SecProbe.io

CORRESP
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filename1.htm

  2400
  Research Blvd.

  Suite 325

  Rockville, MD 20850

February 1,
2006

Jim B.
Rosenberg

Division of Corporation Finance

Securities and Exchange Commission

Washington, D.C. 20549

  Re:

  U.S. Neurosurgical, Inc.

  Form 10-K for the Fiscal Year Ended
  December 31, 2004

  Filed April 13, 2005

  Form 10-QSB for the Period Ended September
  30, 2005

  Filed November 14, 2005

  File No. 000-26575

Dear Mr.
Rosenberg,

  In response
  to your letter of December 23, 2005 regarding File No. 000-26575 we are
  planning to take the following actions:

  1.

  We will file
  an Amendment No. 1 to the Form 10-K of U.S. Neurosurgical, Inc. (the
  “Company”) for the year ended December 31, 2004, revising the disclosures as
  follows:

  a.

  The
  discussion of Liquidity and Capital Resources will be revised so that the
  Company’s obligations will be presented in a tabular format as required by
  Item 303(a) of Regulation S-K.

  b.

  Based on our
  review of Rule 15d-15(c), we will include a discussion in the amended filing
  consistent with the current version of this rule, noting that management of
  the Company evaluated the effectiveness of the design and operation of the
  Company’s disclosure controls and procedures as of the end of the period
  covered by the report.

  c.

  Based upon
  our review of paragraph 26 of the Financial Accounting Standards Board’s
  Statement No.143, Accounting for Asset Retirement Obligations, we will
  restate the consolidated financial statements in order to reflect the
  cumulative effect of adopting FAS 143 in the statement of operations, rather
  than reflecting it directly within retained earnings. This will result in
  restatement of the consolidated statements of operations, consolidated
  statements of stockholders’ equity, consolidated statements of cash flows and
  notes A[1], E and M. Conforming changes will also made to the Selected
  Financial Data for 2003 presented in Item 6 of the Form 10-K/A and to the
  quarterly data presented in Item 8.

  2.

  We will
  re-filed our quarterly report for the period ended September 30, 2005 on Form
  10-Q (replacing the previously filed Form 10-QSB). As indicated in the
  Explanatory Note, the only substantive change from the previous filing is the
  inclusion of disclosure about market risk in Item 3. We plan to enter the
  small business filing system in fiscal year 2006.

This
submission includes the changed sections of each of the reports to be filed,
redlined to highlight those changes to assist you in your review:

  Attachment
  1:

  Changed
  sections of 2004 Annual Report on Form 10-K/A (without consolidated financial
  statements)

  Attachment
  2:

  Changed
  sections to restated 2004 consolidated financial statements

  Attachment
  3:

  Changed
  sections to Quarterly Report on Form 10-Q for the period ended September 30,
  2005

In providing
this information and in making the amended filings, we acknowledge that:

  •

  Our company
  is responsible for the adequacy and accuracy of the disclosure in the
  filings;

  •

  Staff
  comments or changes to disclosure in response to staff comments do not
  foreclose the Commission from taking any action with respect to the filing;
  and

  •

  Our company
  may not assert staff comments as a defense in any proceeding initiated by the
  Commission or any person under the federal securities laws of the United
  States.

Should you
have any further questions, please feel free to contact me at (800) 990-0293 or
agold@ghsusn.com.

Sincerely,

Alan Gold

President and Chief Executive Officer

2

ATTACHMENT 1

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

<R>FORM 10-K/A</R>

<R>(Amendment No.1)</R>

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF

THE SECURITIES EXCHANGE ACT OF 1934

  For the fiscal year ended

  December 31, 2004

  Commission File No.

  0-26575

U.S. NEUROSURGICAL, INC.

(Exact name of Registrant as specified in its charter)

  Delaware

  (State or other jurisdiction of

  incorporation or organization)

  52-1842411

  (I.R.S. Employer

  Identification Number)

  2400 Research Boulevard, Suite 325, Rockville, Maryland

  20850

  (Address of principal executive office)

  (Zip Code)

Registrant’s telephone number, including area
code:  (301) 208-8998
Securities
Registered Pursuant to Section 12(b) of the Act:

  Title of Each Class

  Name of Each Exchange on Which Registered

  None

  Not Applicable

Securities Registered Pursuant to Section
12(g) of the Act:

Common Stock, par value $.01 per share

          Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed in Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding twelve (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 pursuant to Item 405 of
Regulation S-K (229.405 of this chapter) 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.

          The
aggregate market value of Registrant’s Common Stock held by non-affiliates was
approximately $150,000 on March 15, 2005, based upon the average of the bid and
asked prices as reported on the OTC Bulletin Board.

          The
number of shares of Registrant’s Common Stock, par value $.01 per share,
outstanding as of March 15, 2005, was 7,697,185.

1

  <R>EXPLANATORY
    NOTE</R>

          <R>In
response to a comment letter received from the staff of the Division of
Corporation Finance of the Securities and Exchange Commission, we have revised
our disclosure in the following items of this Form 10-K:</R>

          <R>Item
7 – “Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Liquidity and Capital Resources,” and </R>

          <R>Item
14 – “Controls and Procedures” </R>

          <R>In
addition, in response to comments from the staff, we have restated the
consolidated financial statements in order to reflect the cumulative effect of
adopting the Financial Accounting Standards Board’s Statement No. 143,
Accounting for Asset Retirement Obligations, in the statement of operations for
the year ended December 31, 2003, rather than reflecting it directly within
retained earnings.  This resulted in
restatement of the consolidated statements of operations, consolidated
statements of stockholders’ equity, consolidated statements of cash flows and
notes E and M to reflect the $84,000 (net of income tax effect of $56,000)
change in the results of operations of the Company.  Conforming changes were also made to the Selected Financial Data
for 2003 presented in Item 6 of the Form 10-K/A and to the quarterly data presented
in Item 8.  These changes affect only
the results for the fiscal year ended December 31, 2003. </R>

          <R>We
have not reevaluated our disclosure controls and procedures as of the date of
this Amendment No. 1 or modified or updated other disclosures presented in the
original report on Form 10-K.  This Form
10-K/A does not reflect events occurring after the filing of the Form 10-K or
modify or update those disclosures affected by subsequent events.  Consequently, all other information is
unchanged and reflects the disclosures made at the time of the original filing
of the Form 10-K on October 3, 2005.
Accordingly, this Form 10-K/A should be read in conjunction with our
filings made subsequent to the filing of the original Form 10-K.  With this Amendment No. 1 our Chief
Executive Officer has also reissued his certifications required by Sections 302
and 906 of the Sarbanes-Oxley Act. </R>

2

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, 2000 through 2004.
The latest financial statements of the Company are included in Item 14 in Part
IV of this report. The information set forth should be read in conjunction with
such financial statements and the notes thereto.

Year Ended

December 31,

(in thousands, except per share amounts)

<R>

2004

2003

2002

2001

2000

(As

  restated)

Operating Revenue

$

2,403

$

2,444

$

2,639

$

2,573

$

2,575

Expenses:

Patient
expense

780

820

930

1133

1,125

General and
administrative

1384

1411

1386

1282

1,338

Interest
expense

59

86

163

277

318

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

(84

)

Net Income (loss)

123

(23

)

98

120

(17

)

Basic and diluted Income
  (loss) per common share:

Income
before cumulative effect of accounting method change

$

0.02

$

0.00

$

0.01

$

0.02

$

0.00

Cumulative
effect of accounting method change

$

(0.01

)

Net income (loss)

$

0.02

$

0.00

$

0.00

$

0.02

$

0.00

</R>

<R>

December 31,

2004

2003

2002

2001

2000

Balance Sheet Data:

Cash and cash equivalents

$

511

$

89

$

88

$

311

$

286

Total assets

4,201

3,150

2,963

3,795

4,856

Long-term obligations

1,652

542

101

1,005

2,168

Stockholders equity
  (deficiency)

1,464

1,337

1,368

1,279

1,131

</R>

3

ITEM 7.

MANAGEMENT’S
  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

          The
following discussion should be read in conjunction with the Financial
Statements and Notes set forth elsewhere in this report.

Results of Operations

 2004 Compared to 2003

          Patient
revenue decreased 2% to $2,403,000 in 2004 compared to $2,444,000 in 2003.
Patient expenses decreased 5% to $780,000 in 2004 from $820,000 in 2003. S,G
& A decreased 2% to $1,384,000 in 2004 from $1,411,000 in 2003. Income from
operations was $239,000 in 2004 compared to $213,000 in 2003. Interest expense
declined 31% to $59,000 in 2004 from $86,000 in 2003. This was due to the
paydown of principal on the Gamma Knife cobalt lease. In 2005, interest expense
will increase due to the replacement of the Kansas City Gamma Knife with a newer
model. As a result of the above, net income was $123,000 compared to $61,000 in
2003. The trends of the recent past lead us to believe that reimbursement will
continue to remain at current levels.

2003 Compared to 2002

          Patient
revenue declined 7% to $2,444,000 in 2003 as compared to $2,639,000. The
decrease was mainly due to the reload of the cobalt source at our NYU site
during the summer of 2003. The site was not available for use for about one
month. Reimbursement continued at the same levels as the prior year. Patient
expenses declined 12% to $820,000 from $930,000 in 2002. The decrease was due
to decreased depreciation on the knives. Selling, general and administrative
expense (S,G & A) increased 2% to $1,411,000 from $1,386,000 in the previous
year. Interest expense declined 48% to 85,000 in 2003 from $160,000 in 2002.
This was due to the payoff of the NYU Gamma Knife lease. As a result of the
above the net income was $61,000 as compared to $98,000 in 2002.

4

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

<R>
          Upon
initial application of FAS 143, the Company has recognized $140,000 of
accumulated depreciation and a deferred tax asset of $56,000 and a decrease
in net income of $84,000 as the cumulative effect of the accounting
method change during the year ended December 31, 2003. Application of the
provisions of FAS 143 would have resulted in a decrease in net income of
approximately $12,000 for the year ended December 31, 2002. If the Company had
adopted this standard effective January 1, 2003, total assets, liabilities and
accumulated deficit at the end of each of the first three quarters would have
increased by $120,000, $200,000 and $80,000, respectively. In addition,
amortization expense would be $1,000 higher in each of the first three quarters
of 2003.

  </R>
  Liquidity and Capital Resources

          At
December 31, 2004 the Company had a working capital surplus of $86,000 as
compared to a working capital deficit of $359,000 at December 31, 2003. Cash
and cash equivalents at December 31, 2003 were $511,000 as compared to $89,000
at December 31, 2003.  Net cash provided
by operating activities was $497,000 as compared with $992,000 for the same
period a year earlier. Depreciation and amortization was $566,000 as compared
to $779,000 in 2003.  Accounts
receivable increased $32,000 during the year as compared to an decrease of $142,000
in 2003. Accounts payable decreased by $159,000 during 2004 as compared to
$21,000 in 2003. The Company paid its outstanding obligation of $100,000 with
Elekta during 2004

5

          Net
cash used in investing activities for the year ended 2004 was $1,071,000 as
compared to $1,014,000 in the year ago period. The Company has made progress
payments for $1,282,000 towards its new Gamma Knife and also resolved the
$211,000 in escrow to pay its debt obligations.

          Net
cash used in financing activites for the year ended December 31, 2004 was
$996,000 as compared to $23,000 in 2003. The Company paid $1,014,000 towards
its capital leases in 2004 as compared to $688,000 in 2003. The Company
borrowed $2,010,000 for progress capital and cobalt reload purposes during
2004. The Company also retired 205,000 shares in 2004.

                    <R>The
following is a summary of the Company’s contractual obligations at December 31,
2004: </R>

<R>

  Payments due by period

  Contractual Obligations

  Total

  Less than
  1
year

  1-3
years

  3-5

  years

  More than
5 years

  Capital
  (Finance) Lease Obligations

  1,919,000

  467,000

  1,452,000

  Operating
  Lease Obligations

  153,000

  39,600

  79,200

  16,200

  18,000

  Asset
  retirement obligation

  200,000

  100,000

  100,000

  Total

  2,272,000

  506,400

  1,531,800

  116,200

  118,000

</R>
Critical accounting policies:

Estimates and
assumptions:

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

Asset
retirement obligations:

6

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 7A.

  QUANTITATIVE
  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

          None

  ITEM 8.

  FINANCIAL
  S