US NeuroSurgical Holdings Inc

U.S. NeuroSurgical Holdings, Inc. through its wholly-owned subsidiaries, holds interests in radiological treatment facilities and, more recently, has been developing a business to provide Medicare Advantage plans, concentrating initially in Nevada and California. As used herein, unless the context indicates otherwise, the term “Company”, “Registrant” and “Holdings” means U.S. NeuroSurgical Holdings, Inc. and its wholly-owned subsidiary, U.S. NeuroSurgical, Inc. (“USN”), and the wholly-owned subsidiaries of USN, U.S. NeuroSurgical Physics, Inc., USN Corona, Inc., Elite Health Plan, Inc. and Elite Health Plan of Nevada, Inc.

Organizational Background

USN, a Delaware corporation, was formed in July 1993. Until September 1999, USN was a wholly owned subsidiary of GHS, Inc. (“GHS”). Effective September 17, 1999, GHS distributed its shares of USN to the stockholders of GHS.

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. (“Merger Sub”), the Company adopted a new holding company organizational structure whereby USN is now 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.

The holding company organizational structure was implemented through a merger (the “Merger”) conducted pursuant to Section 251(g) of the Delaware General Corporation Law (the “DGCL”), which provides for the formation of a holding company structure without a vote of the stockholders of the constituent corporations. Because the holding company organizational structure occurred at the parent company level, the remainder of the Company’s subsidiaries, operations and customers were not affected by this transaction.

In order to effect the Merger, USN formed Holdings as its wholly owned subsidiary and Holdings formed Merger Sub as its wholly owned subsidiary. Under the terms of the Merger Agreement, Merger Sub merged with and into USN, with USN surviving the merger and becoming a direct, wholly owned subsidiary of Holdings. Immediately prior to the Merger, Holdings had no assets, liabilities, or operations.

Pursuant to the Merger Agreement, all the outstanding capital stock of USN was converted, on a share for share basis, into capital stock of Holdings. As a result, each former stockholder of USN became the owner of an identical number of shares of capital stock of Holdings, evidencing the same proportional interests in Holdings and having the same designations, rights, powers and preferences, qualifications, limitations and restrictions, as those that the stockholder held in USN.

Following the Merger, Holdings’ common stock continued to trade on the over-the-counter market and continued to be quoted on the OTC Pink marketplace under the same symbol, “USNU.” The conversion of shares of capital stock under the Merger Agreement occurred without an exchange of physical certificates. Accordingly, physical certificates formerly representing shares of outstanding capital stock of USN are deemed to represent the same number of shares of capital stock of Holdings.

Pursuant to Section 251(g) of the DGCL, the provisions of the certificate of incorporation and bylaws of Holdings are substantially identical to those of USN prior to the date on which the Merger Agreement took effect. The authorized capital stock of Holdings, the designations, rights, powers and preferences of such capital stock, and the qualifications, limitations and restrictions thereof are also substantially identical to those of the capital stock of USN immediately prior to the date of the Merger. Further, the directors and executive officers of Holdings are the same individuals who were directors and executive officers, respectively, of USN immediately prior to the date of the Merger.

Until January 2024, the Company’s executive offices were located at 2400 Research Boulevard, Suite 325, Rockville, Maryland 20850. The Company’s headquarters are now located at 1131 W 6 th Street, Suite 225, Ontario, CA 91762 and its telephone number is (949) 249-1170.

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.

Background of the Company Business Activities

Beginning in 1993, the Company and its predecessors have owned and operated stereotactic radiosurgery centers, utilizing gamma knife technology. From July 1997 through March 2021, the Company held an interest in and operated a gamma knife center on the premises of New York University Medical Center in New York, New York. In January 2009, the Company, through its noncontrolling interest in Corona Gamma Knife, LLC, participated in the opening of a new center, the Southern California Regional Gamma Knife Center, at the San Antonio Regional Hospital in Upland, California. The Company’s business model with its gamma knife technology has been to own, or hold interests in, the gamma knife equipment, and charge the hospital or medical facility, where the unit is housed and maintained, based on utilization.

Beginning in 2010, the Company made a series of minority investments in cancer centers in Florida that treat patients with radiation therapy, including linear accelerators and other technologies and approaches. The other investors in these centers included physicians whose practices were based to some extent on activities at these centers.

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, USN, the Company’s wholly-owned subsidiary, acquired all of the outstanding shares of capital stock of Elite Health Plan, Inc. (“Elite Health Plan”) and, in exchange therefor, the former holders of Elite Health Plan were issued newly-issued shares of USN, which following the transaction represent 15% of the outstanding shares of USN. Effective November 27, 2023, the Company entered into a Share Exchange Agreement with the holders of these minority interests in USN, which resulted in making USN a wholly-owned subsidiary of the Company and the former minority holders of USN 15% owners of the Company immediately following the exchange.

Current Business Activities

While the Company continues to own and participate in the management of the radiological treatment centers in Florida and California, the Company’s principal focus is now on the launch and development of Medicare Advantage plans for seniors by its subsidiaries, Elite Health Plan and Elite Health Plan of Nevada, Inc. (“Elite Health Nevada”) (Elite Health Plan, together with Elite Health Nevada are collectively referred to as “Elite Health”). In connection with the development of Elite Health, the Company, in the first quarter of 2024 raised approximately $2 million dollars in a private placement of its Common Stock. The Company expects that it will require additional capital in late 2024 or early 2025 to execute its Elite Health business plan and strategy. Below is a description of the current business of Elite Health and the Company’s interests in the radiological treatment facilities:

Elite Health

Background. Elite Health Plan 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 and in 2023 Elite Health Nevada was formed to develop and operate Medicare Advantage plans for seniors in Nevada. 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. It is expected that Elite Health initially will operate in Clark County, Nevada and then 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. 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 Nevada and California 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 ages 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 the Center for Medicare & Medicaid Services (“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.

Developments in Nevada and California. The Company recently formed Elite Health of Nevada to apply for a license to operate a Medicare Advantage plan in Nevada and Elite Health Plan is taking steps to submit documentation for a Knox- Keene license to offer managed health care plans in California. Elite Health recently filed an application to provide Medicare Advantage plans in Nevada, but there can be no assurance that a license will be issued or if issued it will be done in a timely manner. Elite Health’s initial focus on Nevada is driven, by the quick access to network and collection of service providers in local communities, as well as the belief that the application process in Nevada is less burdensome than the state licensing process in California.

In each jurisdiction, 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 Nevada and California.

Approach to Healthcare Delivery. In both 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 founders and affiliates also have considerable experience with health care record-based software and will endeavor to utilize the latest advances in information systems and operating systems, including AI and data analytics, in its processes to enhance each patient experience and control medical costs.

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 greater choice of providers than a standard health maintenance organization (“HMO”). 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.

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.

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 Nevada and then California.

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.

Radiological Treatment Centers

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 in Upland, California (“SARH”). Corona Gamma Knife, LLC (“CGK”) was party to a 14-year agreement with SARH to renovate space in the hospital and install and operate a Leksell PERFEXION gamma knife. CGK leased the gamma knife from NeuroPartners LLC, which holds the gamma knife equipment. The center ceased operations on May 31,2023 and the Company completed the removal of the equipment in February of 2024. USNC is a 20% owner of NeuroPartners LLC and owns 39% of CGK.

At December 31, 2023 and 2022, the Company’s recorded loss in investment of NeuroPartners LLC and CGK was $0. During the year ended December 31, 2023, and 2022, the Company’s equity in loss earnings of NeuroPartners LLC and CGK was $0 and $133,000, respectively. At December 31, 2023 and 2022, amounts due from these related parties was $0 and $7,000, respectively.

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 20% interest in Boca West IMP, LLC, (“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 $225,000 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, an additional member relinquished its ownership to USNC. As a result, the Company now holds a 23.1% ownership interest in BOPRE, which it accounts for under the equity method. The Company’s recorded investment in BOPRE is $189,000 and $157,000, at December 31, 2023 and 2022, respectively.

USNC was a 10% guarantor of 50% of the outstanding balance of Boca West IMP’s ten-year mortgage. This mortgage had an original balance of $3,000,000 and is secured by the medical office building in which BOP operates. In April 2020, the partners of Boca West IMP refinanced the mortgage in order to recover some of the cash that was invested before the building was completely occupied and removed USNC as a guarantor.

Medical Oncology Partners. In April 2015, MOP, was formed in partnership with local physicians and other investors. Medical Oncology Partners (“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 its 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 USN 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. USN Corona netted approximately $1.3 million from the proceeds for management fees to date. Because the 31st occurred on a Saturday, the funds were not received until 1/3/2023. 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.

CB Oncology Partners. CB Oncology Partners (“CBOP”) was organized September 1, 2017, to acquire the rights of the new center from Florida Oncology Partners, LLC (“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. In 2010, the Company formed FOP in partnership with local physicians and other investors. USNC owned a 24% interest in FOP. FOP is no longer operational and is fully dissolved.

Effective November 15, 2019, FOP transferred to, and CBOP assumed, a loan from 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. 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 were not met and, as a result, the Company’s equity interest in CBOP increased to 28.58% in June 2020.

During the year ended December 31, 2023, the Company advanced $535,000, less $21,000 which was repaid by CBOP for a net receivable of $519,000. In addition, CBOP made a $200,000 capital call to its members resulting in an equity contribution from the Company of $57,000. This equity investment was fully impaired due to Equity Method accounting. During the second quarter of 2022 the Company wrote off all amounts due and accrued interest thereon, from CBOP resulting in a $919,000 loss. During the remainder of the year ended December 31, 2022, the Company advanced an additional $163,000, less $156,000 of allowances, for a net receivable of $6,000. These allowances and write-offs were recorded as losses from investments in unconsolidated entities. For the years ended December 31, 2023 and 2022, the Company’s equity in loss of CBOP was $444,000 and $191,000, 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.

Employees

The Company has two full-time employees and relies on consultants for the licensing and development activities relating to its Elite Health business and for certain other services as required from time-to-time. Each of its full-time employees are engaged in administrative functions.