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 June 30, 2006 or [
    ]
    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. Employer
 incorporation 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 |_|  Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act). Yes |_|        No |X|  As of July 28, 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 |_|        No |X|   PART 1 - FINANCIAL
INFORMATION
U.S. NEUROSURGICAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS



June 30,2006
    
    December 31,2005**ASSETS**Current assets:Cash
      and cash equivalents
    
    
    $
    457,000
    
    $
    422,000Accounts
      receivable (net of allowance for doubtful
            accounts of $36,000 in 2006 and 2005)
    
    
    
    165,000
    
    
    280,000Accounts
      receivable - stockholder
    
    
    
    41,000
    
    
    79,000Other
      current assets
    
    
    
    225,000
    
    
    152,000Total
      current assets
    
    
    
    888,000
    
    
    933,000Gamma Knife
      (net of accumulated depreciation of
         $4,293,000 in 2006 and $3,987,000 in 2005)
    
    
    
    2,676,000
    
    
    2,982,000Leasehold
      improvements (net of accumulated
         amortization of $1,689,000 in 2006 and $1,641,000 in 2005)
    
    
    
    352,000
    
    
    400,000Total
      property and equipment
    
    
    
    3,028,000
    
    
    3,382,000Deferred
      tax asset
    
    
    
    240,000
    
    
    240,000Cash held
      in escrow
    
    
    
    110,000
    
    
    108,000**TOTAL**
    ****
    ****
    **$**
    **4,266,000**
    ****
    **$**
    **4,663,000**
    ******LIABILITIES
      AND STOCKHOLDERS EQUITY**Current liabilities:Accounts
      payable and accrued expenses
    
    
    $
    192,000
    
    $
    62,000Obligations
      under capital lease
            and loans payable - current portion
    
    
    
    590,000
    
    
    632,000Due
      to stockholder
    
    
    
    300,000
    
    
    300,000Deferred
      tax liability
    
    
    
    190,000
    
    
    190,000Total
      current liabilities
    
    
    
    1,272,000
    
    
    1,184,000Obligations
      under capital lease and loans payable - net
         of current portion
    
    
    
    1,814,000
    
    
    2,100,000Asset retirement
      obligations
    
    
    
    200,000
    
    
    200,000Total
      liabilities
    
    
    
    3,286,000
    
    
    3,484,000Stockholders
      equity:Common
      stock
    
    
    
    77,000
    
    
    77,000Additional
      paid-in capital
    
    
    
    2,797,000
    
    
    2,797,000Accumulated
      deficit
    
    
    
    (1,894,000
    )
    
    (1,695,000
    )Total
      stockholders
      equity
    
    
    
    980,000
    
    
    1,179,000**TOTAL**
    ****
    ****
    **$**
    **4,266,000**
    ****
    **$**
    **4,663,000**
    ****The accompanying notes
to financial statements are an integral part hereof.




2



U.S. NEUROSURGICAL,
INC. AND SUBSIDIARYCONSOLIDATED
STATEMENTS OF OPERATIONS


Three Months
      Ended
      June 30,2006
    
    2005Revenue:Patient
      revenue
    
    
    $
    528,000
    
    $
    664,000Expenses:Patient
      expenses
    
    
    
    229,000
    
    
    209,000Selling,
      general and administrative
    
    
    
    323,000
    
    
    414,000552,000
    
    
    623,000Operating
      income (loss)
    
    
    
    (24,000
    )
    
    41,000Interest
      expense
    
    
    
    (57,000
    )
    
    (85,000
    )Interest
      income
    
    
    
    4,000
    
    
    3,000Loss before
      income taxes
    
    
    
    (77,000
    )
    
    (41,000
    )Income tax
      provision
    
    
    
    (36,000
    )
    
    Net loss
    
    
    $
    (113,000
    )
    $
    (41,000
    )Proforma
      basic and diluted loss per share
    
    
    $
    (0.01
    )
    $
    (0.01
    )Proforma
      weighted average shares outstanding
    
    
    
    7,767,100
    
    
    7,697,185The accompanying notes
to financial statements are an integral part hereof.







3



U.S. NEUROSURGICAL,
INC. AND SUBSIDIARYCONSOLIDATED
STATEMENTS OF OPERATIONS





Six Months
      Ended
      June 30,2006
    
    2005Revenue:Patient
      revenue
    
    
    $
    1,034,000
    
    $
    1,140,000Expenses:Patient
      expenses
    
    
    
    445,000
    
    
    416,000Selling,
      general and administrative
    
    
    
    681,000
    
    
    802,0001,126,000
    
    
    1,218,000Operating
      loss
    
    
    
    (92,000
    )
    
    (78,000
    )Interest
      expense
    
    
    
    (116,000
    )
    
    (119,000
    )Interest
      income
    
    
    
    9,000
    
    
    5,000Net loss
    
    
    $
    (199,000
    )
    $
    (192,000
    )Proforma
      basic and diluted loss per share
    
    
    $
    (0.03
    )
    $
    (0.03
    )Proforma
      weighted average shares outstanding
    
    
    
    7,767,100
    
    
    7,697,185The accompanying notes
to financial statements are an integral part hereof.





4



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




Six Months
      Ended
      June 30,2006
    
    2005Cash
      flows from operating activities:Loss
      from continuing operations
    
    
    $
    (199,000
    )
    $
    (192,000
    )Adjustments
      to reconcile net income to net cash
         provided by operating activities:Depreciation
      and amortization
    
    
    
    354,000
    
    
    309,000Changes
      in operating assets and liabilities:Decrease
      (increase) in receivables
    
    
    
    153,000
    
    
    (54,000
    )Decrease
      (increase) in other current assets
    
    
    
    (73,000
    )
    
    22,000Increase
      in payables and other current liabilities
                and deferred
      tax liability
    
    
    
    130,000
    
    
    9,000Net
      cash provided by operating activities
    
    
    
    365,000
    
    
    94,000Cash flows
      from investing activities:RMC
      Gamma Knife
    
    
    
    
    
    
    (2,601,000
    )Progress
      payments - RMC Gamma Knife
    
    
    
    
    
    
    1,282,000Increase
      in cash held in escrow
    
    
    
    (2,000
    )
    
    (1,000
    )Net
      cash used in investing activities
    
    
    
    (2,000
    )
    
    (1,320,000
    )Cash flows
      from financing activities:Proceeds
      from capital lease obligations and loans payable
    
    
    
    
    
    
    1,319,000Repayment
      of capital lease obligations and loans payable
    
    
    
    (328,000
    )
    
    (193,000
    )Net
      cash provide by (used in) financing activities
    
    
    
    (328,000
    )
    
    1,126,000Net change
      in cash and cash equivalents
    
    
    
    35,000
    
    
    (100,000
    )Cash and
      cash equivalents - beginning of period
    
    
    
    **422,000**
    ****
    ****
    **511,000****CASH
      AND CASH EQUIVALENTS - END OF PERIOD**
    ****
    ****
    **$**
    **457,000**
    ****
    **$**
    **411,000**
    ****Supplemental
      disclosures of cash flow information:Cash
      paid for interest
    
    
    $
    116,000
    
    $
    119,000The 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 June 30, 2006, and for the six months ended June 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.



Second Quarter 2006 Compared to Second Quarter 2005 and Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005



Patient revenue decreased 2% to $528,000 in the quarter ended June 30, 2006 from $664,000 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 10% to $229,000 for the quarter compared to $209,000 in the same period a year ago. The increase was due to increased depreciation on the gamma knives. Selling, general and administrative expense decreased 22% to $323,000 for the quarter ended June 30, 2006 from $414,000 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 to $57,000 from $85,000 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 June 30, 2006, the net loss was
$113,000 as compared to a loss of 41,000 for the same period a year earlier. This increased loss was due primarily to decreased revenues.



For the six months ended June 30, 2006, patient revenue decreased 9% to $1,034,000 from $1,140,000 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 six months ended June 30, 2006 increased 7% to $445,000 from $416,000 in the same period a year ago. The increase was due to increased depreciation on the gamma knives. Selling, general and administrative expense decreased 15% to $681,000 for the quarter ended June 30, 2006 from $802,000 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 to $116,000 from $119,000 in the same period a year earlier. For the six months ended June 30, 2006, the net loss was $199,000 as compared to a loss of 192,000 for the
same period a year earlier. This increased loss was due primarily to decreased revenues.



7



Liquidity and Capital Resources



At June 30, 2006 the Company had a working capital deficit of $384,000 as compared to a working capital deficit of $251,000 at December 31, 2005. Cash and cash equivalents at June 30, 2006 were $457,000 as compared with $422,000 at December 31, 2005.



Net cash provided by operating activities for the six months ended June 30, 2006 was $365,000 as compared to $94,000 for the same period a year earlier. Depreciation and amortization was $354,000 for the three months ended June 30, 2006 as compared to $309,000 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 six months ended June 30, 2006 was $328,000 as compared to net cash provided by financing activities of $1,126,000 for the same period a year earlier. The Company paid $328,000 towards its lease obligations as compared to $193,000 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 December 31, 2004 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:  August 11, 2006
        By :/s/ Alan Gold



Alan Gold



Director, President and



Chief Executive Officer



and



Principal Financial Officer



of the Registrant





12