sheet at December 31, 2005 has been derived from the audited financial statements at that date appearing in the Companys Annual Report on Form 10-K.



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



Results of operations for interim periods are not necessarily indicative of those to be achieved for full fiscal years.



6




Management Discussion and Analysis of Financial Condition and Results of Operations



Critical Accounting Policies



Our condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.  As such, some accounting policies have a significant impact on amounts reported in the financial statements.  A summary of those significant accounting policies can be found in our 2005 Annual Report on Form 10-K, filed, in the Notes to the Financial Statements, Note A.  In particular, judgment is used in areas such as determining the allowance for doubtful accounts and asset impairments.



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



Third Quarter 2006 Compared to Third Quarter 2005 and Nine Months Ended September 30, 2006 Compared to Nine Months Ended September 30, 2005



Patient revenue decreased 24% to $414,000 in the quarter ended September 30, 2006 from $546,000 for the quarter ended June 30, 2005.  The decrease was due to reduced patient procedures at both centers, primarily the Kansas City center.  Patient expenses increased  15% to $231,000  for the quarter compared to $201,000 in the same period a year ago.  The increase was due primarily to increased depreciation on the gamma knives.  Selling, general and administrative expense decreased 2% to $300,000 for the quarter ended September 30, 2006 from $307,000 in the comparable period a year ago.  The decrease was due to decreases in professional fees and lower overall payroll expenses for the period in question.  Interest expense decreased 32% to $57,000 from $84,000 in the same period a year earlier.  This was due in part to the new lease arrangements for the RMC Gamma Knife.  For the quarter ended
September 30, 2006, the net loss was $169,000 as compared to a loss of 3,000 for the same period a year earlier.  This increased loss was due primarily to decreased revenues.



For the nine months ended September 30, 2006, patient revenue decreased 14% to $1,448,000 from $1,686,000 for the same period a year earlier.  The decrease was due to reduced patient procedures at both centers, primarily the Kansas City center.  Patient expenses for the nine months ended September 30, 2006 increased 10% to $676,000 from $617,000 in the same period a year ago.  The increase was due primarily to increased depreciation on the gamma knives.  Selling, general and administrative expense decreased 12% to $981,000 for the nine months ended September 30, 2006 from $1,109,000 in the comparable period a year ago.  The decrease was due to decreases in professional fees and lower overall payroll expenses for the period in question.  Interest expense decreased 15% to $173,000 from $203,000 in the same period a year earlier.  For the nine months ended September 30, 2006, the net loss
was $368,000 as compared to a loss of 195,000 for the same period a year earlier.  This increased loss was due primarily to decreased revenues.



7




Liquidity and Capital Resources



At September 30, 2006 the Company had a working capital deficit of $478,000 as compared to a working capital deficit of $251,000 at December 31, 2005.  Cash and cash equivalents at September 30, 2006 were $333,000 as compared with $422,000 at December 31, 2005.



Net cash provided by operating activities for the nine months ended September 30, 2006 was $408,000 as compared to $321,000 for the same period a year earlier.  Depreciation and amortization was $531,000 for the nine months ended September 30, 2006 as compared to $478,000 in the same period a year earlier.



During the first quarter of 2005, the Company completed a replacement to the RMC Gamma Knife.  The cost was $2,601,000.  The lease has payments of $46,600 for 72 months at 8.8 percent.  The $211,000 that was held in escrow at December 31, 2003 was paid to US Bank Corp. and Elekta Instruments in March 2004.  The reason for the escrow was a lease that had been underfunded by DVI in August 2003.  DVI filed for protection under Chapter 11 of the U.S. Bankruptcy Code in August 2003.  The Company began making all lease payments into an escrow account and continued to negotiate with the successor.  The Company secured new financing from SMT Leasing to pay off the obligations.  The lease has payments of $23,000 for 36 months at 8.8 percent.



Net cash used in financing activities for the nine months ended September 30, 2006 was $493,000 as compared to net cash provided by financing activities of $990,000 for the same period a year earlier.  The Company paid $493,000 towards its lease obligations during the nine months ended September 30, 2006 as compared to $329,000 in the same period a year ago.  With our current cash position, and continued collection on our accounts receivable, the Company believes that the cash position is sufficient for the next twelve months.



Disclosure Regarding Forward Looking Statements



The Securities and Exchange Commission
encourages companies to disclose forward-looking information so that investors
can better understand a companys future prospects and make informed investment
decisions. This document contains such forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995,
particularly statements anticipating future growth in revenues and cash flow.
Words such as anticipates, estimates,
expects, projects, intends,
plans, believes, will be, will
continue, will likely result, and words and terms of similar
substance used in connection with any discussion of future operating or
financial performance identify such forward-looking statements. Those
forward-looking statements are based on managements present expectations about
future events. As with any projection or forecast, they are inherently
susceptible to uncertainty and changes in circumstances, and the Company is
under no obligation to (and expressly disclaims any such obligation to) update
or alter its forward-looking statements whether as a result of such changes, new
information, future events or otherwise.



8




The Company operates in a highly
competitive and rapidly changing environment and business segments that are
dependent on our ability to: achieve profitability; increase revenues; sustain
our current level of operation; introduce on a timely basis new products;
maintain satisfactory relations with our customers; attract and retain key
personnel; maintain and expand our strategic alliances; and protect our
know-how. The Companys actual results could differ materially from managements
expectations because of changes in such factors. New risk factors can arise and
it is not possible for management to predict all such risk factors, nor can it
assess the impact of all such risk factors on the Companys business or the
extent to which any factor, or combination of factors, may cause actual results
to differ materially from those contained in any forward-looking statements.
Given these risks and uncertainties, investors should not place undue reliance
on forward-looking statements as a prediction of actual results.



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



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



Item 3.   Quantitative and Qualitative Disclosures About Market Risk.



Market risk represents the risk of loss that may impact the Companys financial position due to adverse changes in financial market prices and rates.  Market risk exposure is primarily a result of fluctuations in interest rates.  The Company does not hold or issue financial instruments for trading purposes.



The Company has exposure to market rate risk for changes in interest rates related to the interest income on our cash, cash equivalents, and short-term investments, but we believe that the impact of these fluctuations does not have a material effect on our financial position due to the short-term nature of any such investments.  The obligations under the Companys capital lease and its loans payable are based on fixed interest rates and thus the amounts due under these instruments do not fluctuate with changes in market prices and rates.



9




Item 4.   Controls and Procedures



Management of the Company, including the Chief Executive Officer, evaluated the effectiveness of the design and operation of the Companys disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report.  Based upon that evaluation, the Companys Chief Executive Officer concluded that the Companys disclosure controls and procedures were 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.



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 September 30, 2006 that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.



10




PART II - OTHER INFORMATION



Item 6.   Exhibits




31.1
        Rule 13a-14(a)/15d-14(a) Certification



32.1
        Section 1350 Certifications







11




SIGNATURES



In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.




U.S. Neurosurgical, Inc.



(Registrant)






Date:   November 13, 2006
        By :/s/ Alan Gold



Alan Gold



Director, President and



Chief Executive Officer



and



Principal Financial Officer



of the Registrant





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