EHSI 10-K
Elite Health Systems Inc. (EHSI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
For the fiscal year ended
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For the transition period from to .
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Issuer's telephone number: (
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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As of June 30, 2024 the aggregate market value of issuer's Common Stock held by non-affiliates was approximately $
As of March 24, 2025, there were outstanding
Documents incorporated by reference: None
Elite Health Systems Inc.
Form 10-K for the Fiscal year ended December 31, 2024
Table of Contents
| PART I |
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Item 1. |
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Item 1A. |
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Item 1B. |
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Item 1C. |
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Item 2. |
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Item 3. |
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Item 4. |
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| PART II | 28 | ||
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Item 5. |
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Item 6. |
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Item 7. |
Management's Discussion and Analysis of Financial Condition and Results of Operations. |
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Item 7A. |
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Item 8. |
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Item 9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
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Item 9A. |
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Item 9B. |
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| PART III |
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Item 11. |
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Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
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Item 13. |
Certain Relationships and Related Transactions, and Director Independence. |
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Item 14. |
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| PART IV |
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Item 15. |
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Elite Health Systems Inc, formerly U.S. NeuroSurgical Holdings, Inc. (“Holdings”) through its wholly-owned subsidiaries, is developing a business to provide Medicare Advantage plans and related services, concentrating initially in California and Nevada. As used herein, unless the context indicates otherwise, the term "Company" and "Registrant" means Elite Health Systems Inc. and its wholly-owned subsidiary, Elite Health Systems Holdings Inc. (“EHSH”), and the wholly-owned subsidiaries of EHSH, U.S. NeuroSurgical Physics, Inc., USN Corona, Inc., Elite Health Plan, Inc. and Elite Health Plan of Nevada, Inc. Elite Health Systems Inc, a Delaware corporation, was formed in July 1993 originally as U.S. NeuroSurgical, Inc (“USN”). On September 3, 2015, pursuant to the Agreement and Plan of Reorganization (the “Merger Agreement”), dated as of September 3, 2015, by and among USN, Holdings and U.S. NeuroSurgical Merger Sub, Inc., the Company adopted a new holding company organizational structure whereby USN was a wholly owned subsidiary of Holdings. This structure did not result in any changes to the assets or operations of the Company, but management believes that it will create a more flexible framework for possible future transactions and organizational and operational adjustments. On September 30, 2024, the Company filed with the Secretary of State of the State of Delaware a Certificate of Amendment (the “Charter Amendment”) to its Certificate of Incorporation (as amended, the “Charter”) to change the legal name of the Company from U.S, Neurosurgical Holdings, Inc. to Elite Health Systems Inc., effective as of September 30, 2024. The Company’s board of directors (the “Board”) approved the Charter Amendment pursuant to Section 242 of the General Corporation Law of the State of Delaware.
Company Background.
The Company was previously engaged in the ownership and operations of radiation treatment centers. Most of these businesses have been sold or wound down, and the Company has been actively pursuing opportunities to expand to other businesses that could benefit its current operations and relationships. Effective October 1, 2021, the Company acquired all of the outstanding shares of capital stock of Elite Health Plan, Inc., a California corporation (“Elite Health”) and, in exchange therefor, the former holders of Elite Health were issued newly-issued shares of EHSH, which following the transaction represent 15% of the outstanding shares of EHSH. Effective November 27, 2023, the Company entered into a Share Exchange Agreement with the holders of these minority interests in EHSH, which resulted in making EHSH’s wholly-owned subsidiary of the Company and the former minority holders of EHSH 15% owners of the Company immediately following the exchange. As a result of the November 27, 2023, transaction, 1,392,739 shares of the Company’s Common Stock were issued, bringing the total outstanding to 9,284,924 shares as of that date. Since that time, the Company raised an additional $5,825,000 through the private sale of 11,650,000 shares of Common stock and in addition to 475,000 shares issued as compensation to certain officers and directors, bringing the total outstanding to 21,409,924 shares as of March 24, 2025 and 19,984,924 at December 31, 2024.
The Company has determined that its best opportunity for long term success is to concentrate its efforts and resources on establishing a managed care organization that will develop and operate Medicare Advantage plans for, and provide related health services to, seniors in California and other areas in the U.S., and could pursue growth through other commercial opportunities and strategic transactions, including partnerships, acquisitions or mergers related and complementary to these activities and services.
In furtherance of this plan, Elite Health Plan, Inc. has submitted documentation for a Knox-Keene license to offer managed health care plans in California. In addition, EHSH recently formed Elite Health Plan of Nevada, Inc. to apply for a license to operate a Medicare Advantage plan in Nevada. Elite Heath Plan, Inc. and Elite Health Plan of Nevada, Inc., both 100% owned by EHSH and managed and operated in a similar manner, are collectively referred to herein as “Elite Health.” In California, Elite Health has taken preliminary steps toward identifying a network of providers who are well-versed in Medicare Advantage plans and addressing the healthcare needs of seniors in the communities in which they practice. Elite Health currently has no revenue, and will not be in a position to generate significant revenue while it seeks to obtain a license to operate a Medicare Advantage plan in California. The success of Elite Health will depend, in part, on timely obtaining all necessary approvals and gaining access to a sufficient network of providers and enrolling a critical level of subscribers. There can be no assurance that the Company and Elite Health will be successful in obtaining the necessary licenses to operate Medicare Advantage plans in any jurisdiction or be effective in establishing the network of providers and developing the systems required to operate a managed care business.
Until January 2024, the Company's executive offices were located at 2400 Research Boulevard, Suite 325, Rockville, MD 20850. The Company’s headquarters are now located at 1131 W 6th Street, Suite 225, Ontario, CA 91762 and its telephone number is (949) 249-1170.
Elite Health
Background. Elite Health Plan, Inc. was formed in 2017 with the purpose of establishing a managed care organization that will develop and operate Medicare Advantage plans for seniors in California. In addition to pursuing the required authorizations, including a Knox-Keene license from California’s Department of Managed Health Care (“DMHC”), necessary for the operation of full-service health plans in California, and approval from the Centers for Medicare & Medicaid Services (“CMS”), the Company is considering engaging in related businesses and health services to support this mission.
Medicare Advantage plans are offered by private companies and are regulated by the federal government and licensed by the state in which those companies operate. Once its plans are approved, Elite Health expects to initially operate in the California counties of San Bernadino, Riverside, and Los Angeles, with the objective of addressing the growing number of Medicare eligible seniors in those markets. The Company then expects to apply to the State of Nevada and begin operations in Clark County, Nevada. Because of the collective experience of its founders and affiliates as physicians, software executives, and health plan administrators, we believe that Elite Health will be positioned to bring to California and Nevada a comprehensive, community-based and cost-effective health care management service solution for these communities.
Medicare; Medicare Advantage. Medicare is the federal health insurance program for people aged 65 and over, which was expanded to cover people under 65 with certain disabilities and people with end-stage renal disease requiring dialysis or kidney transplant. Medicare consists of four parts, labeled A through D. Part A provides hospitalization benefits financed largely through Social Security taxes and requires beneficiaries to pay out-of-pocket deductibles and coinsurance. Part B provides benefits for medically necessary services and supplies including outpatient care, physician services and home health care. Parts A and B are referred to as Original Medicare.
As an alternative to Original Medicare, beneficiaries may elect to receive their Medicare benefits through Part C, also known as Medicare Advantage. Under Medicare Advantage, managed care organizations contract with CMS to provide services directly to Medicare beneficiaries as well as through employer and union groups. Managed care organizations typically receive a fixed monthly premium per member from CMS that varies based upon the county in which the member resides, demographic factors of the member such as age, gender and institutionalized status and the health status of the member.
Medicare prescription drug coverage, or Medicare Part D, is a voluntary benefit for Medicare beneficiaries. The Medicare Part D prescription drug benefit is supported by risk sharing with the federal government through risk corridors designed to limit the losses and gains of the participating drug plans and by providing reinsurance for catastrophic drug costs.
Enrollment in Medicare is experiencing significant growth from an aging population with growth in Medicare Advantage plans in particular seeing large gains over the last several years. According to a 2024 Kaiser Family Foundation article, Medicare Advantage enrollment includes 32.8 million members, accounts for 54% of the eligible Medicare population and $462 billion of Federal Medicare spending. The Congressional Budget Office (CBO) projects that the share of all Medicare beneficiaries enrolled in Medicare Advantage plans will rise to 64% by 2034. The Medicare Advantage market is currently dominated by major traditional health insurance entities UnitedHealth Group and Humana accounting for nearly half of all Medicare Advantage enrollees nationwide.
Filing in California. The Company initially applied for a license to operate a Medicare Advantage plan in Nevada. However, the Company determined that a reciprocity agreement between California and Nevada would result in a more expedient path to secure approvals in California first. For this reason, Elite Health is focusing on completing the process toward obtaining a Knox-Keene license in California and securing necessary approvals from CMS with a final submission of plan details in June 2025. There can be no assurance that a license will be issued or, if issued, it will be done in a timely manner.
Management and Capabilities. Elite Health has identified and is relying on experienced personnel, consultants and other industry-centric service providers and experts to assist Elite Health in applying for and securing appropriate licensing and establishing the necessary corporate infrastructure to operate Medicare Advantage plans in California.
Dr. Prasad Jeereddi was the founder of the Elite Health business and was overseeing the activities of Elite Health at the time of its sale to the Company in 2021. In July of 2024, , Dr. Jeereddi joined the Company as Chairman of the Board and CEO. He is an accomplished endocrinologist and has been involved extensively in strategy, management, technological advancements and general operations of multiple healthcare enterprises. Many of the recent private placement investors are through relationships that Dr. Jeereddi has established with physicians and healthcare professionals in California and in India, where he has significant relationships with major hospitals and healthcare organizations.
Elite’s Approach to Healthcare Delivery. Elite Health has taken preliminary steps toward identifying a network of providers who are well-versed in Medicare Advantage plans and addressing the healthcare needs of seniors in the communities in which they practice. Elite has already met network adequacy at over 90% in all required physician primary/specialty, and facility specialty categories for its intended service area of Los Angeles, Riverside and San Bernardino counties. Elite Health founders and affiliates also have considerable experience with health care record-based software and have contracted with RAM Technologies and their exclusive focus on Medicare Advantage, Managed Medicaid, and Special Needs health plans, leading to major enhancements blending knowledge and best practices, from successful launch, administration, to optimization of subscriber benefit products.
The Company plans to contract with health care providers, hospitals and facilities, for health care services for its Medicare Advantage plan enrollees. The Company will seek to rely on local preferred providers and other entities located within the areas in which the majority of the enrollees reside, providing a localized focus and leveraging the established reputation and wide range of services of the healthcare system. The Company will endeavor to offer beneficiaries a greater choice of providers than a standard health maintenance organization. Furthermore, with a localized focus, Elite Health will strive to develop a unique marketing advantage and reduce the need for a broad mass marketing undertaking.
The same approach will also apply for local healthcare providers as we aim to simplify required “prior authorizations,” owing to a close-knit network of providers, thus saving clinicians countless hours. Furthermore, we believe that many clinicians will have a preference for a local entrant into the market, enabling them to avoid the larger well-known insurance names with relatively burdensome processes and protocols along with an opportunity to participate in the success of the Company’s platform.
Competition. If and when the required approvals are obtained, we will operate in highly competitive markets across the full expanse of health care benefits and services. Our competitors include organizations ranging from startups to highly sophisticated Fortune 50 global enterprises, for-profit and non-profit companies, and private and government-sponsored entities. New entrants to our markets and business combinations among our competitors and suppliers also contribute to a dynamic and competitive environment. We expect to compete fundamentally on the quality and value we provide to those we provide, which can include elements such as product and service innovation; use of technology; consumer and provider engagement and satisfaction; and sales, marketing and pricing. See Part I, Item 1A, “Risk Factors” for additional discussion of our risks related to competition.
Regulation. Any Medicare Advantage plans that are offered by Elite Health will be regulated by the federal government and licensed by the state in which those companies operate. At the federal level, CMS exercises authority to oversee and approve the premiums and premium amounts that will be charged to beneficiaries under Medicare Advantage plans and applicable regulation requires plans to adhere to the premium and deductible amounts that will be determined by the actuarial formulas utilized by CMS. At the state level, any Medicare Advantage plan must be licensed by the state in which the offering company operates as a risk bearing entity.
Delivery of Services. The Company and Elite Health understand that the keys to success with a managed care organization are delivering comprehensive patient care and containing costs. In addition to developing a plan to obtain necessary approvals, gaining access to a competent network of providers and enrolling a critical level of subscribers, it will be necessary for the plan to provide high quality patient care efficiently and cost effectively. There can be no assurance that the Company and Elite Health will be effective in doing so. Elite Health currently has no revenue and will not be in a position to generate revenue for an indefinite period while it seeks to obtain a license to operate a Medicare Advantage plan in California and then Nevada.
Based on the demographics in the US, including an aging population, the Company’s management believes that there will be a growing need to provide this population with comprehensive health care programs. Specifically, due to the historical growth and expansion trends of Medicare Advantage plans nationally, including increased member enrollment, the Company believes that this type of plan presents an opportunity for Elite Health. While the principals of Elite Health were formerly active in the development of Medicare Advantage plans, and the delivery of services under such plans, neither the Company nor its subsidiaries have any operating history in Medicare plans.
Employees
The Company has three full time employees hired through a staffing agency, who are supported by industry experts and external consultants throughout the licensing and start-up process. Detailed recruitment plans are in place to manage compliance, finance and operational needs to support needs following the licensing process, if successfully completed.
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 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’s 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.
Our business involves significant risks. You should carefully consider the risks described below and all of the other information set forth in this Form 10-K, including our consolidated financial statements and accompanying notes. These risks and other factors may affect our forward-looking statements, including those we make in this Form 10-K or elsewhere, such as in press releases, presentations to securities analysts or investors, or other communications made by or with the approval of one of our executive officers.
The risks described in the following section are not the only risks facing our Company. Additional risks that we are unaware of, or that we currently believe, are not material, may also become important factors that adversely affect our business. If any of the following risks occurs, our business, financial condition, results of operations, and future prospects could be materially and adversely affected. In that event, among other effects, the trading price of our common stock could decline, and you could lose part or all of your investment.
RISKS RELATED TO OUR BUSINESS
The principal business activity of the Company going forward will be the development of Medical Advantage plans under its Elite Health subsidiaries. This is a new business area for the Company and there can be no assurance that the Company will be successful in advancing its Elite Health business.
Elite Health, the business acquired by the Company in October 2021, has recently applied for a full Knox-Keene license to operate a Medicare Advantage plan in California, and expects to operate such plan in California beginning in 2026 and Nevada in 2027. Such application process may be protracted, and approval is not assured. The Company has taken preliminary steps toward identifying a network of providers who are well-versed in the healthcare needs of seniors in the communities in which they practice. While the Company believes that the Elite Health founders and affiliates have the required experience and network of professionals to obtain the license and launch and operate the business if it is successful in obtaining the license, there can be no assurance that the Company will be successful in these endeavors. The Company and Elite Health understand that the keys to success with a managed care organization are delivering comprehensive patient care and containing costs. In addition to developing a plan to obtain necessary approvals, gaining access to a competent network of providers and enrolling a critical level of subscribers, it will be necessary for the plan to provide high quality patient care efficiently and cost effectively. For these reasons, and the reasons noted in the balance of Item 1A – Risk Factors, there can be no assurance that the Company and Elite Health will be effective in developing and executing this business plan, the success of which will be critical to the Company and the value of its common stock.
Although we raised capital in 2024, we will require additional capital, which might not be available on acceptable terms, if at all. If capital is not available to us, our business and financial condition may be impaired, and we may not be able to continue as a going concern.
We are investing significant amounts in our business. To this end, we raised approximately $5.8 million through a private placement in 2024 that closed in January of 2025. . However, we will be required to make future commitments of capital resources and will require substantial additional funding which we plan on raising through equity or debt financings. Beyond the application process for the Medicare Advantage plans in California and Nevada, we expect to make additional investments to support our business growth and will require additional capital to respond to business needs, requirements and opportunities, further develop our infrastructure, and comply with any statutory capital and risk-based capital requirements. In addition, we may continue to make strategic acquisitions as the opportunities arise, some of which may be important to support our operations.
As previously disclosed, we have reported no revenue since 2021, do not expect revenue during 2025, and will report operating losses for a significant time beyond the end of 2025. Although we raised capital in 2024, our business plan will require additional investment and capital and our financial position, the state of the capital markets or the political posture or uncertainty surrounding Medicare and other federal entitlement programs could make it difficult to raise capital in 2025 when this will be required.
While we have actively engaged with our board and other marketplace participants to evaluate financing opportunities, we may not be able to obtain the required financing on acceptable terms, as any potential financing will be subject to market conditions that are not within our control. In the event we are unable to obtain financing or take other management actions to alleviate these concerns, among other potential consequences, we may be unable to satisfy our financial obligations as they become due or continue as a going concern.
Even if we obtain financing to continue operations, the risk of not continuing as a going concern and resulting qualified audit opinion would likely cause our stock to decline.
In addition, should we be successful in raising equity capital, this would result in significant additional dilution to the current investors in the Company’s common stock.
If we are unable to secure a Medicare Advantage license in California in a timely manner, acquire managed health consumers in California, expand consumer enrollment beyond this initial state, or diversify and expand our portfolio of products and services, our business and results of operations will be significantly impaired.
We expect to generate a substantial portion of our revenue from consumers enrolled in the Medicare Advantage health plans. We initially applied in Nevada and subsequently withdrew our application in favor of applying in California first. We have now applied in California and expect to re-apply in Nevada at a later date. As a result, the future enrollment of individuals into and adoption of our health plans, through our platform, our broker network, employees, or other third parties, is paramount to our future growth and success. If we fail to increase consumer enrollment or diversify and expand our portfolio of products and services, our business and results of operations may be negatively impacted. In addition, if we do not grow our membership, we could find it difficult to retain or increase the number of contracted network providers at favorable rates or at all, which could jeopardize our ability to provide health plan products in our target markets and our ability to expand into new markets in a cost-efficient manner.
Our ability to retain existing consumers, expand consumer enrollment and establish, diversify and expand our portfolio of products and services depends on a number of factors, some of which are beyond our direct control. Some of these factors include:
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our ability to provide low-cost and high-value plans which meet a broad range of consumer needs; |
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the ease of our consumers’ adoption of, and enrollment into, our products and services; |
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our ability to seamlessly onboard our consumers and create a positive overall experience with our products and services; |
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our consumers’ ability to easily use our technology; |
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our consumers’ ability to receive convenient and ready access to quality medical care and treatment through a network of providers that we plan to establish; |
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our ability to grow our provider networks on competitive terms; |
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our ability to safeguard our consumers’ data; |
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our ability to anticipate and respond to shifting consumer preferences for healthcare products and services in a timely manner; |
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our ability to retain licenses required to conduct our existing business and obtain licensing in new geographies into which we intend to expand; |
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our ability to effectively compete against our competitors, who may offer products containing fewer restrictions on the network of care providers available to consumers, may provide higher quality levels of care, or may be priced more competitively than our offerings; |
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our ability to market and sell our plans effectively in our target markets, including our ability to retain and incentivize our broker network at reasonable commission rates; and |
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regulatory changes pertaining to the marketing and/or enrollment of our consumers, which might negatively impact the overall pool of eligible beneficiaries across our health plans. |
In addition, our ability to obtain consumers and expand consumer enrollment could be adversely impacted by delays in, or increased difficulty or cost associated with, the implementation of our growth strategies, strategic initiatives and operating plans, and the incurrence of unexpected costs associated with operating our business.
We are subject to risks associated with outsourcing services and functions to third parties. If we are unsuccessful in securing reliable third parties, or if we experience negative outcomes through these parties, our business may be substantially impacted.
Our strategy requires that we successfully identify and then contract with care providers to ensure access to quality healthcare services for our consumers, to manage medical costs and utilization, and to better monitor and ensure the quality of care being delivered. We will compete with other health plans and networks to contract with healthcare providers based on reimbursement rates, timeliness and accuracy of claims payments, the potential to deliver new patient volume and/or support the retention of existing patients, the effectiveness of resolution of calls and complaints, and other factors.
We cannot assure you that we will be able to identify, attract and retain a network of providers necessary to deliver healthcare through high-performing networks in the geographic areas we will serve or intend to serve, while providing high-quality care to our consumers. In addition, certain care providers, particularly hospitals, physician/hospital organizations and specialists, or their related care provider networks, may have significant negotiating power due to their size or market positions and could demand higher payment rates or otherwise negotiate contracts on terms that are less favorable to us.
If we are successful in establishing arrangements with third party vendors and providers, some of these third parties will have direct access to our systems. Our arrangements with third party vendors and service providers may make our operations vulnerable if those third parties fail to satisfy their obligations to us, including their obligations to maintain and protect the security and confidentiality of our information and data or the information and data relating to our members or customers. We are also at risk of a data security incident involving a vendor or third party, which could result in a breakdown of such third party’s data protection processes or cyber-attackers gaining access to our infrastructure through the third party. To the extent that a vendor or third party suffers a data security incident that compromises its operations, we could incur significant costs and possible service interruption. Any contractual remedies and/or indemnification obligations we may secure for vendor or service provider failures or incidents may not be adequate to fully compensate us for any losses suffered as a result of any vendor’s failure to satisfy its obligations to us or under applicable law. Violations of, or noncompliance with, laws and/or regulations governing our business or noncompliance with contract terms by third party vendors and service providers could increase our exposure to liability to our members, providers, or other third parties, or could result in sanctions and/or fines from the regulators that oversee our business. In turn, this could increase the costs associated with the operation of our business or have an adverse impact on our business and reputation. Moreover, if these vendor and service provider relationships were terminated for any reason, we may not be able to find alternative partners in a timely manner or on acceptable financial terms. We may incur significant costs and/or experience significant disruption to our operations in connection with any such vendor or service provider transition. As a result, we may not be able to meet the full demands of our members or customers and, in turn, our business, financial condition, and results of operations may be harmed.
Once operational, if at all, we will operate in highly competitive markets dominated by large providers with significantly more resources than ourselves.
Our competitors include organizations ranging from startups to highly sophisticated Fortune 50 global enterprises, for-profit and non-profit companies, and private and government-sponsored entities. In some local markets, the two largest providers account for 75% of all Medicare Advantage enrollees. New entrants to our markets and business combinations among our competitors and suppliers also contribute to a dynamic and competitive environment. We expect to compete fundamentally on the quality and value we provide to those we serve which can include elements such as product and service innovation; use of technology; consumer and provider engagement and satisfaction; and sales, marketing and pricing.
If we or one of our significant vendors sustain a cyber-attack or suffer data privacy or security breaches that disrupt our information systems or operations, or result in the dissemination of sensitive personal or confidential information, we could suffer increased costs, exposure to significant liability, reputational harm, loss of business, and other serious negative consequences.
As part of our normal operations, we will routinely collect, process, store, and transmit large amounts of data, including sensitive personal information as well as proprietary or confidential information relating to our business or third parties. To ensure information security, we plan to implement controls designed to protect the confidentiality, integrity and availability of this data and the systems that store and transmit such data. However, our information technology systems and safety control systems will be subject to a growing number of threats from computer programmers, hackers, and other adversaries that may be able to penetrate our network security and misappropriate our confidential information, create system disruptions, or cause damage, security issues, or shutdowns. They also may be able to develop and deploy viruses, worms, and other malicious software programs that attack our systems or otherwise exploit security vulnerabilities. We may also face increased cybersecurity risks due to our reliance on internet technology and our fully remote working environment, which may create additional opportunities for cybercriminals to exploit vulnerabilities. All of these risks will also be faced by our significant vendors who are also in possession of sensitive confidential information. Because the techniques used to circumvent, gain access to, or sabotage security systems can be highly sophisticated and change frequently, they often are not recognized until launched against a target, and may originate from less regulated and remote areas around the world. We may be unable to anticipate these techniques or implement adequate preventive measures, resulting in potential data loss and damage to our systems. Our systems will also be subject to compromise from internal threats such as improper action by employees, including malicious insiders, or by vendors, counterparties, and other third parties with otherwise legitimate access to our systems. Our policies, employee training (including phishing prevention training), procedures and technical safeguards that we put in place may not prevent all improper access to our network or proprietary or confidential information by employees, vendors, counterparties, or other third parties. Our facilities may also be vulnerable to security incidents or security attacks, acts of vandalism or theft, misplaced or lost data, human error, or other similar events that could negatively affect our systems and data, as well as our members’ data.
Where doing so is necessary in order to conduct our business, we will also provide sensitive personal member information, as well as proprietary or confidential information relating to our business, to our third-party service providers. Although we will obtain assurances from those third parties that they have systems and processes in place to protect such data, and that they will take steps to assure the protection of such data by other third parties, those third-party service providers may also be subject to data intrusion or data breach. Any compromise of the confidential data of our members, employees, or business, or the failure to prevent or mitigate the loss of or damage to this data through breach, could result in operational, reputational, competitive, or other business harm, as well as financial costs and regulatory action. The Company will seek to maintain cybersecurity insurance in the event of an information security or cyber incident. However, the coverage may not be sufficient to cover all financial losses.
In the future, we may be subject to litigation and governmental investigations related to cyber-attacks and security breaches. Any such future litigation or governmental investigation could divert the attention of management from the operation of our business, result in reputational damage, and have a material adverse impact on our business, cash flows, financial condition, and results of operations. Moreover, the programs we put in place to detect, contain, and respond to data security incidents as well as contingency plans and insurance coverage for potential liabilities of this nature may not be sufficient to cover all claims and liabilities.
Noncompliance with any privacy, security or data protection laws and regulations, or any security breach, cyber-attack or cyber-security breach, and any incident involving the misappropriation, theft, loss or other unauthorized disclosure or use of, or access to, sensitive or confidential information, whether by us or by one of our third-party service providers, could require us to expend significant resources to continue to modify or enhance our protective measures and to remediate any damage. In addition, this could negatively affect our operations, cause system disruptions, damage our reputation, cause membership losses and contract breaches, and could also result in regulatory enforcement actions, material fines and penalties, litigation or other actions that could have a material adverse effect on our business, cash flows, financial condition, and results of operations.
Failure to appropriately set premiums or effectively manage our costs could negatively affect our profitability, results of operations and cash flows.
The premiums we set for our health plans will be a material factor in our future revenue. We will set our premiums using actuarial estimates and our failure to set appropriate premiums, including as a result of inaccuracies in our actuarial estimates, could adversely affect our profitability and cash flows. We will use a substantial portion of our health plan revenue to pay the costs of healthcare services delivered to our consumers. As such, our profitability will depend in large part on our ability to accurately estimate and manage such costs. Relatively small differences between estimated and actual medical costs as a percentage of revenue could result in significant changes in our financial results.
Our use of actuarial methods to determine premiums and estimate other healthcare costs will involve a significant degree of judgment and will be subject to a number of inherent uncertainties and assumptions. Such actuarial methods are consistently applied, centrally controlled, and are based upon various data points, including historical submissions and payment data, cost trends, patient and product mix, seasonality, utilization of healthcare services, contracted service rates and other factors for our consumers. Our ability to accurately estimate such costs will depend on various factors, many of which are not within our control, including:
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the utilization rates of medical facilities and services; |
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the cost of medical services (including as a result of labor market constraints); |
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the use or cost of prescription drugs, in particular the increased use of specialty prescription drugs; |
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the introduction or widespread adoption of new or costly treatments, including new technologies; |
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membership mix; |
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variances in actual versus estimated levels of cost associated with new products, benefits, lines of business, product changes or benefit level changes; |
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changes in the demographic characteristics of an account or market; |
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changes in economic conditions (including as a result of the ongoing COVID-19 pandemic); |
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changes or reductions related to utilization management functions such as preauthorization of services, concurrent review, or requirements for physician referrals; |
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changes in pharmacy volume rebates received from drug manufacturers; |
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catastrophes, including acts of terrorism, pandemics (such as the ongoing COVID-19 pandemic and other similar unforeseen cost drivers), epidemics or severe weather (e.g., hurricanes, wildfires or earthquakes, including those as a result of climate change); |
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medical cost inflation; and |
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potential changes in legislation or other rules and regulations, such as changes in government mandated benefits or consumer eligibility criteria. |
The impact of many of these items on the ultimate costs for claims is difficult to estimate, and they could have a material impact on our future business. In addition, the lack of historical data on which our assumptions will initially be based may not necessarily be indicative of the actual costs of claims due to our rapid growth in consumer enrollment and our recent expansion into new businesses and markets. Because we will be a new entrant in the market, we will forced to use demographic data rather than our own patient data from which to estimate our potential medical claims liability.
We will set our premiums for twelve-month periods several months prior to the commencement of the premium period and will not be freely able to change our premiums during such period, consistent with industry practice. Our inability to implement changes in premium rates within a given period is also governed by federal and state regulatory agencies. If our medical costs exceed our estimates, we will not be able to recover the difference through higher premiums, and our results of operations and financial condition could be adversely affected.
Conversely, if we set our premium rates too high, our existing membership may decline or we may not grow our membership. We will operate in a competitive industry, and while health plans compete on the basis of many factors, including service, breadth of benefits, and the quality and depth of provider networks, we believe that price is and will continue to be the most significant driver in our and our competitors’ ability to attract consumers. If we do not appropriately price our products, our results of operations and financial condition could be materially and adversely affected. While service and breadth of benefits may be secondary to price, we believe there are certain benefits considered “table stakes” in order to be competitive.
The costs associated with the launch and development of Medical Advantage plans by our Elite Health subsidiaries or failure to attain profitability in any newly launched or acquired health plans could negatively affect our results of operations.
Start-up costs, including legal, regulatory, compliance, hiring and other expenses associated with a new business can be substantial. For example, to obtain a certificate of authority to operate as a health maintenance organization in most jurisdictions, we must first establish a provider network, develop and establish infrastructure and required systems, and demonstrate our ability to process claims. We will also continue to incur costs in connection with the application and approval process, and will be required to contribute significant capital to fund mandated net worth requirements, performance bonds or escrows, or contingency guaranties. If we are unsuccessful in obtaining a certificate of authority, winning the bid to provide services, building out our provider network, or attracting and retaining members in sufficient numbers to cover our start-up costs, the new business could fail, or the losses we incur could impact our results of operations. The expenses associated with starting up a health plan in a new jurisdiction, expanding a health plan in an existing jurisdiction, or acquiring a new health plan, could have a material adverse effect on our business, financial condition, cash flows, or results of operations.
We will primarily depend on reimbursement by third-party payors, as well as payments by individuals, which could lead to delays, uncertainties and disagreements regarding the timing and process of reimbursement, including any changes or reductions in Medicare reimbursement rates or rules.
The reimbursement process is complex and can involve lengthy delays. Once operational we will recognize revenue when we provide services to patients, but could from time-to-time experience delays in receiving the associated capitation payments or, for patients on fee-for-service arrangements, the reimbursement for the service provided. In addition, third-party payors may disallow, in whole or in part, requests for reimbursement based on determinations that the patient is not eligible for coverage, certain amounts are not reimbursable under plan coverage, were for services provided that were not medically necessary, or additional supporting documentation is necessary. Third-party payors are also increasingly focused on controlling healthcare costs, and such efforts, including any revisions to reimbursement policies, may further reduce, complicate or delay our reimbursement claims. Further, the Medicare program and its reimbursement rates and rules, upon which many third-party payors base their reimbursement rate, are subject to frequent change. Retroactive adjustments may change amounts realized from third-party payors. As described below, we are subject to audits by such payors, including governmental audits of our Medicare claims, and may be required to repay these payors if a finding is made that we were incorrectly reimbursed. Delays, uncertainties and disagreements regarding the reimbursement process may adversely affect accounts receivable, increase the overall costs of collection and cause us to incur additional borrowing and other costs related to resolving disagreements or uncertainties.
In addition, we expect that certain of our patients will be covered under health plans that require the patient to cover a portion of their own healthcare expenses through the payment of copayments or deductibles. We may not be able to collect the full amounts due with respect to these payments that are the patient’s financial responsibility, or in those instances where physicians provide services to uninsured individuals. To the extent permitted by law, amounts not covered by third-party payors are the obligations of individual patients for which we may not receive whole or partial payment. Any increase in cost shifting from third-party payors to individual patients, including as a result of high deductible plans for patients, increases our collection costs and reduces overall collections, which we may not be able to offset with sufficient revenue.
CMS, the federal agency responsible for administering the Medicare program, made many changes to Medicare, including the manner in which Medicare will pay for telehealth visits, many of which relax previous requirements, including site requirements for both the providers and patients, telehealth modality requirements and others. With the 2024 election bringing change in the Federal administration and the Republican control of Congress (both the US House and Senate), there will likely be many more changes as well as new regulations, potential staff reductions, budgetary issues as well as possible entitlement cuts or disbursement delays, some of which may or may not be favorable for Medicare Advantage insurers. If regulatory or other issues or changes disrupt the Medicare Advantage marketplace or impact our ability to bill sufficiently enough to make a profit, our financial condition and results of operations may be adversely affected.
Our health plans are subject to risk associated with various contractual provisions and regulations establishing medical cost expenditure floors, profit ceilings, risk corridors, and quality withholds.
A substantial portion of our premium revenue will be subject to contract provisions pertaining to medical cost expenditure floors and corridors, administrative cost and profit ceilings, premium stabilization programs, and cost-plus and performance-based reimbursement programs. Many of these contract provisions are complex, or are poorly or ambiguously drafted, and thus will be subject to differing interpretations by us and the relevant government agency with whom we contract. If the applicable government agency disagrees with our interpretation or implementation of a particular contract provision, we could be required to adjust the amount of our obligation under that provision. Any such adjustment could have a material adverse effect on our business, financial condition, cash flows, or results of operations.
In addition, many of our contracts will contain provisions pertaining to at-risk premiums that require us to meet certain quality performance measures to earn all of our contract revenues. If we are unsuccessful in achieving the stated performance measure, we will be unable to recognize the revenue associated with that measure, which could have a material adverse effect on our business, financial condition, cash flows, or results of operations.
If we fail to accurately predict and effectively manage our medical care costs, our operating results could be materially and adversely affected.
Our profitability will depend to a significant degree on our ability to accurately predict and effectively manage our medical care costs. Because the premium payments we receive will generally be fixed in advance and we will operate with a narrow profit margin, relatively small changes in our medical care ratio could create significant changes in our overall financial results. Many factors could affect our medical care costs, including:
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the level of utilization of healthcare services; |
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changes in the underlying risk acuity of our membership; |
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unexpected patterns in the annual flu season; |
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increases in hospital costs; |
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increased incidences or acuity of high dollar claims related to catastrophic illnesses or medical conditions for which we do not have adequate reinsurance coverage; |
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increased maternity costs; |
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changes in state eligibility certification methodologies; |
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relatively low levels of hospital and specialty provider competition in certain geographic areas; |
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increases in the cost of pharmaceutical products and services; |
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changes in healthcare regulations and practices; |
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epidemics or pandemics, such as COVID-19; |
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new medical technologies; and |
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other various external factors. |
Many of these factors will be beyond our control. The inability to forecast and manage our medical care costs or to establish and maintain a satisfactory medical care ratio, either with respect to a particular health plan or across the consolidated entity, could have a material adverse effect on our business, financial condition, cash flows, or results of operations.
If we are unable to deliver quality care, and maintain good relations with the physicians, hospitals, and other providers with whom we contract, or if we are unable to enter into cost-effective contracts with such providers, our profitability could be adversely affected.
We will contract with physicians, hospitals, and other providers as a means to ensure access to healthcare services for our members, to manage medical care costs and utilization, and to better monitor the quality of care being delivered. We will compete with other health plans to contract with these providers. We believe providers select plans in which they participate based on criteria including reimbursement rates, timeliness and accuracy of claims payment, potential to deliver new patient volume and/or retain existing patients, effectiveness of resolution of calls and complaints, and other factors. There can be no assurance that we will be able to successfully attract and retain providers to maintain a competitive network in the geographic areas we serve. In addition, in any particular market, providers could refuse to contract with us, demand higher payments, or take other actions which could result in higher medical care costs, disruption to provider access for current members, a decline in our growth rate, or difficulty in meeting regulatory or accreditation requirements.
In some markets, certain providers, particularly hospitals and some specialists, may have significant market positions or even monopolies. If these providers refuse to contract with us or utilize their market position to negotiate favorable contracts which are disadvantageous to us, our profitability in those areas could be adversely affected.
Our business will depend on our information and medical management systems, and our inability to effectively integrate, manage, update, and keep secure our information and medical management systems could disrupt our operations.
Our business will be dependent on effective and secure information systems that assist us in processing provider claims, monitoring utilization and other cost factors, supporting our medical management techniques, providing data to our regulators, and implementing our data security measures. Our members and providers will also depend upon our information systems for enrollment, premium processing, primary care and specialist physician roster access, membership verifications, claims status, provider payments, and other information. If we experience a reduction in the performance, reliability, or availability of our information and medical management systems, our operations, ability to pay claims, ability to produce timely and accurate reports, and ability to maintain proper security measures could be adversely affected.
We have and will attempt to enter into further partner relationships with third parties to support our information technology systems. This will make our operations vulnerable to adverse effects if such third parties fail to perform adequately. If any licensor or vendor of any technology which is integral to our operations were to become insolvent or otherwise fail to support the technology sufficiently, our operations could be negatively affected. Additionally, our operations will be vulnerable to adverse effects if such third parties are unable to perform due to forces outside of their control, such as a natural disaster or serious weather event.
The use of artificial intelligence (“AI”), data analytics, and other technologies are expected in the future to become a key component in the administration and management of health plans and health care delivery. If we are not successful in utilizing AI initiatives and other advancements in technology in our business, we will not be able to compete effectively and business, reputation, or financial results could be adversely affected.
As part of our operating efficiencies, we will be required to make investments in certain technology and AI to enhance our operations and to save costs. There are risks associated with the development and deployment of technology and AI, and there can be no assurance that the usage of these advanced technologies and AI will enhance our operations or reduce our operational costs. Our planned technology and AI-related efforts may give rise to risks related to accuracy, bias, discrimination, intellectual property infringement, data privacy, and cybersecurity, among others. In addition, these risks include the possibility of new or enhanced governmental or regulatory scrutiny, litigation, or other legal liability, ethical concerns, negative consumer perceptions as to technology, automation and AI, or other complications that could adversely affect our business, reputation, or financial results. The development, use and commercial deployment of AI technologies is still in its early stages. Thus, it is not possible to predict the commercial value of these deployments and uses and all of the risks and potentially unintended consequences related to the use of advanced technologies and AI by vendors, third-party developers, hackers, programmers or the Company.
If we acquire and invest in companies, we may not realize expected business, technological or financial benefits and the acquisitions or investments could prove difficult to integrate, disrupt our business, dilute stockholder value and adversely affect our business, results of operations, and financial condition.
As part of our business strategy, we may evaluate and make investments in, or acquisitions of, complementary companies, services and solutions, to further grow and augment our business and service offerings. The success of any attempts to grow our business through acquisitions to complement our business depends in part on the availability of, our ability to identify, and our ability to engage and pursue suitable acquisition candidates. We may not be able to find suitable acquisition candidates, and we may not be able to complete acquisitions on favorable terms, if at all.
If we do complete future acquisitions, we cannot assure you that they will ultimately strengthen our competitive position or that they will be viewed positively by customers, financial markets or investors. Furthermore, future acquisitions could pose numerous additional risks to our operations, including:
• diversion of management’s attention from existing operations;
• unanticipated costs or liabilities associated with the acquisition;
• incurrence of acquisition-related costs, which would be recognized as a current period expense;
• difficulties in, and the cost of, integrating personnel and cultures, operations, technologies, and services which may lead to failure to achieve the expected benefits on a timely basis or at all;
• challenges in achieving strategic objectives, cost savings and other anticipated benefits;
• inability to maintain relationships with key partners, customers, suppliers, vendors and other third parties on which the purchased business relies;
• ineffective controls, procedures and policies inherited from the acquired company or during the transition and integration;
• inability to generate sufficient revenue to offset acquisition and/or investment costs;
• negative impact to our results of operations because of the depreciation of amounts related to acquired intangible assets, fixed assets, and deferred compensation;
• requirements to record certain acquisition-related costs and other items as current period expenses, which would have the effect of reducing our reported earnings in the period in which an acquisition is consummated;
• recording goodwill or other long-lived asset impairment charges (if any) in the periods in which they occur, which could result in a significant charge to our earnings in any such period;
• use of substantial portions of our available cash, issuance of dilutive equity or the incurrence of debt to consummate the acquisition;
• potential write-offs of acquired assets or investments, and potential financial and credit risks associated with acquired customers; and
• tax effects and costs of any such acquisitions, including the related integration into our tax structure and assessment of the impact on the realizability of our future tax assets or liabilities.
RISKS RELATED TO OUR INDUSTRY
Our health plans will operate with very low profit margins, and small changes in operating performance or slight changes to our accounting estimates could have a disproportionate impact on our potential net income.
Profit margins in the managed health industry are generally low (in the single digits) compared to the profit margins in most other industries. Given these low profit margins, small changes in operating performance or slight changes to our accounting estimates could have a disproportionate impact on our potential net income and adversely affect our business.
Our use and disclosure of personally identifiable information and other non-public information, including protected health information, will be subject to federal and state privacy and security regulations, and our failure or the failure of our vendors to comply with those regulations or to adequately secure the information we hold could result in significant liability or reputational harm.
State and federal laws and regulations including, but not limited to, the Health Insurance Portability and Accountability Act, as amended by the Health Information Technology for Economic and Clinical Health Act, and all regulations promulgated thereunder (collectively, “HIPAA”), the California Consumer Privacy Act (the “CCPA”), the Gramm-Leach-Bliley Act, and the California Privacy Rights Act (the “CPRA”), govern the collection, dissemination, use, privacy, confidentiality, security, availability, and integrity of personally identifiable information (“PII”), including protected health information (“PHI”). HIPAA establishes basic national privacy and security standards for protection of PHI by covered entities and business associates, including health plans such as ours. HIPAA requires covered entities like us to develop and maintain policies and procedures regarding PHI, and to adopt administrative, physical, and technical safeguards to protect PHI.
HIPAA violations may result in significant civil penalties. HIPAA authorizes state attorneys general to file suit under HIPAA on behalf of state residents. Courts can award damages, costs, and attorneys’ fees related to violations of HIPAA in such cases.
Even when HIPAA does not apply, according to the Federal Trade Commission (the “FTC”), failing to take appropriate steps to keep consumers’ personal information secure constitutes unfair acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act, 15 U.S.C § 45(a). The FTC expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities. Individually identifiable health information is considered sensitive data that merits stronger safeguards. The FTC’s guidance for appropriately securing consumers’ personal information is similar to what is required by the HIPAA security regulations.
If we or one or more of our significant vendors do not comply with existing or new laws and regulations related to PHI, PII, or non-public information, we could be subject to criminal or civil sanctions. Any security breach involving the misappropriation, loss, or other unauthorized disclosure or use of confidential member information, whether by us or by our vendors, could subject us to civil and criminal penalties, divert management’s time and energy, and have a material adverse effect on our business, financial condition, cash flows, or results of operations.
Large-scale medical emergencies in one or more states in which we plan to operate our health plans could significantly increase utilization rates and medical costs.
Large-scale medical emergencies can take many forms and be associated with widespread illness or medical conditions. For example, natural disasters, such as a major earthquake or wildfire in California, or a major hurricane affecting Florida, South Carolina or Texas, could have a significant impact on the health of a large number of our covered members. Other conditions that could impact our members include a virulent flu season or epidemic, such as a resurgence of COVID-19, or new viruses for which vaccines may not exist, are not effective, or have not been widely administered.
In addition, federal and state law enforcement officials have issued warnings about potential terrorist activity involving biological or other weapons of mass destruction. All of these conditions, and others, could have a significant impact on the health of the population of wide-spread areas. If one of the states in which we plan to operate were to experience a large-scale natural disaster, a significant terrorist attack, or some other large-scale event affecting the health of a large number of our members, our covered medical expenses in that state would rise, which could have a material adverse effect on our business, financial condition, cash flows, or results of operations.
We will face various risks inherent in the government contracting process that could materially and adversely affect our business and profitability, including periodic routine and non-routine reviews, audits, and investigations by government agencies.
We will be subject to various risks inherent in the government contracting process. These risks include routine and non-routine governmental reviews, audits, and investigations, and compliance with government reporting requirements and these risks may be heightened with the 2024 election bringing change in the Federal administration and the formation of the Department of Government Efficiency, a non-cabinet-level department of the federal government which is focused on among other things reducing perceived waste and fraudulent spending and eliminating excessive regulation. Violation of the laws, regulations, or contract provisions governing our operations, or changes in interpretations of those laws and regulations, could result in the imposition of civil or criminal penalties, the cancellation of our government contracts, the suspension or revocation of our licenses, the exclusion from participation in government sponsored health programs, or the revision and recoupment of past payments made based on audit findings. If we are unable to correct any noted deficiencies, or become subject to material fines or other sanctions, we could suffer a substantial reduction in profitability, and could also lose one or more of our government contracts. In addition, government receivables are subject to government audit and negotiation, and government contracts are vulnerable to disagreements with the government.
Any changes to the laws and regulations governing our business, or the interpretation and enforcement of those laws or regulations, could require us to modify our operations and could negatively impact our operating results.
Our business will be extensively regulated by the federal government and the states in which we operate. The laws and regulations governing our operations are generally intended to benefit and protect health plan members and providers rather than managed care organizations. The government agencies administering these laws and regulations have broad latitude in interpreting and applying them. Changes in the interpretation or application of our contracts could reduce our profitability if we have detrimentally relied on a prior interpretation or application. These laws and regulations, along with the terms of our government contracts, regulate how we do business, what services we offer, and how we interact with our members and the public. For instance, some states mandate minimum medical expense levels as a percentage of premium revenues. These laws and regulations, and their interpretations, are subject to frequent change. The interpretation of certain contract provisions by our governmental regulators may also change. Changes in existing laws or regulations, or their interpretations, or the enactment of new laws or regulations, could reduce our potential profitability by imposing additional capital requirements, increasing our liability, increasing our administrative and other costs, increasing mandated benefits, forcing us to restructure our relationships with providers, requiring us to implement additional or different programs and systems, or making it more difficult to predict future results. Thus, any significant changes in existing health care laws or regulations could materially impact our future business, financial condition, cash flows, or results of operations.
We will be subject to extensive fraud and abuse laws that may give rise to lawsuits and claims against us, the outcome of which may have a material adverse effect on our potential business, financial condition, cash flows, or results of operations.
Because we will receive payments from federal and state governmental agencies, we will be subject to various laws commonly referred to as “fraud and abuse” laws, including federal and state anti-kickback statutes, prohibited referrals, and the federal False Claims Act, which permit agencies and enforcement authorities to institute a suit against us for violations and, in some cases, to seek treble damages, criminal and civil fines, penalties, and assessments. Violations of these laws can also result in exclusion, debarment, temporary or permanent suspension from participation in government healthcare programs, or the institution of corporate integrity agreements. Liability under such federal and state statutes and regulations may arise if we know, or it is determined that we should have known, that information we provide to form the basis for a claim for government payment is false or fraudulent, and some courts have permitted False Claims Act suits to proceed if the claimant was out of compliance with program requirements.
Fraud, waste and abuse prohibitions encompass a wide range of operating activities, including kickbacks or other inducements for referral of members or for the coverage of products (such as prescription drugs) by a plan, billing for unnecessary medical services by a provider, upcoding, payments made to excluded providers, improper marketing, and the violation of patient privacy rights. In particular, there has recently been increased scrutiny by the Department of Justice on health plans’ risk adjustment practices, particularly in the Medicare program. Companies involved in government healthcare programs such as Medicare are required to maintain compliance programs to detect and deter fraud, waste and abuse, and are often the subject of fraud, waste and abuse investigations and audits.
The federal government has taken the position that claims presented in violation of the federal anti-kickback statute may be considered a violation of the federal False Claims Act. In addition, under the federal civil monetary penalty statute, the U.S. Department of Health and Human Services’ Office of Inspector General has the authority to impose civil penalties against any person who, among other things, knowingly presents, or causes to be presented, certain false or otherwise improper claims. Qui tam actions under federal and state law are brought by a private individual, known as a relator, on behalf of the government. A relator who brings a successful qui tam lawsuit can receive 15 to 30 percent of the damages the government recovers from the defendants, which damages are trebled under the False Claims Act. Because of these financial inducements offered to plaintiffs, qui tam actions have increased significantly in recent years, causing greater numbers of healthcare companies to incur the costs of having to defend false claims actions, many of which are spurious and without merit. In addition, meritorious false claims actions could result in fines, or debarment from Medicare, or other state or federal healthcare programs. If we are subject to liability under a qui tam or other actions, our business, financial condition, cash flows, or results of operations could be adversely affected. Even if we are successful in defending qui tam actions against us, the fact that these actions were filed against us, even if ultimately determined to be without merit, could result in expensive defense costs, and also could have an adverse impact on our reputation and our ability to obtain regulatory approval for acquisitions that we may pursue.
Medical liability claims made against us in the future could cause us to incur significant expenses and pay significant damages if not covered by insurance.
The risk of medical liability claims against our business managed and affiliated medical groups, as well as against the treating physicians and other medical practitioners, is an inherent part of our business. While we endeavor to carry appropriate levels of insurance covering medical malpractice claims, successful medical liability claims might exceed our insurance coverage or the coverage held by our provider partners, which could make us secondarily liable for such incidents. Furthermore, professional liability insurance, including medical malpractice insurance, is expensive and insurance premiums may increase significantly in the future, especially as we continue to expand our service offerings. As a result, adequate professional liability insurance may not be available to our physicians and other medical practitioners or to us in the future at acceptable costs or at all.
Additionally, our health plan business may be targeted for medical liability lawsuits based on vicarious liability or other legal theories by which plaintiffs seek to hold our health plans liable for medical results associated with care rendered by our managed and affiliated medical groups or other network providers.
Any claims made against us that are not fully covered by insurance could be costly to defend against, result in substantial damage awards against us and divert the attention of our management and our partners from our operations, which could have a material adverse effect on our business, reputation, financial condition and results of operations. Additionally, any claims made against us, whether meritorious or not, may increase the cost of our insurance premiums which could adversely impact our business.
Restrictions on our ability to obtain funds from our regulated subsidiaries could materially and adversely affect our ability to reinvest in our business or and return capital to our shareholders.
Because we operate as a holding company, we expect to be dependent on dividends and administrative expense reimbursements from our subsidiaries to fund our obligations. Many of these subsidiaries are regulated by state departments of insurance or similar regulatory authorities. We are also required by law or regulation to maintain specific prescribed minimum amounts of capital in these subsidiaries. The levels of capitalization required depend primarily on the volume of premium revenues generated by the applicable subsidiary. We may be required to seek approval by state regulatory authorities before we transfer money or pay dividends from our regulated subsidiaries exceeding specified amounts. An inability of our regulated subsidiaries to pay dividends to their parent companies in the desired amounts or at the time of our choosing could adversely affect our ability to meet our obligations or invest in our business through capital expenditures or business acquisitions. If we are unable to obtain sufficient funds from our subsidiaries to fund our obligations, our results of operations, financial position and cash flows could be materially and adversely affected.
Negative public perception of health insurers could reduce our access to capital, cause our stock price to decline, limit enrollment of members or increase risk to our facilities or key employees.
Denial of health claims by insurers and other negative publicity has resulted in widespread anger and mistrust of health insurers by the public. Following the targeted killing of UnitedHealthcare CEO Brian Thompson this risk has been received much greater national awareness. Negative sentiment in the future could harm our business
RISKS RELATED TO OWNERSHIP OF OUR COMMON STOCK
Stock Price Volatility; Illiquid Trading Market
An active trading market for our common stock may never develop or, if developed, may not be sustained. If an active market for our securities does not develop, it may be difficult for you to sell the common stock you purchase without depressing the market price for our securities or to sell the common stock at all.
The Company’s common stock is thinly traded and while we have applied for listing on the OTCQB marketplace at present, trades are reported on the OTC Pink marketplace only several days a month. This thin trading and relatively small non-affiliate float lead to a high level of volatility in reported sale prices. Investors in the Company’s common stock will have a limited ability to trade shares on the open market and, even if able to sell shares, could suffer significant market losses due to large swings in the prices of the shares. Many brokerage firms have significant restrictions related to depositing formerly restricted shares into investor accounts, which further impact an investors’ ability to sell their shares.
Our stock price has experienced significant volatility and may change significantly in the future, as a result you may not be able to resell shares of our common stock at or above the price investors paid or at all, and investors could lose all or part of their investment as a result.
The trading price of our common stock has been volatile in recent months, and may continue to be volatile. The stock market can experience extreme volatility. This volatility often has been unrelated or disproportionate to the operating performance of particular companies. Investors may not be able to resell their shares at or above the price they paid for the stock.
Broad market and industry fluctuations may materially adversely affect the market price of our common stock, regardless of our actual operating performance. In addition, price volatility may be greater because the public float and trading volume of our common stock is or remains low.
In the past, following periods of market volatility, stockholders have instituted securities class action litigation. Class action lawsuits and other potential securities litigation, could have a substantial cost and divert resources and the attention of executive management from our business regardless of the outcome of such litigation.
Our quarterly operating results fluctuate and may fall short of prior periods, our projections or the expectations of investors or securities analysts, which could materially adversely affect our stock price.
We have not reported revenue for the past several years, and it is likely that will not report revenues until at least 2026. Thus it is likely that our operating results will fluctuate from quarter to quarter in the future. While results of any one fiscal quarter are not a reliable indication of results to be expected for any other fiscal quarter or for any year, if we fail to show improvement in results in future periods, or to meet the expectations of investors or securities analysts, our stock price may decline, and the decrease in the stock price may be disproportionate to the shortfall in our financial performance. Results may be affected by various factors, including those described in these risk factors.
GENERAL RISK FACTORS
We are dependent on the leadership of the chief executive officer and other key employees of our operating subsidiaries. Moreover, if we are unable to attract and retain additional executives in the near term, our business could be negatively impacted.
The success of our business and the ability to execute our strategy are highly dependent on the efforts of Dr. Prasad Jeereddi, who is leading the effort to apply for and build the necessary infrastructure for Medicare Advantage plans in California and Nevada, and our other key executive officers and employees. It will also be essential for the Company and its operating subsidiaries to broaden their base of knowledgeable executives in the near term to support its business growth and ultimately achieve profitability. The loss of the leadership, expertise, and experience of existing and future executives could negatively impact our operations. Our ability to replace them or any other key employee may be difficult and may take an extended period of time because of the limited number of individuals in the healthcare industry who have the breadth and depth of skills and experience necessary to operate and lead a business such as ours. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain, or motivate these personnel. If we are unsuccessful in recruiting, retaining, managing, and motivating such personnel, our business, financial condition, cash flows, or results of operations could be adversely affected.
Failure to maintain effective internal controls over financial reporting could have a material adverse effect on our business, operating results, and stock price, and could subject us to sanctions by regulatory authorities.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. Primarily because of the Company’s limited resources, and thus limited financial expertise and segregation of duties, the Company has disclosed material weaknesses in its financial controls and procedures for an extended period of time. We are currently taking steps to alleviate such material weaknesses in our internal control over financial reporting in the past, we are reporting such weaknesses in the current Form 10-K and may continue to report weaknesses in the future. If additional material weaknesses in our internal control over financial reporting continue for an extended period of time, the risk of material misstatements in our consolidated financial statements may increase and we could be required to restate our financial results.
The expense and administrative burdens as a public company could have an adverse effect on the Company and its business, financial condition and results of operations.
The Company incurs significant costs associated with being a public company including insurance, legal, accounting, administrative and other costs and expenses. The Sarbanes-Oxley Act of 2002, including the requirements of Section 404, as well as rules and regulations subsequently implemented by the SEC, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the rules and regulations promulgated and to be promulgated thereunder, the Public Company Accounting Oversight Board, the SEC and the securities exchanges, impose additional reporting and other obligations on public companies. The costs to comply with these regulations are significant and the Corporation will be required to allocate financial, legal and human resources to maintain compliance with these regulations.
Item 1B. Unresolved Staff Comments.
None
Cybersecurity Risk Management, Governance And Risk Assessment
Cybersecurity Risk Management
The Program will be based on the National Institute of Standards and Technology (“NIST”) Cybersecurity Framework (“CSF”), NIST Special Publication 800-53, and the Payment Card Industry standards, as applicable, and designed to comply with applicable laws and regulations, including HIPAA and the New York Department of Financial Services Cybersecurity Regulation, as applicable. This does not imply that we will meet any particular technical standards, specifications, or requirements. The Program will be aligned with the Company's overall enterprise risk management system and processes and shares common methodologies, reporting channels and governance processes that apply across the enterprise risk management program to other legal, compliance, strategic, operational, and financial risk areas. Control procedures are assessed regularly to confirm their effectiveness.
The Company’s cybersecurity policies and procedures will be reviewed by the CISO and updated at least annually and will include an incident response plan (“IRP”) for detecting, responding to and limiting the effects of a cyber security event. In addition, under the IRP, following the resolution of a cybersecurity incident, the Company will generally consider the effectiveness of the Program and the IRP, make adjustments as appropriate, and report to senior management and the Audit Committee as appropriate on these matters. Cybersecurity policies and procedures will also be subject to periodic review and audits by internal and external parties, such as the internal audit function, external auditors, regulators, or independent assessors. The Company will require employees to undergo cybersecurity-related training, including phishing prevention training, and employees are tested regularly through phishing exercises.
Governance
Cybersecurity Risk Assessment
Until January 2024, the Company's executive offices were located in Rockville, MD. The Company’s headquarters are now located in, Ontario, CA where it conducts substantially all of its administrative operations in offices it shares with its wholly-owned subsidiary, Elite Health Plan, Inc.
The Company is subject to lawsuits, investigations and potential claims arising out of the ordinary conduct of its business. The Company is not currently involved in any material litigation.
Item 4. Mine Safety Disclosures.
Not applicable
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 over-the-counter market and quoted on the OTC Pink marketplace.
The following table displays the range of high and low bid prices for the Company’s Common Stock for the period from January 1, 2023 through December 31, 2024.
|
Period |
High Bid |
Low Bid |
||||||
|
January 1 – March 31, 2023 |
$ | .11 | $ | .04 | ||||
|
April 1 - June 30, 2023 |
.11 | .08 | ||||||
|
July 1 – September 30, 2023 |
.26 | .08 | ||||||
|
October 1 – December 31, 2023 |
.65 | .21 | ||||||
|
January 1 – March 31, 2024 |
1.00 | .42 | ||||||
|
April 1 - June 30, 2024 |
.84 | .41 | ||||||
|
July 1 – September 30, 2024 |
.77 | .52 | ||||||
|
October 1 – December 31, 2024 |
1.94 | .52 | ||||||
The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions.
As of March 24, 2025 there were approximately 122 holders of record of the Company's Common Stock.
To date the Company has declared no dividends on its Common Stock and does not anticipate declaring dividends in the foreseeable future.
During the year ended December 31, 2024, the Company did not purchase any of its own equity securities.
Item 6. Selected Financial Data
Not required for smaller reporting companies.
|
Management's Discussion and Analysis of Financial Condition and Results of Operations. |
Results of operations
2024 Compared to 2023
There was no patient revenue or expenses in 2024 or 2023.
SG&A increased by $1,028,000 or 134% from $765,000 in 2023 to $1,793,000 in 2024, due to costs associated with preparing for and making its application to the State of California to operate a Medicare Advantage plan. Loss from investments in unconsolidated entities increased from $47,000 in 2023 to $524,000 in 2024. The Company reported a net loss of $2,055,000 in 2024, as compared to $816,000 in 2023. The Company incurred an income tax benefit of $163,000 in 2024 as compared to $0 in 2023.
Liquidity and capital resources
At December 31, 2024, the Company had working capital of $3,917,000 as compared to negative working capital of $80,000 at December 31, 2023. Total assets increased by $3,000,000 from 2023 to 2024 principally due to the Company’s issuances of common stock pursuant to a private placement of $5.4 million. Cash and cash equivalents at December 31, 2024 were $4,034,000 compared to $466,000 at December 31, 2023.
Net cash used by operating activities was $1,515,000 in 2024, as compared to $891,000 in 2023. Net cash used in financing activities was $4,820,000 in 2024 compared to $0 in 2023.
For the year ended December 31, 2024, net cash provided by investing activities was $263,000 as compared to $180,000 used in financing activities in 2023.
The Company has determined that its best opportunity for long term success is to build on opportunities presented by Elite Health and concentrate its efforts and resources on establishing a managed care organization that will develop and operate Medicare Advantage plans for seniors in California, Nevada and other areas in the U.S. and to pursue other opportunities related to this activity. Elite Health is applying to operate initially in California, and later in Nevada, with the objective of addressing the growing number of Medicare eligible seniors in those markets.
On January 16, 2024, the Company held an initial closing of a private placement of shares of the Company’s common stock to raise gross proceeds of not less than $1,000,000, and up to $2,000,000, at a price of $0.50 per share. Since the initial closing, the Company amended the terms of the private placement to raise up to $5,500,000 and raised total proceeds of an aggregate of $5.8 million. As a result of these issuances, as of March 24, 2025, there were outstanding 21,409,924 shares of the Company’s Common Stock.
For this sale of securities in connection with private placement, no general solicitation was used, no commissions were paid, all participants in the private placement were accredited investors, and the Company relied on the exemption from registration available under Section 4(a)(2) and/or Rule 506(b) of Regulation D promulgated under the Securities Act with respect to transactions by an issuer not involving any public offering.
The Company presently intends to use the net proceeds from the private placement principally to execute the plan of Elite Health to establish a managed care organization that will operate as a Medicare Advantage plan for seniors.
In fiscal year 2024, the Company incurred a net loss of $2,055,000 compared to $816,000 in fiscal year 2023. As of December 31, 2024, the Company had an accumulated deficit in stockholders’ equity of $4,445,000, cash and cash equivalents of $4,034,000 and working capital of $3,917,000. In addition, the Company currently does not have access to capital through a line of credit nor other readily available sources of capital. Together, these factors raised substantial doubt regarding the Company’s ability to continue as a going concern at December 31, 2024. However, management has considered its plans to continue the Company as a going concern, concentrating on the establishment and operation of managed health care plans. As noted above, the Company raised gross proceeds of approximately $5.4 million in support of this business opportunity through the sale of its Common Stock in a private placement and believes it has access to additional capital through 2025. Additionally, the Company believes that these activities and resulting expenses can be managed to the level of cash resources on hand and expected to be raised. Management believes its plan alleviates the substantial doubt and that it will be successful in its planned business initiatives and will be able to continue as a going concern through at least the next twelve months. However, there can be no assurance that sources of capital will be available to the Company at that time or, if available, can be obtained on terms favorable to the Company.
Off-balance sheet arrangements
None
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 materially from those estimates.
Revenue Recognition
Currently there is no revenue while Elite Health is in development. The Company’s primary revenue prior to Elite Health was derived from the gamma knife deployed at an NYU facility which ceased operations in March of 2021.
Investments in unconsolidated entities
The Company accounts for its investments in unconsolidated entities by the equity method. The Company records its share of such earnings (losses) in the consolidated statements of operations as “Income (loss) from investments in unconsolidated entities”. The carrying value of the Company’s investments in unconsolidated entities is recorded in the consolidated balance sheets. The Company records losses of the unconsolidated entities only to the extent of the Company’s interest in, and advances to, the entities.
|
Qualitative and Quantitative Disclosures About Market Risk. |
Not required for smaller reporting companies.
|
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.
|
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
None
|
Controls and Procedures. |
Evaluation of 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 President performs these functions with the support of the Company’s outside directors and consultants who assist in the reporting and disclosure process.
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, the Company’s President concluded that the Company’s disclosure controls and procedures were not 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 SEC’s rules and forms, due to the material weakness in internal control over financial reporting described below.
Management’s 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 in the United States of America. The Company’s internal control over financial reporting includes those policies and procedures that:
(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 generally accepted accounting principles in the United States of America, 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.
All internal control systems, no matter how well designed, have inherent limitations and can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Our management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2024. 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 in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. In connection with the assessment described above, management has identified the following material weakness as of December 31, 2024: the Company did not maintain sufficient qualified personnel with the appropriate level of knowledge, experience and training in the application of accounting principles generallyaccepted in the United States of America and in internal controls over financial reporting commensurate with its financial reporting requirement. Specifically, effective controls were not designed and in place to ensure that the Company maintained, or had access to, appropriate resources with adequate experience and expertise in the area of financial reporting for transactions such as investments in unconsolidated entities, related party receivables, impairments, lease accounting, and income taxes. The Company is in the process of developing efficient approaches to remediate this material weakness.
Changes in Internal Control over Financial Reporting
Management is in the process of reviewing and developing plans to remediate the material weakness identified above. Otherwise, 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, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
|
Other Information. |
During the year ended December 31, 2024, of our officers or directors adopted or terminated any contract, instruction or written plan for the purchase or sale of securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act or any “non-Rule 10b5-1 trading arrangement”, as defined in Item 408 of Regulation S-K.
|
Directors, Executive Officers and Corporate Governance. |
The directors and executive officers of the Company are as follows:
|
Name |
Age |
Position |
|
Dr. Prasad Jeereddi |
77 |
President & Chairman of the Board |
|
Alan Gold |
80 |
Director |
|
William F. Leimkuhler |
73 |
Director |
|
William St. Lawrence |
55 |
Director |
Dr. Prasad Jeereddi has served as CEO and Chairman of the Board of Directors of the Company since July 2024. Mr. Jeereddi is affiliated with Pomona Valley Hospital Medical Center and San Antonio Regional Hospital, is a doctor of internal medicine and endocrinology and has been in private practice since 1978. Since 1991, Dr. Jeereddi has served as the President and Medical Director of Chaparral Medical Group, Inc., a leading primary and multi-specialty care provider in California. Dr. Jeereddi also serves as the President of ProMed Healthcare Administrators, a California-based limited Knox-Keene licensed Health Care Service Plan. In addition to his roles at Chaparral and ProMed, Dr. Jeereddi serves as an executive and/or director of a number of medical care and related services providers. Dr. Jeereddi serves as a trustee of the California University of Science and Medicine in San Bernardino, CA. Dr. Jeereddi is a graduate of Sri Venkateswara Medical College.
Alan Gold has served as a director of the Company since its formation in 1993 and as President and Chairman of the Board of the Company from 1996 to 2024. 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 the Company since May 1999. From January 2021 until November 2024, Mr. Leimkuhler served as a director of GHS. Mr. Leimkuhler currently serves as a senior vice president of Mutualink, Inc. (“Mutualink”), a privately owned provider of communications interoperability solutions for public safety and critical infrastructure. From November 2017 to January 31, 2021, Mr. Leimkuhler served as Mutualink’s chief financial officer. He also served as general counsel of Paice Corporation, a privately held developer of hybrid electric powertrains, from August 1999 through December 2023. In addition, Mr. Leimkuhler advises a number of technology-based companies on business, financial and legal matters. From 1994 through 1999, he held various positions with Allen & Company LLC, a New York investment banking firm, initially serving as the firm’s general counsel. Since 2007, Mr. Leimkuhler has also served as a director of Argan, Inc. (“Argan”), which provides engineering, procurement and construction services for power plants and industrial facilities. He was appointed Chairman of the Board of Argan in August 2022.
William St. Lawrence has served as director of the Company since April 2023. Mr. St. Lawrence served as the General Counsel and VP of Business Development at Cayster, Inc., a dental technology company, from August 2019 through February 2025. Prior to joining Cayster, Mr. St. Lawrence served from February 2017 to August 2019, as the General Counsel and then interim CEO at Northern Power Systems (TSX), a VT-based renewable energy company. From September 2012 to December 2020, Mr. St. Lawrence was General Counsel and Chief Administrative Officer for Northeast Wireless Networks, a wholesale shared access cellular networks company acquired by AT&T in September 2018. Mr. Lawrence serves as an advisor to a variety of technology and other companies. From May 2021 until March 2024, Mr. St. Lawrence also served as a director of Sonic Foundry Inc.
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, 2022, the Board of Directors did not meet. In view of the small size of the Company’s Board, it does not operate through committees. Instead, the full Board of Directors performs the functions typically performed by the audit, compensation and nominating committees.
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.
The Company established an Audit Committee in fiscal 2024 consisting of independent board members including William Leimkuhler, William St. Lawrence and Alan Gold. The Audit Committee provides assistance to the Board in fulfilling its oversight responsibility.
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 year ended December 31, 2024.
Item 11. Executive Compensation.
The information below sets forth the compensation for the years ended December 31, 2024, 2023, and 2022 for the President of the Company.
|
Summary Compensation Table |
|||||
|
Name and |
Annual Compensation |
||||
|
Principal Position |
Year |
Salary |
|||
|
Alan Gold |
2024 |
$ | 25,000 | ||
|
President & Chairman of the Board |
2023 |
$ | 125,000 | ||
|
2022 |
$ | 188,000 | |||
Employee Benefits; Employment Agreement
Mr. Gold was entitled to reimbursement of up to $1,000 per month for automobile expenses, which arrangement ceased in September 2023. In addition, Mr. Gold was entitled to participate in the Company’s health and life insurance program until that benefit was terminated in February 2024. The Company also paid the premiums in 2023 for a life insurance policy on Mr. Gold in the amount of $500,000, naming Mr. Gold’s wife as beneficiary. On July 10, 2024, Mr. Gold resigned from his position as President of the Company, effective immediately. Mr. Gold continues to serve as a member of the Board, but as of the effective date no longer serves as the Chairman of the Board.
Director Compensation
Through March 31, 2023, our directors, who are not officers or employees, were paid a monthly retainer of $3,000. Monthly payments were reduced to $2,000 beginning in April 2023. Mr. Leimkuhler received aggregate cash payments of $31,000 in 2023. During 2023, Mr. St. Lawrence received aggregate cash payments of $12,000 and a grant of 50,000 shares of the Company’s Common Stock, which had a per share fair market value of approximately $4,500 at the time of grant. Mr. Merriman declined compensation for serving as a director during 2023. Directors of the Company who are officers or employees do not receive any additional compensation for serving on the Board. In January 2025 the Board issued 75,000 restricted shares to each of Messrs. St. Lawrence and Leimkuhler with an approximate value of $37,500 in lieu of cash compensation for the year ended December 2024. Similarly, Dr. Jeereddi and BaoBao Reheer was granted 250,000 and 75,000 shares of stock, respectively, as compensation for serving as CEO and chairman of the board and Executive Director of the Company for the year ended December 31,2024.
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
The following table sets forth, as of March 24, 2025 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. Percentages are calculated based on 21,409,924 shares outstanding at March 24, 2025.
|
Number of Shares |
||||||||
|
Name and Address |
Beneficially |
Percent of |
||||||
|
of Beneficial Owner |
Owned (1) |
Class |
||||||
|
Prasad Anjaneya Jeereddi (2) |
1,751,097 | 8.4 | % | |||||
|
1131 W. 6th Street, Suite 225 |
||||||||
|
Ontario, CA 91762 |
||||||||
|
Alan Gold (3) |
1,140,246 | 5.5 | % | |||||
|
13644 Maidstone Ln, |
||||||||
|
Potomac, MD, 20854 |
||||||||
|
William F. Leimkuhler |
225,000 | 1.1 | % | |||||
|
43 Salem Straits Road |
||||||||
|
Darien, CT 06820 |
||||||||
|
Charles H. Merriman III(4) |
130,672 | * | ||||||
|
5507 Cary St. Road |
||||||||
|
Richmond, VA 23226 |
||||||||
|
William St. Lawrence |
125,000 | * | ||||||
|
23 Ashland Street |
||||||||
|
Newburyport, MA 01950 |
||||||||
|
Stanley S. Shuman (5) |
2,367,734 | 11.4 | % | |||||
|
711 Fifth Avenue |
||||||||
|
New York, NY 10022 |
||||||||
|
Allen & Company Incorporated |
1,578,489 | 7.6 | % | |||||
|
711 Fifth Avenue |
||||||||
|
New York, NY 10022 |
||||||||
|
Vinay Kunam |
800,000 | 3.9 | % | |||||
|
All directors and officers of the Company as a group (2) (four persons) |
3,241,343 | 15.6 | % | |||||
* Less than 1%.
|
(1) |
Unless otherwise indicated, all shares are beneficially owned and sole voting and investment power is held by the person named above. |
|
(2) |
Includes 222,114 shares held by an entity of which Dr. Jeereddi is a managing member and a majority equity holder. |
|
(3) |
Includes 1,140,246 shares held jointly by Mr. Gold and his wife as joint tenants with right of survivorship. |
|
(4) |
Mr. Merriman resigned as a director on July 8, 2024. |
|
(5) |
Includes 1,578,489 shares owned by Allen Holding Incorporated, Mr. Shuman disclaims beneficial ownership in such shares, except to the extent of his pecuniary interest therein. |
|
Certain Relationships and Related Transactions, and Director Independence. |
The Company approved compensation to certain officers and directors in December 2024 which was satisfied in January 2025 with the issuance of restricted shares of common stock as follows:
|
Name |
Shares Issued |
|
|
Dr. Prasad Jeereddi |
250,000 |
|
|
BaoBao Reeher |
75,000 |
|
|
William Leimkuhler |
75,000 |
|
|
William St. Lawrence |
75,000 |
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, 2024, and 2023, paid $99,000 and $83,000 to Mercurius & Associates LLP (formerly known as AJSH & Co LLP) for Audit Fees.
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, 2024, and 2023, the Company incurred $0 and $12,000 respectively 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 year ended December 31, 2024 and 2023, the Company paid Tax Fees of $22,000 and $17,000 to Stuart Wolf, respectively.
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, 2024, and 2023, the Company did not pay or accrue any amounts for these services.
The Board of Directors has established a policy requiring pre-approval by the Board of Directors 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 Board.
Item 15. Exhibits, Financial Statement Schedules.
(a) (1) Financial Statements and Financial Statement Schedules. The following are filed as part of this report:
|
Page No. |
|
|
Consolidated Financial Statements of the Company |
F-1 |
|
Reports of Independent Registered Public Accounting Firm |
F-2 |
|
Consolidated Balance Sheets as of December 31, 2024, and 2023 |
F-4 |
|
Consolidated Statements of Operations for the years ended December 31, 2024, and 2023 |
F-5 |
|
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2024, and 2023 |
F-6 |
|
Consolidated Statements of Cash Flows for the years ended December 31, 2024, and 2023 |
F-7 |
|
Notes to Consolidated Financial Statements |
F-8 |
(2) Financial Statement Schedules. All financial statement schedules as required by Item 8 and Item 15 of Form 10-K have been omitted because the information requested is not required, not applicable, or is shown in the Consolidated Financial Statements or Notes thereto.
(b) Exhibits:
|
Agreement and Plan of Reorganization, dated as of September 3, 2015, among U.S. Neurosurgical, Inc. (“USN”), U.S. Neurosurgical Holdings, Inc., (“Holdings”), and U.S. Neurosurgical Merger Sub, Inc. (incorporated herein by reference to Exhibit 2.1 to our Form 8-K as filed September 3, 2015) |
||
|
Share Exchange Agreement and Plan of Reorganization, dated as of October 1, 2021, between U.S. NeuroSurgical, Inc., Elite Health Plan, Inc. and all of the shareholders of Elite Health Plan, Inc. (incorporated herein by reference to Exhibit 2.1 to our Form 8-K Current Report as filed October 6, 2021) |
||
|
Share Exchange Agreement, dated as of November 27, 2023, between Holdings and certain shareholders of USN. (incorporated herein by reference to Exhibit 2.1 to our Form 8-K Current Report as filed November 27, 2023) |
||
|
Form of Amended and Restated Certificate of Incorporation of U.S. NeuroSurgical Holdings, Inc. (“Holdings”) (incorporated herein by reference to Exhibit 3.1 to our Form 8-K as filed September 3, 2015) |
||
|
Form of Amended and Restated Bylaws of Holdings (incorporated herein by reference to Exhibit 3.2 to our Form 8-K as filed September 3, 2015) |
||
|
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) |
||
|
List of Subsidiaries |
||
|
Certifications of CEO and CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
||
|
Certifications of CEO and CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
||
|
101.INS |
Inline XBRL Instance Document |
|
|
101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
|
|
101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase |
|
|
101.LAB |
Inline XBRL Taxonomy Extension Labels Linkbase Document |
|
|
101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
104 |
The Cover Page Interactive Data File, formatted in Inline XBRL (included within the Exhibit 101 attachments) |
* Filed herewith
|
(c) |
Financial Statement Schedules. None |
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.
|
Elite Health Systems Inc. |
||||
|
(Registrant) |
||||
|
By |
/s/ Dr. Prasad Jeereddi |
|||
|
|
Dr. Prasad Jeereddi | |||
|
|
CEO & Chairman of the Board | |||
|
|
and | |||
|
|
Principal Financial Officer | |||
| Dated: | April 2, 2025 | |||
In 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.
| April 2, 2025 | /s/ Dr. Prasad Jeereddi |
| Dr. Prasad Jeereddi | |
| CEO & Chairman of the Board | |
| April 2, 2025 | /s/ Alan Gold |
| Alan Gold | |
| Director | |
| April 2, 2025 | /s/ William F. Leimkuhler |
| William F. Leimkuhler | |
| Director | |
| April 2, 2025 | /s/ William St. Lawrence |
| William St. Lawrence | |
| Director |
Contents
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Elite Health Systems Inc. (Formerly known as U.S. NeuroSurgical Holdings Inc.)
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Elite Health Systems Inc. and its subsidiaries (collectively, the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations, equity and cash flows, for each of the two years in the period ended December 31, 2024, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
Substantial Doubt about the Company’s ability to continue as Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note B[1] to the Financial Statements, the Company has an accumulated deficit of $4,445,000 and $2,390,000 as of December 31, 2024 and 2023, respectively. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in the Note B[1] to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The Critical Audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. We determined that there are no critical audit matters.
/s/
We have served as the Company’s auditor since 2022.
April 2, 2025
|
December 31, |
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|
2024 |
2023 |
|||||||
|
ASSETS |
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|
Current assets: |
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|
Cash and cash equivalents |
$ | $ | ||||||
|
Income taxes receivable |
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|
Other current assets |
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| Due from related parties | ||||||||
| Stock subscriptions receivable | ||||||||
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Total current assets |
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Other assets: |
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|
Due from related parties |
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Investments in unconsolidated entities |
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|
Total other assets |
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Property and equipment: |
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|
Operating lease right-of-use asset |
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|
Total property and equipment |
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|
TOTAL ASSETS |
$ | $ | ||||||
|
LIABILITIES |
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|
Current liabilities: |
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|
Operating lease right-of-use liability - current portion |
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Accounts payable and accrued expenses |
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Income taxes payable |
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Share application money pending allotment |
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Total current liabilities |
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Operating lease right-of-use liability - net of current portion |
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Guarantee liability |
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Total liabilities |
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EQUITY |
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Common stock - par value $; |
||||||||
| Stock to be issued | ||||||||
|
Additional paid-in capital |
||||||||
|
Accumulated deficit |
( |
) | ( |
) | ||||
| Total stockholders' equity | ||||||||
|
TOTAL LIABILITIES AND EQUITY |
$ | $ | ||||||
|
See accompanying notes to the consolidated financial statements |
|
Years Ended December 31, |
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2024 |
2023 |
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Revenue |
$ | $ | ||||||
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Costs and expenses: |
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Selling, general and administrative |
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Total |
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|
Operating income (loss) |
( |
) | ( |
) | ||||
|
Total other income (expense) |
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Interest income |
( |
) | ||||||
|
Loss from loans to unconsolidated entities |
( |
) | ( |
) | ||||
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Income (loss) from investments in unconsolidated entities, net |
( |
) | ||||||
|
Total other expense |
( |
) | ( |
) | ||||
|
Profit (loss) before income taxes |
( |
) | ( |
) | ||||
|
Income tax benefit (provision) related to prior year |
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|
Net income (loss) |
$ | ( |
) | $ | ( |
) | ||
|
Basic and diluted net loss per share attributable to |
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|
Elite Health Systems Inc. |
$ | ( |
) | $ | ( |
) | ||
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Weighted average common shares outstanding, basic and diluted |
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|
See accompanying notes to the consolidated financial statements |
U.S. NEUROSURGICAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
| Common Stock | ||||||||||||||||||||||||||||||||
|
Number |
Additional |
(Accumulated |
Elite Health | |||||||||||||||||||||||||||||
|
of |
Paid-In |
Stock to |
Deficit) |
Systems Inc. |
Noncontrolling |
Total |
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|
Shares |
Amount |
Capital |
Be Issued |
Retained Earnings |
Equity |
Interests |
Equity |
|||||||||||||||||||||||||
|
Balance - December 31, 2022 |
$ | $ | $ | $ | ( |
) | $ | $ | $ | |||||||||||||||||||||||
|
Issuance of common stock as compensation |
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Issuance of common stock pending certification |
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Prior year movement form NCI to RE |
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Current year movement from NCI to RE |
( |
) | ( |
) | ||||||||||||||||||||||||||||
|
Net loss for the year ended December 31,2023 |
- | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||||||||||||||
|
Balance - December 31, 2023 |
$ | $ | $ | ( |
) | $ | $ | $ | ||||||||||||||||||||||||
|
Issuance of common stock |
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| Common stock subscribed | ||||||||||||||||||||||||||||||||
| Stock to be issued | ||||||||||||||||||||||||||||||||
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Net loss for the year ended December 31,2024 |
- | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||||||||||||||
|
Balance - December 31, 2024 |
$ | $ | $ | $ | ( |
) | $ | $ | $ | |||||||||||||||||||||||
|
See accompanying notes to the consolidated financial statements |
|
Year Ended |
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December 31, |
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2024 |
2023 |
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Cash flows from operating activities: |
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|
Net loss |
$ | ( |
) | $ | ( |
) | ||
|
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
|
Amortization of operating lease right-of-use asset |
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Loss (income) from investments in unconsolidated entities, net |
( |
) | ||||||
|
Stock issued as compensation |
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Changes in: |
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|
Income taxes payable |
( |
) | ( |
) | ||||
|
Other current assets |
( |
) | ||||||
|
Accounts payable and accrued expenses |
( |
) | ||||||
|
Operating lease right-of-use liability |
( |
) | ( |
) | ||||
|
Net cash used in operating activities |
( |
) | ( |
) | ||||
|
Cash flows from investing activities: |
||||||||
|
Advances to unconsolidated entities |
( |
) | ( |
) | ||||
| Distributed earnings from unconsolidated entities | ||||||||
| Distribution from unconsolidated entities outstanding | ( |
) | ||||||
|
Repayments of loans to unconsolidated entities |
||||||||
|
Capital contributions to unconsolidated entities |
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Loss from investments in unconsolidated entities |
( |
) | ||||||
|
Sale of shares (deposited in 2023 for 2024 transaction) |
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|
Net cash used in investing activities |
( |
) | ||||||
|
Cash flows from financing activities: |
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|
Issuance of shares from prior period |
( |
) | ||||||
|
Common stock issued |
||||||||
|
Additional capital from issuance of common stock |
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|
Net cash provided by financing activities |
||||||||
|
Net change in cash and cash equivalents |
( |
) | ||||||
|
Cash and cash equivalents - beginning of period |
||||||||
|
Cash and cash equivalents - end of period |
$ | $ | ||||||
|
Cash paid for: |
||||||||
|
Interest |
$ | $ | ||||||
| Supplemental disclosure of noncash investing and financing activities: | ||||||||
| Stock subscriptions receivable | ||||||||
| Common stock subscribed | ( |
) | ||||||
| Stock to be issued | ||||||||
|
The accompanying notes to condensed consolidated financial statements are an integral part hereof |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A – Organization and Business
Elite Health Systems Inc, formerly U.S. NeuroSurgical Holdings, Inc. through its wholly-owned subsidiaries, is developing a business to provide Medicare Advantage plans and related services, concentrating initially in California and Nevada. As used herein, unless the context indicates otherwise, the term "Company" and "Registrant" means Elite Health Systems Inc. and its wholly-owned subsidiary, Elite Health Systems Holdings Inc. (“EHSH”), and the wholly-owned subsidiaries of EHSH, U.S. NeuroSurgical Physics, Inc., USN Corona, Inc., Elite Health Plan, Inc. and Elite Health Plan of Nevada, Inc.
Company Background.
The Company was previously engaged in the ownership and operations of radiation treatment centers. Most of these businesses have been sold or wound down, and the Company has been actively pursuing opportunities to expand to other businesses that could benefit its current operations and relationships. Effective October 1, 2021, the Company acquired all of the outstanding shares of capital stock of Elite Health Plan, Inc., a California corporation (“Elite Health”) and, in exchange therefor, the former holders of Elite Health were issued newly-issued shares of EHSH, which following the transaction represent
The Company has determined that its best opportunity for long term success is to concentrate its efforts and resources on establishing a managed care organization that will develop and operate Medicare Advantage plans for, and provide related health services to, seniors in California and other areas in the U.S., and could pursue growth through other commercial opportunities and strategic transactions, including partnerships, acquisitions or mergers related and complementary to these activities and services.
In furtherance of this plan, Elite Health Plan, Inc. has submitted documentation for a Knox-Keene license to offer managed health care plans in California. In addition, EHSH recently formed Elite Health Plan of Nevada, Inc. to apply for a license to operate a Medicare Advantage plan in Nevada. Elite Heath Plan, Inc. and Elite Health Plan of Nevada, Inc., both 100% owned by EHSH and managed and operated in a similar manner, are collectively referred to herein as “Elite Health.” In California, Elite Health has taken preliminary steps toward identifying a network of providers who are well-versed in Medicare Advantage plans and addressing the healthcare needs of seniors in the communities in which they practice. Elite Health currently has no revenue, and will not be in a position to generate significant revenue while it seeks to obtain a license to operate a Medicare Advantage plan in California. The success of Elite Health will depend, in part, on timely obtaining all necessary approvals and gaining access to a sufficient network of providers and enrolling a critical level of subscribers. There can be no assurance that the Company and Elite Health will be successful in obtaining the necessary licenses to operate Medicare Advantage plans in any jurisdiction or be effective in establishing the network of providers and developing the systems required to operate a managed care business.
Until January 2024, the Company's executive offices were located at 2400 Research Boulevard, Suite 325, Rockville, MD 20850. The Company’s headquarters are now located at 1131 W 6th Street, Suite 225, Ontario, CA 91762 and its telephone number is (949) 249-1170.
Note B - The Company and its Significant Accounting Policies
|
[1] |
Basis of presentation and consolidation: |
The consolidated financial statements include the accounts of Elite Health Systems Inc and its wholly-owned subsidiaries, EHSH and the wholly owned subsidiaries of EHSH, U.S. NeuroSurgical Physics, Inc., USN Corona, Inc., Elite Health Plan, Inc. and Elite Health Plan of Nevada, Inc.. All significant intercompany balances and transactions have been eliminated in consolidation.
Recent Accounting Pronouncements
FASB ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures
The FASB issued ASU 2023-07 on November 27, 2023, which is intended to improve reportable segment disclosure requirements. Under previous guidance, while entities were required to disclose segment revenue and measure of profit or loss, there has been limited disclosure around the reporting of segment expenses. In addition to enhanced disclosures about significant segment expenses, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. The purpose of the amendments is to enable investors to better understand an entity’s overall performance and assess potential future cash flows. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company has adopted the requirements of the expanded segment disclosures as of December 31, 2024.
The Company applies the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, Consolidation to noncontrolling interests in consolidated financial statements. The guidance requires noncontrolling interests to be reported as a component of equity separate from the parent’s equity and purchases and sales of equity interests, that do not result in a change in control, to be accounted for as equity transactions. In addition, net (loss) income attributable to noncontrolling interests are to be included in net (loss) income and, upon a loss of control, the interest sold, as well as any interest retained, is to be recorded at fair value, with any gain or loss recognized in net (loss) income.
All amounts are shown in nearest thousands in the Consolidated Financial Statements and accompanying notes therein.
Liquidity and Going Concern
In fiscal year 2024, the Company incurred a net loss of $
However, management has considered its plans to continue the Company as a going concern, concentrating on the establishment and operation of managed health care plans. The Company raised gross proceeds of approximately $
|
[2] |
Revenue recognition: |
The Company generated revenue in 2024 and 2023.
|
[3] |
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.
|
[4] |
Accounts receivable: |
There were accounts receivable for the years ended 2024 or 2023.
|
[5] |
Investments in unconsolidated entities: |
The Company accounts for its investments in unconsolidated entities by the equity method. The Company records its share of such earnings (loss) in the Consolidated Statements of Operations as “Loss from investments in unconsolidated entities, net”. The carrying value of the Company’s investments in unconsolidated entities is recorded in the Consolidated Balance Sheets. The Company records losses of the unconsolidated entities only to the extent of the Company’s interest in and advances to the entities. As such, the recorded balance of BOPRE, MOP and CBOP have been taken to .
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, which in part requires entities to assess whether distributions of cash from unconsolidated entities represent a return on the investment or a return of the investment, to appropriately classify the distributions in the statement of cash flows. Although the ASU is effective in the first quarter of 2018, we early adopted the guidance in the first quarter of 2017 due to the ongoing applicability of the new standard to the Company’s consolidated financial statements. We made an accounting policy election to use the cumulative earnings approach to determine that the distributions were returns on the investment and accordingly classified them as operating cash flows. Under the cumulative earnings approach, distributions received from the unconsolidated entity are presumed to be a return on the investment unless the distributions received by the investor, less distributions received in prior periods that were deemed to be returns of investment, exceed cumulative equity in earnings recognized by the investor.
|
[6] |
Goodwill: |
Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a business acquisition. Goodwill is tested for impairment on an annual basis, at the anniversary of the acquisition, and between annual tests in certain circumstances, and written down when impaired.
Evaluating goodwill for impairment involves the determination of the fair value of each reporting unit in which goodwill is recorded using a qualitative or quantitative analysis. A reporting unit is an operating segment or a component of an operating segment for which discrete financial information is available and reviewed by segment management on a regular basis. The qualitative impairment test includes considering various factors, including macroeconomic conditions, industry and market conditions, cost factors, a sustained share price or market capitalization decrease, and any reporting unit specific events.
Goodwill is evaluated on a qualitative basis as to the carrying value of goodwill was necessary. If the fair value of a reporting unit exceeds the carrying value, goodwill impairment is not indicated. If the carrying amount of a reporting unit is determined to be higher than its estimated fair value, the excess is recognized as an impairment expense. At December 31, 2024 there was goodwill recorded.
In accordance with the authoritative guidance over fair value measurements, the fair value of a reporting unit is defined as the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date. The Company primarily uses the income approach methodology, which includes the discounted cash flow method and an enterprise value method, and the market approach methodology, which considers the values of comparable businesses, to estimate the fair value of the reporting unit.
Management believes the methodology used to review impairment of goodwill, which includes a significant amount of judgment and estimates, provides a reasonable basis to determine whether impairment has occurred. However, many of the factors employed in determining whether goodwill is impaired are outside of the Company’s control and it is reasonably likely that assumptions and estimates will change in future periods. These changes could result in future impairments.
|
[7] |
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.
|
[8] |
Asset retirement obligations: |
The Company records liabilities for legal obligations associated with the retirement of tangible long-lived assets based on the estimated future cost of asset retirement obligations discounted to present value and records a corresponding asset and liability on its consolidated balance sheets. The values ultimately derived are based on many significant estimates, including future decommissioning costs, inflation, cost of capital, and market risk premiums. The nature of these estimates requires the Company to make judgments based on historical experience and future expectations. Revisions to the estimates may be required based on such things as changes to cost estimates or the timing of future cash outlays. Any such changes that result in upward or downward revisions in the estimated obligation will result in an adjustment to the related capitalized asset and corresponding liability on a prospective basis.
|
[9] |
Capital lease obligations: |
Effective January 1, 2019, the Company adopted ASU 2016-02, Leases, and the Company’s leases previously classified as capital leases, were determined to be finance leases.
|
[10] |
Guarantees: |
The Company recognizes a liability at the fair value of the obligation at the inception of a financial guarantee contract. The initial liability is subsequently reduced as the Company is released from exposure under the guarantee. If it becomes probable that the Company will have to perform on a guarantee, a separate liability is accrued if it is reasonably estimable, based on the facts and circumstances at that time. The Company reverses the fair value liability only when there is no further exposure under the guarantee.
|
[11] |
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.
The Company has applied the accounting provisions for Accounting for Uncertainty in Income Taxes. (Topic 740) This accounting provision 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 its tax returns. If applicable, the Company records interest and penalties as a component of income tax expense. The Company had uncertain material tax positions at December 31, 2024 and 2023. Tax years from January 1, to the current year remain open for examination by federal and state tax authorities.
|
[12] |
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 common stock equivalents during 2024 and 2023, and therefore, potential dilution for the periods presented.
|
[13] |
Advertising costs: |
The Company follows the policy of charging the costs of advertising to expense as incurred. There were advertising costs in 2024 or 2023.
|
[14] |
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.
|
[15] |
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 and cash equivalents, accounts receivable, other current assets, due from or to related parties, and accounts payable approximate fair value at December 31, 2024 and 2023 because of the short maturity of these financial instruments. The carrying values of the notes receivable and the obligations under finance leases, approximate fair value because the interest rates on these instruments approximate the market rates at December 31, 2024 and 2023.
|
[16] |
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. Accounts receivable consisted of amounts due from the medical centers. Historically, credit losses on accounts receivable have not been significant.
|
[17] |
Leases: |
In February 2016, the FASB issued ASU 2016-02, Leases (“Topic 842”) to increase transparency and comparability among organizations by requiring (1) recognition of lease assets and lease liabilities on the balance sheet and (2) disclosure of key information about leasing arrangements. Some changes to the lessor accounting guidance were made to align both of the following: (1) the lessor accounting guidance with certain changes made to the lessee accounting guidance and (2) key aspects of the lessor accounting model with revenue recognition guidance. Topic 842 was effective for fiscal years and interim periods beginning after December 15, 2018. A modified retrospective approach is required for adoption for all leases that exist at or commence after the date of initial application with an option to use certain practical expedients.
The Company adopted the provisions of Topic 842, as amended, as of January 1, 2019. The adoption of Topic 842 had a material impact on the Company’s Consolidated Balance Sheets due to the recognition of certain right-of-use (“ROU”) assets and lease liabilities. Although a significant amount of revenue was accounted for under Topic 842, this guidance did not have a material impact on our Consolidated Statements of Operations or Cash Flows.
The Company determines if an arrangement is a lease at its inception. The Company’s current operating lease relates to office space used for Elite Health and is discussed in Note F.
Under Topic 842, operating leases result in the recognition of ROU assets and lease liabilities on the consolidated balance sheets. ROU assets represent the right to use the leased asset for the lease term and lease liabilities represent the obligation to make lease payments. Under Topic 842, operating lease ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The Company’s operating lease does not provide an implicit rate; therefore, upon adoption of Topic 842, the Company used its estimated incremental borrowing rate at the commencement date to determine the present value of lease payments. The ROU assets include any initial lease payments made and exclude lease incentives received. The lease terms may include options to extend or terminate the lease that are reasonably certain to be exercised. Lease expense under Topic 842 is recognized on a straight-line basis over the lease term.
The tables below present financial information associated with our leases as of and for the years ended December 31, 2024, and 2023.
|
Classification |
December 31, |
||||||||
|
2024 |
2023 |
||||||||
| Assets | |||||||||
|
Current |
|||||||||
|
Operating lease assets |
Operating lease right-of-use asset |
$ | $ | ||||||
|
Total leased assets |
$ | $ | |||||||
|
Liabilities |
|||||||||
|
Current |
|||||||||
|
Finance lease liabilities |
Obligations under finance lease - current portion |
$ | $ | ||||||
|
Operating lease liabilities |
Operating lease right-of-use liability - current portion | $ | $ | ||||||
|
Long-term |
|||||||||
|
Operating lease liabilities |
Operating lease right-of-use liability - net of current portion | ||||||||
|
Total lease liabilities |
$ | $ | |||||||
|
Lease Cost |
|||||||||
|
Operating lease cost |
Selling, general and administrative |
$ | $ | ||||||
|
Finance lease cost |
|||||||||
|
Interest on lease liabilities |
Interest expense | ||||||||
|
Sublease income |
Interest income - sales-type sublease |
||||||||
|
Net lease cost |
$ | $ | |||||||
|
Maturity of lease liabilities (as of December 31, 2024) |
Operating lease |
|||
|
2025 |
$ | |||
|
2026 |
||||
|
Total |
$ | |||
|
Less amount representing interest |
||||
|
Present value of lease liabilities |
$ | |||
|
Discount rate |
% | |||
Note C - Investments in Unconsolidated Entities
|
[1] |
The Southern California Regional Gamma Knife Center |
During 2007, the Company, through a noncontrolling interest in joint ventures, managed the formation of the Southern California Regional Gamma Knife Center at San Antonio Regional Hospital (“SARH”) in Upland, California. Corona Gamma Knife, LLC (“CGK”) is party to a
EHSHI is a
At December 31, 2024 and 2023, the Company had recorded investment of NeuroPartners LLC and CGK. During the year ended December 31, 2024 and 2023, the Company’s equity in loss of NeuroPartners LLC and CGK was $
The following tables present the aggregation of summarized financial information of NeuroPartners LLC and CGK:
|
NeuroPartners LLC and CGK Condensed Combined Income Statement Information |
||||||||
|
December 31, 2024 |
||||||||
|
2024 |
2023 |
|||||||
|
Patient revenue |
$ | $ | ||||||
|
Net loss |
$ | $ | ( |
) | ||||
|
EHSHI’s equity in (loss) earnings of NeuroPartners LLC and CGK |
$ | $ | ( |
) | ||||
|
NeuroPartners LLC and CGK Condensed Combined Balance Sheet |
||||||||
|
December 31, 2024 |
||||||||
|
2024 |
2023 |
|||||||
|
Current assets |
$ | $ | ||||||
|
Noncurrent assets |
||||||||
|
Total assets |
$ | |||||||
|
Current liabilities |
$ | $ | ||||||
|
Noncurrent liabilities |
$ | |||||||
|
Equity |
( |
) | ||||||
|
Total liabilities and equity |
$ | $ | ||||||
|
[2] |
Boca Oncology Partners |
During the first quarter of 2011, the Company, through the formation of a joint venture, in which it had a noncontrolling interest, participated in the formation of Boca Oncology Partners, LLC (“BOP”), for the purpose of owning and operating a cancer center in Boca Raton, Florida. In June 2011, Boca Oncology Partners RE, LLC (“BOPRE”), an affiliated entity, purchased a
In June 2012, BOPRE purchased an additional
During the years ended December 31, 2018 and 2017, several investors relinquished part of their ownership interest in BOPRE, and those interests were distributed among the remaining investors in relationship to their percentages owned. During 2021 an additional member relinquished its ownership to USNC. As a result, the Company now holds a
USNC was a
In September 2024, BOPRE sold its interest in Boca West IMP to the remaining members for $
The following tables present the summarized financial information of BOPRE:
BOPRE Condensed Income Statement Information
|
Years Ended December 31, |
||||||||
|
2024 |
2023 |
|||||||
|
Net income |
$ | $ | ||||||
|
USNC's equity in income in BOPRE |
$ | $ | ||||||
BOPRE Condensed Balance Sheet Information
|
December 31, |
||||||||
|
2024 |
2023 |
|||||||
|
Current assets |
$ | $ | ||||||
|
Noncurrent assets |
||||||||
|
Total assets |
$ | $ | ||||||
|
Current liabilities |
$ | $ | ||||||
|
Noncurrent liabilities |
||||||||
|
Equity |
||||||||
|
Total liabilities and equity |
$ | $ | ||||||
|
[3] |
Medical Oncology Partners |
In April 2015, MOP, was formed in partnership with local physicians and other investors. MOP was established to acquire a
Due to increasing costs, continued net losses since April 2015, and reliance on related party and other debt for operating cash flows, the fair value of UOMA is less than it’s carrying amount. The Company tested its investment for impairment at December 31, 2016 and determined that the investment was impaired, and an impairment loss was recorded against the entire equity balance in MOP, as well as loans from EHSHIand EHSHI to MOP and UOMA. During the year ended December 31, 2021, the Company’s equity in loss of MOP was $
On December 31, 2022, MOP/UOMA sold their assets to One Care Oncology Partners, LLC for $
|
[4] |
CB Oncology Partners |
CBOP was organized September 1, 2017, to acquire the rights of a new center in Cutler Bay, FL from Florida Oncology Partners, LLC (“FOP”) . USNC originally had a
Effective November 15, 2019, FOP transferred to, and CBOP assumed, a loan with BB&T bank, that it had entered into in order to finance the purchase of equipment and build out of the new center, as well as the associated property and equipment. The Company and other investors were guarantors of the loan. In addition, CBOP and BB&T agreed to a reduction in the monthly loan repayments for the next nine months, and to an extension of the term of the loan from November 2024 to July 2025. In July 2020 CBOP and BB&T agreed to a further reduction in the monthly payments for the life of the loan and an extension in the term of the loan to July of 2027.
In June 2020, CBOP made a $
During the year ended December 31, 2024, the Company did not lend any additional funds to CBOP. During the year ended December 31, 2023, the Company advanced $
Due to loans made to CBOP, CBOP is considered to be a variable interest entity of the Company. However, as the Company is not deemed to be the primary beneficiary of CBOP, since it does not have the power to direct the operating activities that most significantly affect CBOP’s economic performance, the entity is not consolidated, but certain disclosures are provided herein.
The Company was approached by one of the investors in CBOP where the investor would payoff the outstanding loan, releasing the Company of its guarantee in exchange for the Company’s ownership interest in CBOP. The Company has evaluated the proposal and in return wrote off the remaining value of amounts due the Company from CBOP of $
The following table presents the summarized financial information of CBOP:
CBOP Condensed Income Statement Information
|
Years Ended December 31, |
||||||||
|
2024 |
2023 |
|||||||
|
Patient revenue |
$ | $ | ||||||
|
Net loss |
$ | ( |
) | $ | ( |
) | ||
|
USNC's equity in loss of CBOP |
$ | ( |
) | $ | ( |
) | ||
CBOP Condensed Balance Sheet Information
| December 31, | ||||||||
|
2024 |
2023 |
|||||||
|
Current assets |
$ | $ | ||||||
|
Noncurrent assets |
||||||||
|
Total assets |
$ | $ | ||||||
|
Current liabilities |
$ | $ | ||||||
|
Noncurrent liabilities |
||||||||
|
Deficit |
( |
) | ( |
) | ||||
|
Total liabilities and deficit |
$ | $ | ||||||
Note D – Elite Health Plan, Inc.
Background. Elite Health Plan, Inc. was formed in 2017 with the purpose of establishing a managed care organization that will develop and operate Medicare Advantage plans for seniors in California. In addition to pursuing the required authorizations, including a Knox-Keene license from California’s Department of Managed Health Care (“DMHC”), necessary for the operation of full service health plans in California, and approval from the Centers for Medicare & Medicaid Services (“CMS”), the Company is considering engaging in related businesses and health services to support this mission.
Medicare Advantage plans are offered by private companies and are regulated by the federal government and licensed by the state in which those companies operate. Once its plans are approved, Elite Health expects to initially operate in the California counties of San Bernadino, Riverside, and Los Angeles, with the objective of addressing the growing number of Medicare eligible seniors in those markets. The Company then expects to apply to the State of Nevada and begin operations in Clark County, Nevada. Because of the collective experience of its founders and affiliates as physicians, software executives, and health plan administrators, we believe that Elite Health will be positioned to bring to California and Nevada a comprehensive, community-based and cost-effective health care management service solution for these communities.
Filing in California. The Company initially applied for a license to operate a Medicare Advantage plan in Nevada. However, the Company determined that a reciprocity agreement between California and Nevada would more result in a more expedient path to licensing in Nevada would be to secure approvals in California first. For this reason, Elite Health is focusing on completing the process toward obtaining a Knox-Keene license in California, and securing necessary approvals from CMS with a final submission of plan details in June 2025. There can be no assurance that a license will be issued or, if issued, it will be done in a timely manner.
Note E – Taxes
The components of the provision for income taxes are as follows:
|
Years Ended December 31, |
|||||||||
|
2024 |
2023 |
||||||||
|
Current taxes: |
|||||||||
|
Federal |
$ | $ | |||||||
|
State |
|||||||||
|
Current taxes |
|||||||||
|
Deferred taxes: |
|||||||||
|
Federal |
$ | ( |
) | $ | |||||
|
State |
|||||||||
|
Deferred taxes |
( |
) | |||||||
|
Income tax provision |
$ | ( |
) | $ | |||||
A reconciliation of the tax provision calculated at the statutory federal income tax rate with amounts reported follows:
|
Year Ended December 31, |
||||||||
|
2024 |
2023 |
|||||||
|
Income tax at the federal statutory rate |
$ | ( |
) | $ | ( |
) | ||
|
State income tax, net of federal taxes |
( |
) | ( |
) | ||||
|
Permanent differences and other |
( |
) | ||||||
|
True up to tax return for JV investments |
||||||||
|
Variance-reversal of previous tax provision |
||||||||
|
Change in valuation allowance |
||||||||
| Reversal of income tax provision related to prior year | $ | ( |
) | $ | ||||
Items which give rise to deferred tax assets and liabilities are as follows:
|
December 31, |
||||||||
|
2024 |
2023 |
|||||||
|
Deferred tax asset: |
||||||||
|
Basis differences in unconsolidated entities, including advances and loans to those entities |
$ | $ | ||||||
|
Net intangible assets and other capitalized costs |
||||||||
|
Net operating loss |
||||||||
|
Net effect of conversion from the accrual basis of accounting to the cash basis of accounting for tax purposes primarily related to accounts receivable, prepaid expense, deferred revenue, and accounts payable |
||||||||
|
Valuation allowance |
( |
) | ( |
) | ||||
|
Net deferred tax asset |
$ | $ | ||||||
The Company files income tax returns in the U.S. federal jurisdiction, the State of Maryland, the State of Florida, the State of California, and the State of New York. With few possible exceptions, the Company is no longer subject to U.S. or state income tax examinations by tax authorities for years before .
Note F – Commitments and Contingencies
|
[1] |
Operating Leases: |
The Company leases office space under an operating lease from November 1, 2024 through December 31, 2026 where the Company and its subsidiaries maintain operations.
As discussed in Note B, the Company adopted Topic 842 as of January 1, 2019. Upon adoption of Topic 842, the Company's office lease remained an operating lease and a lease liability in the amount of $
|
[2] |
Guarantees: |
Holdings is a guarantor of the full amount of the outstanding CBOP loan with BB&T Bank entered into in 2017, as described In Note C[2]. The outstanding balance on this loan was$
The Company expected any potential obligations from these guarantees to be reduced by the recoveries of the respective collateral and had recorded a liability of $
|
[3] |
Product liability: |
The Company does not directly provide medical services and as a result does not currently have professional medical liability insurance. The Company expects to add several categories of liability insurance prior to the begin of operations at Elite Health Plan, Inc.
Note G – Segment Reporting
The Company applies ASC 280, Segment Reporting, in determining reportable segments for its financial statement disclosure. Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s CODM is its Chief Executive Officer (“CEO”). The Company has determined that it operates as a single operating segment and has one reportable segment."
Note H – Transactions with Related Parties
The Company recorded compensation with directors and officers of the Company for the year ended December 31, 2024 consisting of stock grants valued at $
Note I – Subsequent Events
The Company completed its private placement in February 2025 with an additional
The Company issued shares as compensation to certain board members and executives in lieu of cash. $