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 patients 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. USNs
facility agreements with RMC expire in 2015 and there are no renewal options.
Costs associated with closing and restoring the RMC facility to its original
condition are the responsibility of USN. For the year ended December 31, 2007,
2006 and 2005, USN derived revenues from the RMC
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center of approximately
$1,031,000, $901,000 and $1,134,500, respectively, as a result of 164, 67 and
103 procedures performed, respectively, during such periods.
USN
opened its second treatment center in July 1997 on the campus of NYU in New
York, New York. Construction of the Gamma Knife suite was completed in July
1997. The Gamma Knife cost and the cost of the facility improvements totaled
approximately $4,700,000. In August 2003, the cobalt source was reloaded in the
New York Gamma Knife. After making the first 80% of payments equivalent to
$582,000 to Elekta Instruments, DVI, the leasing company that USN had used for
the previous six years on all transactions, filed for protection under Chapter
11 of the U.S. Bankruptcy Code. USN began making all lease payments into an
escrow account beginning in September 2003 while the Company continued to
negotiate with DVI and its successor. The Company refinanced the lease with SMT
Leasing in April 2004. During November 2002, the Company extended the term of
its agreement with NYU until 2010. The Company has a marketing representative
to help introduce the technology to neurosurgeons in the New York tri-state
region. Pursuant to USNs facility agreement with NYU, USN is responsible for
the maintenance and insurance for the Gamma Knife equipment at the NYU facility
and is reimbursed for use of the Gamma Knife based on a fee per procedure
performed with the equipment. Costs associated with closing and restoring the
NYU facility to its original condition are the responsibility of USN. NYU
provides the medical and technical staff to operate the facility. NYU pays USN
a scheduled fee based on the number of patient procedures performed. For the
years ended December 31, 2007, 2006, and 2005, USN derived revenues from the
NYU center of approximately $603,000, $968,000 and $973,500, respectively, as a
result of 44, 152 and 161 procedures performed, respectively, during such
periods.
In
August 2003, USN commenced payment on a $750,000 lease for the NYU cobalt
reload, that was originally thought to be fully funded by DVI, Inc. In August,
after making the first payment of $21,584 on August 10, 2003, USN found that
DVI, Inc. had failed to make the final 2 payments to Elekta that amounted to
$150,000. On August 15, 2003, DVI, Inc. filed for protection under Chapter 11
of the U.S. Bankruptcy Code seeking to reorganize. In September 2003 and the
months after, the Company made lease payments into an escrow account controlled
by counsel while it negotiated a resolution to the shortfall created by DVI.
The new financing was for approximately $728,000 that was payable over 36
months at $23,000 per month beginning in April 2004 and ending in March of
2007.
Future Gamma Knife Centers
During
the fourth quarter of 2007, a newly formed wholly-owned subsidiary of the USN,
USN Corona, Inc (USNC), entered into a contract with Corona Gamma Knife, LLC
(CGK) to develop and manage a Gamma Knife center at San Antonio Community
Hospital in Upland California. CGK is party to a 14-year agreement with the San
Antonio Community Hospital to renovate space in the hospital and install and
operate a Leksell Perfexion Gamma Knife. CGK will lease the Gamma Knife from
Neuropartners LLC. USNC is a 27% owner of CGK and a 20% owner of Neuropartners
LLC. The remaining interests in CGK and Neuropartners LLC are owned by local
investors.
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There
remain a number of conditions that must be met before the Gamma Knife center at
San Antonio Community Hospital can be constructed. Building plans for the
project have been submitted to the State of California, but there can be no
assurance that such plans will be approved. A financing commitment has been
obtained, but the project has not yet been funded. Because of these factors,
there can be no assurance that this new center will be opened.
USN
is currently exploring other opportunities for Gamma Knife centers and centers
that provide related healthcare services located near hospitals throughout the
U.S. Discussions regarding such centers is preliminary and there can be no
assurance that any such discussions will result in the opening of new centers.
Employees
U.S.
Neurosurgical, Inc. has four full-time employees and relies on consultants for
certain services as required from time to time. Of its full-time employees,
three are engaged in sales, marketing and administration, and one is a
physicist.
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