Elite Health Systems Inc.
11/13/2024 | Press release | Distributed by Public on 11/13/2024 16:01
Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)
usnu20240930_10q.htm
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2024
or
|
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT |
For the transition period from to .
Commission file number: 0-15586
Elite Health Systems Inc.
(Exact name of registrant as specified in its charter)
|
Delaware |
47-5370333 |
|
(State or other jurisdiction of |
(I.R.S. Employer |
|
incorporation or organization) |
Identification No.) |
1131 W 6th Street, Ontario, CA 91762
(Address of principal executive offices)
(949) 249-1170
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
| Common Stock, par value $0.01 per share | USNU | OTC Pink |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company, and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Non-accelerated filer ☒ | Smaller reporting company ☒ |
| Emerging Growth Company ☐ |
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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of the registrant's common stock, $0.01 par value, outstanding as of September 30, 2024 was 17,384,924.
Table of Contents
Table of Contents
| PART I - FINANCIAL INFORMATION | 3 | |
| Item 1. Financial Statements | 3 | |
| Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations. | 14 | |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk. | 18 | |
| Item 4. Controls and Procedures | 18 | |
| PART II -OTHER INFORMATION | 20 | |
| Item 1. Legal Proceedings | 20 | |
| Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities Unregistered Sales of Equity Securities and Use of Proceeds | 20 | |
| Item 3. Defaults Upon Senior Securities | 20 | |
| Item 4. Submission of Matters to a Vote of Security Holders | 20 | |
| Item 5. Other Information | 21 | |
| Item 6. Exhibits | 21 | |
| SIGNATURES | 22 |
2
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ELITE HEALTH SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
September 30, |
December 31, |
|||||||
|
2024 |
2023 |
|||||||
|
(Unaudited) |
(Audited) |
|||||||
|
ASSETS |
||||||||
|
Current assets: |
||||||||
|
Cash and cash equivalents |
$ | 3,173,000 | $ | 466,000 | ||||
|
Other current assets |
18,000 | 61,000 | ||||||
|
Total current assets |
3,191,000 | 527,000 | ||||||
|
Other assets: |
||||||||
|
Due from related parties |
525,000 | 520,000 | ||||||
|
Investments in unconsolidated entities |
22,000 | 189,000 | ||||||
|
Total other assets |
547,000 | 709,000 | ||||||
|
Property and equipment: |
||||||||
|
Operating lease right-of-use asset |
66,000 | 85,000 | ||||||
|
Total property and equipment |
66,000 | 85,000 | ||||||
|
TOTAL ASSETS |
$ | 3,804,000 | $ | 1,321,000 | ||||
|
LIABILITIES |
||||||||
|
Current liabilities: |
||||||||
|
Operating lease right-of-use liability - current portion |
$ | 28,000 | $ | 27,000 | ||||
|
Accounts payable and accrued expenses |
65,000 | 59,000 | ||||||
|
Income taxes payable |
- | 166,000 | ||||||
|
Share application money pending allotment |
- | 355,000 | ||||||
|
Total current liabilities |
93,000 | 607,000 | ||||||
|
Operating lease right-of-use liability - net of current portion |
39,000 | 58,000 | ||||||
|
Guarantee liability |
11,000 | 11,000 | ||||||
|
Total liabilities |
143,000 | 676,000 | ||||||
|
EQUITY |
||||||||
|
Common stock - par value $.01; 25,000,000 shares authorized; 17,384,924 and 9,284,924 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively. |
174,000 | 93,000 | ||||||
|
Additional paid-in capital |
6,911,000 | 2,942,000 | ||||||
|
Accumulated deficit |
(3,424,000 | ) | (2,390,000 | ) | ||||
|
Total stockholders' equity |
3,661,000 | 645,000 | ||||||
|
TOTAL LIABILITIES AND EQUITY |
$ | 3,804,000 | $ | 1,321,000 |
See accompanying notes to the consolidated financial statements
3
Table of Contents
ELITE HEALTH SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||
|
September 30, |
September 30, |
|||||||||||||||
|
2024 |
2023 |
2024 |
2023 |
|||||||||||||
|
Revenue |
$ | - | $ | - | - | - | ||||||||||
|
Costs and expenses: |
||||||||||||||||
|
General and administrative |
387,000 | 151,000 | 1,299,000 | 522,000 | ||||||||||||
|
Total |
387,000 | 151,000 | 1,299,000 | 522,000 | ||||||||||||
|
Operating loss |
(387,000 | ) | (151,000 | ) | (1,299,000 | ) | (522,000 | ) | ||||||||
|
Total other (expense) income |
||||||||||||||||
|
Interest expense |
- | (1,000 | ) | 1,000 | ||||||||||||
|
Income (loss) from investments in unconsolidated entities, net |
97,000 | 2,000 | 101,000 | (266,000 | ) | |||||||||||
|
Total other (expense) |
97,000 | 1,000 | 102,000 | (266,000 | ) | |||||||||||
|
Loss before income taxes |
(290,000 | ) | (150,000 | ) | (1,197,000 | ) | (788,000 | ) | ||||||||
|
Reversal of provision for income taxes |
- | 163,000 | ||||||||||||||
|
Net loss |
(290,000 | ) | (150,000 | ) | (1,034,000 | ) | (788,000 | ) | ||||||||
|
Net loss attributable to noncontrolling interests |
- | (23,000 | ) | - | (118,000 | ) | ||||||||||
| Net loss attributable to Elite Health Systems Inc. | $ | (290,000 | ) | $ | (127,000 | ) | (1,034,000 | ) | (670,000 | ) | ||||||
| Basic and diluted net loss per share attributable to Elite Health Systems Inc. | $ | (0.02 | ) | $ | (0.02 | ) | (0.08 | ) | (0.08 | ) | ||||||
|
Weighted average common shares outstanding, basic and diluted |
17,006,736 | 7,892,185 | 12,692,067 | 7,892,185 |
The accompanying notes to condensed consolidated financial statements are an integral part hereof.
4
Table of Contents
ELITE HEALTH SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
|
Common Stock |
||||||||||||||||||||||||||||
| Number | Additional | (Accumulated | ||||||||||||||||||||||||||
|
of |
Paid-In |
Deficit) |
Elite Health | Noncontrolling |
Total |
|||||||||||||||||||||||
|
Shares |
Amount |
Capital |
Retained Earnings |
Systems Inc. |
Interests |
Equity |
||||||||||||||||||||||
|
Balance - December 31, 2022 |
7,842,185 | $ | 78,000 | $ | 2,871,000 | $ | (1,710,000 | ) | $ | 1,239,000 | $ | 217,000 | $ | 1,456,000 | ||||||||||||||
|
Issuance of common stock as compensation |
50,000 | 1,000 | 4,000 | 5,000 | 5,000 | |||||||||||||||||||||||
|
Issuance of common stock pending certification |
1,392,739 | 14,000 | 67,000 | 81,000 | 81,000 | |||||||||||||||||||||||
|
Current year movement from NCI to RE |
136,000 | 136,000 | (217,000 | ) | (81,000 | ) | ||||||||||||||||||||||
|
Net loss for the year ended December 31, 2023 |
- | - | - | (816,000 | ) | $ | (816,000 | ) | $ | - | (816,000 | ) | ||||||||||||||||
|
Balance - December 31, 2023 |
9,284,924 | $ | 93,000 | $ | 2,942,000 | $ | (2,390,000 | ) | $ | 645,000 | $ | - | $ | 645,000 | ||||||||||||||
|
Issuance of common stock |
8,100,000 | 81,000 | 3,969,000 | 4,050,000 | 4,050,000 | |||||||||||||||||||||||
|
Net loss for the nine months ended September 30, 2024 |
(1,034,000 | ) | $ | (1,034,000 | ) | $ | - | (1,034,000 | ) | |||||||||||||||||||
|
Balance - September 30, 2024 |
17,384,924 | $ | 174,000 | $ | 6,911,000 | $ | (3,424,000 | ) | $ | 3,661,000 | $ | - | $ | 3,661,000 |
See accompanying notes to the consolidated financial statements
5
Table of Contents
ELITE HEALTH SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
Nine Months Ended |
||||||||
|
September 30, |
||||||||
|
2024 |
2023 |
|||||||
|
Cash flows from operating activities: |
||||||||
|
Net loss |
$ | (1,034,000 | ) | $ | (788,000 | ) | ||
|
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
|
Amortization of operating lease right-of-use asset |
19,000 | 20,000 | ||||||
|
Income from investments in unconsolidated entities, net |
(100,000 | ) | 265,000 | |||||
|
Distributed earnings from unconsolidated entities |
268,000 | 23,000 | ||||||
|
Changes in: |
||||||||
|
Income taxes payable |
(166,000 | ) | (1,000 | ) | ||||
|
Other current assets |
43,000 | (2,000 | ) | |||||
|
Accounts payable and accrued expenses |
6,000 | (65,000 | ) | |||||
|
Operating lease right-of-use liability |
(18,000 | ) | (23,000 | ) | ||||
| Advances to unconsolidated entites | (6,000 | ) | (393,000 | ) | ||||
|
Net cash used in operating activities |
(988,000 | ) | (571,000 | ) | ||||
|
Cash flows from investing activities: |
||||||||
|
Repayments of loans to unconsolidated entities |
- | 44,000 | ||||||
|
Capitial contributions to unconsolidated entities |
- | (58,000 | ) | |||||
|
Principal payments received under sales-type sublease |
- | - | ||||||
|
Net cash provided by (used in) investing activities |
- | (14,000 | ) | |||||
|
Cash flows from financing activities: |
||||||||
|
Issuance of shares from prior period |
(355,000 | ) | ||||||
|
Issuance of common stock |
4,050,000 | - | ||||||
|
Net cash provided by (used in) financing activities |
3,695,000 | - | ||||||
|
Net change in cash and cash equivalents |
2,707,000 | (585,000 | ) | |||||
|
Cash and cash equivalents - beginning of period |
466,000 | 1,537,000 | ||||||
|
Cash and cash equivalents - end of period |
$ | 3,173,000 | $ | 952,000 |
The accompanying notes to condensed consolidated financial statements are an integral part hereof
6
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note A - Basis of Preparation
On September 30, 2024 the Company filed with the Secretary of 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., ("EHSI" or the Company) effective as of September 30, 2024. The Company simultaneously filed with the Secretary of State of Delaware a Certificate of Amendment to the Certificate of Incorporation of U.S. NeuroSurgical, Inc to Elite Health Systems Holdings Inc. (EHSHI"). USN Corona, Inc. ("USNC") remains a wholly owned subsidiary of EHSHI. The accompanying Condensed Consolidated Financial Statements of Elite Health Systems Inc. and Subsidiaries (the "Company") as of September 30, 2024, and 2023, are unaudited. However, in the opinion of the management, such statements include all adjustments necessary for a fair statement of the information presented therein. The Consolidated Balance Sheet at December 31, 2023, has been derived from the audited Consolidated Financial Statements at that date appearing in the Company's Annual Report on Form 10-K. All amounts are shown in nearest thousands in the Consolidated Financial Statements and accompanying notes therein.
In fiscal year 2023, the Company incurred a net loss of $816,000 compared to $1,572,000 in fiscal year 2022 and a net loss of $1,034,000 and $670,000 during the nine months ended September 30, 2024 and 2023, respectively. As of September 30, 2024, the Company had an accumulated deficit in stockholders' equity of $3,424,000, cash and cash equivalents of $3,173,000 and working capital of $3,098,000. 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 September 30, 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, during the nine months ended September 30, 2024, the Company raised gross proceeds of $4,050,000 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 in fiscal 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, 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.
Pursuant to accounting requirements of the Securities and Exchange Commission applicable to quarterly reports on Form 10-Q, the accompanying Condensed Consolidated Financial Statements and notes do not include all disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. Accordingly, these statements should be read in conjunction with the Company's most recent annual Consolidated Financial Statements.
Consolidated results of operations for interim periods are not necessarily indicative of those to be achieved for full fiscal years. The only change to the Company's equity in the nine months ended September 30, 2024 and 2023 was net loss for the periods and issuance of common stock during the nine month period ended September 30, 2024.
7
Table of Contents
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.
The Company recognizes revenue in accordance with two different accounting standards: 1) Topic 606 and 2) Accounting Standards Codification ("ASC") Topic 842, Leases. However, the Company is not currently generating revenue.
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 $3,000,000 maximum on April 15, 2024 and amended further on July 10, 2024 to increase the maximum pursuant to the private placement to $5,000,000. As of September 30, 2024 the Company raised an aggregate of $4,050,000. As a result of these issuances, as of September 30, 2024, there were outstanding 17,384,924 shares of the Company's Common Stock.
Basic loss per share has been computed using the weighted-average number of shares of common stock outstanding during the period. The numerator for the calculation of basic and diluted earnings per share is net loss and the denominator is the weighted-average number of common shares outstanding during the period.
The tables below present financial information associated with our leases.
|
Classification |
September 30, |
||||||||
|
2024 |
2023 |
||||||||
| Assets | |||||||||
|
Long-term |
|||||||||
|
Operating lease assets |
Operating lease right-of-use asset |
$ | 66,000 | $ | - | ||||
|
Total leased assets |
$ | 66,000 | $ | - | |||||
|
Liabilities |
|||||||||
|
Current |
- | ||||||||
|
Operating lease liabilities |
Operating lease right-of-use liability - current portion |
$ | 28,000 | ||||||
|
Long-term |
|||||||||
|
Operating lease liabilities |
Operating lease right-of-use liability - net of current portion |
$ | 39,000 | $ | - | ||||
|
Total lease liabilities |
$ | 67,000 | $ | - | |||||
|
Lease Cost |
|||||||||
|
Operating lease cost |
Selling, general and administrative |
$ | 36,000 | $ | - | ||||
|
Net lease expense |
$ | 36,000 | $ | - |
|
Maturity of lease liabilities (as of September 30, 2024) |
Operating lease |
|||
|
2024 |
$ | 7,000 | ||
|
2025 |
30,000 | |||
|
2026 |
31,000 | |||
|
Total |
$ | 68,000 | ||
|
Less amount representing interest |
1,000 | |||
|
Present value of lease liabilities |
$ | 67,000 | ||
|
Discount rate |
4.140 | % |
8
Table of Contents
Note B -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 14-year agreement with SARH to renovate space in the hospital and install and operate a Leksell PERFEXION gamma knife. CGK leases the gamma knife from NeuroPartners LLC, which holds the gamma knife equipment. The center ceased operations on May 31, 2023, the Company loaned $1,000 of additional funds to complete the removal of the equipment in February 2024.
USNC is a 20% owner of NeuroPartners LLC and owns 39% of CGK.
At September 30, 2024, and December 31, 2023, the Company had norecorded investment of NeuroPartners LLC and CGK. For the nine months ended September 30, 2024, and 2023, the Company's equity in loss of NeuroPartners LLC and CGK was $0 and $89,000, respectively, but was not recorded due to prior losses, resulting in no recorded investment at September 30, 2024 and December 31, 2023. At September 30, 2024, and December 31, 2023, amounts due from related parties were $0, all of which were written off.
The following tables present the aggregation of summarized financial information of NeuroPartners LLC and CGK:
NeuroPartners LLC and CGK Condensed Combined Income Statement Information
| September 30, | ||||||||
| 2024 |
2023 |
|||||||
|
Patient revenue |
$ | - | $ | 376,000 | ||||
|
Net loss |
$ | - | $ | (136,000 | ) | |||
|
USNC's equity in (loss) earnings of NeuroPartners LLC and CGK |
$ | - | $ | (89,000 | ) |
NeuroPartners LLC and CGK Condensed Combined Balance Sheet Information
|
September 30, |
December 31, |
|||||||
|
2024 |
2023 |
|||||||
|
Current assets |
$ | - | $ | 297,000 | ||||
|
Noncurrent assets |
- | - | ||||||
|
Total assets |
$ | - | $ | 297,000 | ||||
|
Current liabilities |
$ | - | $ | 376,000 | ||||
|
Noncurrent liabilities |
- | - | ||||||
|
Equity |
- | (79,000 | ) | |||||
|
Total liabilities and equity |
$ | - | $ | 297,000 |
9
Table of Contents
Note C-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, BOPRE, an affiliated entity, purchased a 20% interest in Boca West IMP, owner of a medical office building in West Boca, Florida in which BOP operates. BOP occupies 6,000 square feet of the 32,000 square foot building. The Company invested $32,000 initially and had a 22.5% interest in BOP and BOPRE. In February 2014, the Company and other members sold their interests in BOP.
In June 2012, BOPRE purchased an additional 3.75% of Boca West IMP from another investor bringing its total interest to 23.75%. BOPRE accounts for this investment under the cost method since it does not exercise significant influence over Boca West, IMP.
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 and 2022, additional members relinquished their ownership to EHSHI. As a result, the Company now holds a 23.10% ownership interest in BOPRE, which it accounts for under the equity method.
In September 2024, BOPRE sold its interest in Boca West IMP to the remaining members for $1,210,840, resulting in a gain to the Company of $97,000 during the quarter ended September 30, 2024.
The following tables present the summarized financial information of BOPRE:
BOPRE Condensed Income Statement Information
|
Nine Months Ended |
||||||||
|
Septebmer 30, |
||||||||
|
2024 |
2023 |
|||||||
|
Rental Income |
$ | - | $ | - | ||||
|
Net income |
$ | 429,000 | $ | 16,000 | ||||
|
USNC's equity in earnings of BOPRE |
$ | 101,000 | $ | 2,000 |
BOPRE Condensed Balance Sheet Information
|
September 30, |
December 31, |
|||||||
|
2024 |
2023 |
|||||||
|
Current assets |
$ | 77,000 | $ | 27,000 | ||||
|
Noncurrent assets |
- | 792,000 | ||||||
|
Total assets |
$ | 77,000 | $ | 819,000 | ||||
|
Current liabilities |
$ | 2,000 | ||||||
|
Noncurrent liabilities |
- | - | ||||||
|
Equity |
77,000 | 817,000 | ||||||
|
Total liabilities and equity |
$ | 77,000 | $ | 819,000 |
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Table of Contents
Note D - Medical Oncology Partners
In April 2015, MOP, was formed in partnership with local physicians and other investors. MOP was established to acquire a 100% equity interest in UOMA. USNC was not a member of MOP at the time of formation as it was not able to participate due to the fact that USNC was not a physician. Nevertheless, USNC wished to eventually obtain an equity interest in MOP and loaned Dr. Jaime Lozano, the principal investor in MOP and a co-investor in FOP, $173,000. Dr. Lozano used these funds, along with an equal amount of his own funds (a total of $345,000), to purchase a 76.67% interest in MOP. Other investors paid a further $105,000 for the remaining equity in MOP. MOP used the $450,000 of financing to acquire a 100% equity interest in UOMA. An application was filed for a waiver to allow USNC to hold an equity interest notwithstanding the physician requirement and on December 22, 2016, USNC was cleared to become a part owner of MOP. Dr. Lozano agreed to exchange half of his membership interest to USNC in settlement of the note to USNC. USNC and Dr. Lozano also agreed to share equally in providing a 5% equity interest in MOP to an additional investor as a consulting fee for services rendered in the administration of MOP and UOMA. At December 22, 2016, USNC owned 35.83% of MOP with an initial carrying value of $161,000. The Company recorded its share of losses of $12,000 for the period from December 22, 2016 to December 31, 2016, against its investment which resulted in a reduction of its equity investment to $149,000.
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 EHSHI and USNC to MOP and UOMA. During the year ended December 31, 2021, the Company's equity in loss of MOP was $231,000 but was not recorded due to prior losses.
On December 31, 2022, MOP/UOMA sold their assets to One Care Oncology Partners, LLC for $2,060,000. EHSHICorona netted approximately $1.3 million from the proceeds for management fees to date. Some funds were held in escrow until post-closing adjustments were made. During the year ended December 31, 2023, the Company paid additional expenses totaling $47,000 related to the sale of MOP/UOMA. These expenses were recorded as an advance to MOP and fully impaired.
Note E- CB Oncology Partners
CBOP was organized September 1, 2017, to acquire the rights of the new center from FOP. USNC originally had a 24% equity interest in CBOP. Beginning in October of 2017, CBOP began paying the remainder of the costs associated with opening the center. CBOP had no assets at the end of 2017. The medical center opened and treated its first patient in January of 2018.
Effective November 15, 2019, FOP transferred to, and CBOP assumed, a loan with BB&T bank, that it had entered in order to finance the purchase of equipment and build out of the new center, as well as the associated property and equipment. In addition, CBOP and BB&T agreed to reduce the monthly loan repayments for the next nine months, and to extend the term of the loan from November 2024 to July 2025. In July 2020 CBOP and BB&T further agreed to reduce the monthly payments for the life of the loan and extended the loan to July of 2027.
In June 2020, CBOP made a $500,000 capital call to its members. UNSC converted previously made advances totaling $121,000 into equity in CBOP to meet its capital requirement, and other members contributed $212,000 in cash. The remaining capital contributions are not expected to be met and, accordingly, the Company's equity interest in CBOP increased to 28.58% in June 2020.
Amounts due from CBOP at September 30, 2024 and December 31, 2023, total $813,000 of outstanding principal, less $290,000 of allowances, for a net receivable of $524,000. The Company records increases in the allowance, when applicable, as a component of loss from investments in unconsolidated. For the nine months ended September 30, 2024 and 2023, the Company's equity in loss of CBOP was $295,000 and $300,000, respectively, but was not recorded due to prior losses.
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.
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The following table presents the summarized financial information of CBOP:
CBOP Condensed Income Statement Information
|
Nine Months Ended |
||||||||
|
2024 |
2023 |
|||||||
|
Patient revenue |
$ | 947,000 | $ | 814,000 | ||||
|
Net (loss) income |
$ | (976,000 | ) | $ | (991,000 | ) | ||
|
USNC's equity in (loss) income of CBOP |
$ | (295,000 | ) | $ | (300,000 | ) |
CBOP Condensed Balance Sheet Information
|
September 30, |
December 31, |
|||||||
|
2024 |
2023 |
|||||||
|
Current assets |
$ | 332,000 | $ | 116,000 | ||||
|
Noncurrent assets |
1,935,000 | 2,381,000 | ||||||
|
Total assets |
$ | 2,267,000 | $ | 2,497,000 | ||||
|
Current liabilities |
$ | 4,163,000 | $ | 4,150,000 | ||||
|
Noncurrent liabilities |
3,614,000 | 2,882,000 | ||||||
|
Deficit |
(5,510,000 | ) | (4,535,000 | ) | ||||
|
Total liabilities and deficit |
$ | 2,267,000 | $ | 2,497,000 |
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Note F -Elite Health
Several of the Company's businesses have been sold or wound down, and the Company has been actively exploring opportunities to expand to other businesses that could benefit its current operations and relationships. Effective October 1, 2021, the Company's wholly-owned subsidiary, Elite Health Systems Holdings Inc, formerly U.S. NeuroSurgical, Inc., ("EHSHI"), 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 EHSHI, which following the transaction represent 15% of the outstanding shares of EHSHI. Effective November 27, 2023, the Company entered into a Share Exchange Agreement with the holders of these minority interests in EHSHI, which resulted in making EHSHI's wholly-owned subsidiary of the Company and the former minority holders of EHSHI 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, but pending certification, bringing the total outstanding to 9,284,924 shares as of that date. Since that date, the Company raised an additional $4,050,000 through the private sale of 8,100,000 shares, 7,615,076 of which have yet to be issued, bringing the total outstanding to 17,384,924 shares as of September 30, 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 seniors in California, and other areas in the U.S. including Nevada, and to pursue other opportunities related to this activity.
In furtherance of this plan, EHSHI recently formed Elite Health Plan of Nevada, Inc. to apply for a license to operate a Medicare Advantage plan in Nevada and Elite Health Plan, Inc. has submitted documentation for a Knox-Keene license to offer managed health care plans in California. Elite Heath Plan, Inc. and Elite health Plan of Nevada, Inc., both 100% owned by EHSHI and managed and operated in a similar manner, are collectively referred to herein as "Elite Health." In each of Nevada and 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 able to generate revenue for an indefinite period while it seeks to obtain a license to operate a Medicare Advantage plan in California and then other states. 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.
Note G -Income Taxes
The Company's income tax rate, which includes federal and state income taxes, was 0%, for each of the three months ended September 30, 2024, and 2023, respectively.
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Note H -Subsequent Events
Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations.
Critical Accounting Policies
The Condensed Consolidated Financial Statements of Elite Health Systems Inc. and subsidiaries (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States of America. As such, some accounting policies have a significant impact on amounts reported in the Condensed Consolidated Financial Statements. A summary of those significant accounting policies can be found in Note B to the Consolidated Financial Statements, in our 2023 Annual Report on Form 10-K. In particular, judgment is used in areas such as determining and assessing possible asset impairments, including investments in, and advances, to unconsolidated entities.
The following discussion and analysis provides information which the Company's management believes is relevant to an assessment and understanding of the Company's results of operations and financial condition. This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and notes thereto appearing elsewhere herein.
Recent events
None
Results of Operations
Three Months Ended September 30, 2024, Compared to Three Months Ended September 30, 2023
Selling, general, and administrative expenses of $387,000 for the third quarter of 2024 were 156% higher than the $151,000 incurred during the comparable period in 2023, due mostly to the start-up costs for Elite Health in 2024.
During the three months ended September 30, 2024, the Company recognized $97,000 gain from its investment in unconsolidated entities compared to $2,000 during the same period in 2023 due to the gain on the sale of the Company's interest in Boca West IMP.
During the three months ended September 30, 2024, and 2023, the Company recorded no income tax benefit or provision.
For the three months ended September 30, 2024, the Company reported a net loss of $290,000 as compared to $127,000 for the same period a year earlier. The net loss was primarily due to investment in Elite prior to generation of any revenue.
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Nine Months Ended September 30, 2024, Compared to Nine Months Ended September 30, 2023
Selling, general, and administrative expenses of $1,299,000 for the first nine months of 2024 were 149% higher than the $522,000 incurred during the comparable period in 2023, due mostly to the start-up costs for Elite Health in 2024.
During the nine months ended September 30, 2024, the Company recognized $101,000 gain from its investment in unconsolidated entities compared to a loss of $266,000 during the same period in 2023 due to the gain on the sale of the Company's interest in Boca West IMP.
During the nine months ended September 30, 2024, and 2023, the Company recorded no income tax benefit or provision.
For the nine months ended September 30, 2024, the Company reported a net loss of $1,034,000 as compared to $670,000 for the same period a year earlier. The net loss was primarily due to the lack of revenue.
Liquidity and Capital Resources
The Company's primary sources of liquidity are from equity transactions discussed below.
Net cash used in operating activities for the nine months ended September 30, 2024, was $988,000 as compared to $571,000 for the same period a year earlier. This change is primarily due to the Company using cash to invest in the Elite business. During the nine months ended September 30, 2024, the Company received $268,000 of distributed earnings from unconsolidated entities as compared to $23,000 in the first nine months of 2023.
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 $3,000,000 maximum on April 15, 2024 and amended further on July 10, 2024 to increase the maximum pursuant to the private placement to $5,000,000. As of September 30, 2024 the Company raised an aggregate of $4,050,000. As a result of these issuances, as of September 30, 2024, there were outstanding 17,384,924 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.
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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 2023, the Company incurred a net loss of $816,000 compared to $1,572,000 in fiscal year 2022 and a net loss of $1,034,000 and $670,000 during the nine months ended September 30, 2024, and 2023, respectively. As of September 30, 2024, the Company had an accumulated deficit in stockholders' equity of $3,424,000, cash and cash equivalents of $3,173,000 and working capital of $3,098,000. 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 September 30, 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, during the nine months ended September 30, 2024, the Company raised gross proceeds of $4,050,000 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 in fiscal 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, 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.
Risk Factors
We desire to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. The factors listed under the caption "Risk Factors" in Annual Report on our Form 10-K for the fiscal year ended December 31, 2020, have affected or could affect our actual results and could cause such results to differ materially from those expressed in any forward-looking statements made by us. Investors should carefully consider these risks and speculative factors inherent in and affecting our business and an investment in our common stock.
Disclosure Regarding Forward Looking Statements
The Securities and Exchange Commission encourages companies to disclose forward looking information so that investors can better understand a company's future prospects and make informed investment decisions. This document contains such "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, particularly statements anticipating future growth in revenues and cash flow. Words such as "anticipates," "estimates," "expects," "projects," "targets," "intends," "plans," "believes," "will be," "will continue," "will likely result," and words and terms of similar substance used in connection with any discussion of future operating or financial performance identify such forward-looking statements. Those forward-looking statements are based on management's present expectations about future events. As with any projection or forecast, they are inherently susceptible to uncertainty and changes in circumstances, and the Company is under no obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements whether as a result of such changes, new information, future events or otherwise.
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The Company operates in a highly competitive and rapidly changing environment and in businesses that are dependent on our ability to: achieve profitability; increase revenues; sustain our current level of operations; maintain satisfactory relations with business partners; attract and retain key personnel; maintain and expand our strategic alliances; and protect our intellectual property. The Company's actual results could differ materially from management's expectations because of changes in such factors. New risk factors can arise and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on the Company's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Factors that could cause actual results to differ materially from those currently anticipated include the following:
|
● |
Uncertainties relating to our ability to successfully implement our strategy of developing a Medicare Advantage plan under out Elite Health subsidiaries; |
|
● |
Uncertainty over our ability to achieve 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; |
|
● |
Our ability to raise capital in the future on satisfactory terms; |
|
● |
Our financial condition and liquidity; |
|
● |
Uncertainty over our ability to successfully implement management's plan to improve liquidity, including the ability to manage costs, systems and growth; |
All forward looking statements should be considered in the context of the risks and other factors described above and in "Risk Factors" (Part I, Item 1A of the Company's Annual Report on Form 10-K for the Fiscal Year ended December 31, 2023), "Quantitative and Qualitative Disclosures about Market Risk" (Part II, Item 7A of the Company's Annual Report on Form 10-K for the Fiscal Year ended December 31, 2023), and "Management's Discussion and Analysis" (Part I, Item 2 of this Form 10-Q). We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise.
Investors should also be aware that while the Company might, from time to time, communicate with securities analysts, it is against the Company's policy to disclose to them any material non-public information or other confidential commercial information. Accordingly, investors should not assume that the Company agrees with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, the Company has a policy against issuing or confirming financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts or others contain any projections, forecasts or opinions, such reports are not the responsibility of the Company.
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In addition, the Company's overall financial strategy, including growth in operations, maintaining financial ratios and strengthening the balance sheet, could be adversely affected by increased interest rates, construction delays or other transactions, economic slowdowns and changes in the Company's plans, strategies and intentions.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. 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 Chief Executive Officer performs these functions with the support of one of the Company's outside directors who assists in the reporting and disclosure process (the "Lead Director").
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 Chief Executive Officer 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 Securities and Exchange Commission's rules and forms, due to the material weakness in internal control over financial reporting described below.
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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 accounting principles generally accepted 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 accounting principles generally accepted 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.
(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.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.
Our management assessed the effectiveness of the Company's internal control over financial reporting as of September 30, 2024. 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 identified the following material weakness as of September 30, 2024: The Company did not maintain sufficient qualified personnel with the appropriate level of knowledge, experience and training in the application of accounting principles generally accepted in the United States of America and in internal controls over financial reporting commensurate with its financial reporting requirements. 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, accounting for business combinations, income taxes, and to properly assess the application of new accounting pronouncements. The Company is in the process of developing efficient approaches to remediate this material weakness. To do this in a cost-effective manner, considering the current extent of the Company's operations, management is making arrangements with consultants and advisors to assist on an as-needed basis.
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Changes in Internal Control over Financial Reporting
While there have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended September 30, 2024, management is in the process of developing plans to remediate the material weakness identified above.
PART II -OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities Unregistered Sales of Equity Securities and Use of Proceeds
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 $3,000,000 maximum on April 15, 2024 and amended further on July 10, 2024 to increase the maximum pursuant to the private placement to $5,000,000. As of September 30, 2024, the Company raised an aggregate of $4,050,000. As a result of these issuances, as of September 30, 2024, there were outstanding 17,384,924 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.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
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Item 5. Other Information
Notapplicable.
Item 6. Exhibits
|
3.1 |
Amendment to Certificate of Incorporation, effective September 30, 2024 |
|
31.1 |
Certification of President and Chief Executive Officer (Principal Executive Officer and Principal Financial Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. |
|
32.1 |
Certification of President and Chief Executive Officer (Principal Executive Officer and Principal Financial Officer) pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith. |
|
101 |
Interactive Data Files providing financial information from the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2024 in iXBRL (Inline eXtensible Business Reporting Language). Pursuant to Regulation 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, and are otherwise not subject to liability. |
|
104 |
The Cover Page Interactive Data File, formatted in Inline XBRL (included within the Exhibit 101 attachments) |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Elite Health Systems, Inc. | |||
| (Registrant) | |||
| Date: November 13, 2024 | By: | /s/ Prasad Jeereddi | |
| Prasad Jeereddi | |||
| Director, President and | |||
| Chief Executive Officer | |||
| and | |||
| Principal Financial Officer | |||
| of the Registrant |
22