Attached files
file | filename |
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EX-99 - EXHIBIT 99.3 - REGIONAL HEALTH PROPERTIES, INC | exhibit993pf.pdf |
8-K/A - ADCARE HEALTH SYSTEMS INC 8KA 121510 - REGIONAL HEALTH PROPERTIES, INC | adcare8ka121510.htm |
EX-99 - EXHIBIT 99.2 - REGIONAL HEALTH PROPERTIES, INC | exhibit992.htm |
EX-99 - EXHIBIT 99.3 - REGIONAL HEALTH PROPERTIES, INC | exhibit993.htm |
Exhibit 99.1
COOSA VALLEY HEALTH CARE, INC.
BALANCE SHEETS
SEPTEMBER 30, 2010 AND JUNE 30, 2010
(UNAUDITED) | |||
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ASSETS | |||
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September 30, 2010 |
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June 30, 2010 |
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Current Assets |
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Cash |
$ 300,534 |
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$ 180,198 |
Patient Accounts Receivable, Net of Allowance for Doubtful Accounts of $35,267 and $77,635, Respectively |
437,265 |
|
551,096 |
Prepaid Expenses |
4,183 |
|
14,716 |
Property and Equipment, Held for Sale |
333,962 |
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332,893 |
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Total Assets |
$1,075,944 |
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$1,078,903 |
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LIABILITIES AND STOCKHOLDERS DEFICIT | |||
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Current Liabilities |
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Note Payable |
$ 395,875 |
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$ 420,393 |
Accounts Payable |
106,607 |
|
134,473 |
Taxes and Other Employee Withholding |
62,927 |
|
70,567 |
Accrued Salaries and Wages |
84,086 |
|
87,672 |
Accrued Expenses |
40,458 |
|
27,950 |
Estimated Third-Party Payor Settlements |
40,051 |
|
40,051 |
Loan from Stockholder |
150,000 |
|
150,000 |
Due to Related Parties |
240,050 |
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163,921 |
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1,120,054 |
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1,095,027 |
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Stockholders Deficit |
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Common Stock, $0.10 Par Value; 100,000 Shares |
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Authorized and Outstanding |
10,000 |
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10,000 |
Accumulated Deficit |
(54,110) |
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(26,124) |
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(44,110) |
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(16,124) |
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Total Liabilities and Stockholders Deficit |
$1,075,944 |
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$1,078,903 |
The accompanying notes are an integral part of these balance sheets.
1
COOSA VALLEY HEALTH CARE, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 | |||
(UNAUDITED) | |||
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2010 |
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2009 |
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Revenue |
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Net Patient Services |
$1,491,171 |
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$1,618,768 |
Other |
- |
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300 |
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1,491,171 |
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1,619,068 |
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Operating Expenses |
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Administrative |
354,858 |
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249,962 |
Employee Benefits |
57,587 |
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76,882 |
Nursing Service |
720,791 |
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782,707 |
Rehabilitation Therapy |
18,659 |
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13,304 |
Dietary |
170,148 |
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176,321 |
Housekeeping |
65,853 |
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66,815 |
Laundry |
20,527 |
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23,354 |
Operation of Plant |
65,086 |
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56,433 |
Social Services |
9,152 |
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8,502 |
Activities |
6,777 |
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6,741 |
Provision for Bad Debts |
(6,805) |
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3,618 |
Depreciation and Amortization |
- |
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20,310 |
Interest |
8,310 |
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7,723 |
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1,490,943 |
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1,492,672 |
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Operating Income |
228 |
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126,396 |
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Other Income |
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Interest |
286 |
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240 |
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Net Income |
514 |
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126,636 |
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Accumulated Deficit, Beginning |
(26,124) |
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(97,677) |
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Dividends Paid |
(28,500) |
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(59,000) |
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Accumulated Deficit, Ending |
$ (54,110) |
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$ (30,041) |
The accompanying notes are an integral part of these statements.
2
COOSA VALLEY HEALTH CARE, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 | |||
(UNAUDITED) | |||
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2010 |
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2009 |
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Cash Flows from Operating Activities |
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Net Income |
$ 514 |
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$ 126,636 |
Adjustments to Reconcile Net Income to |
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Cash Provided by Operating Activities |
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Depreciation and Amortization |
- |
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20,310 |
Provision for Bad Debts |
(6,805) |
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3,618 |
Change In |
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Patient Account Receivables, Net |
120,636 |
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31,979 |
Prepaid Expenses |
10,533 |
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2,697 |
Accounts Payable |
(27,866) |
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(10,198) |
Taxes and Other Employee Witholding |
(7,640) |
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(7,186) |
Accrued Salaries and Wages |
(3,586) |
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(150) |
Accrued Expenses |
12,508 |
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(3,890) |
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98,294 |
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163,816 |
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Cash Flows from Investing Activities |
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Purchases of Property and Equipment |
(1,069) |
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(3,901) |
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Cash Flows from Financing Activities |
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Payments to and Borrowings from Related Parties |
76,129 |
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(12,241) |
Principal Payments on Long-Term Debt |
(24,518) |
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(32,420) |
Dividends Paid |
(28,500) |
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(59,000) |
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23,111 |
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(103,661) |
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Net Increase in Cash |
120,336 |
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56,254 |
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Cash, Beginning |
180,198 |
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109,918 |
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Cash, Ending |
$300,534 |
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$ 166,172 |
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Supplemental Disclosure of Cash Flow Information |
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Cash Payments for Interest |
$ 1,104 |
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$ 8,088 |
The accompanying notes are an integral part of these statements.
3
COOSA VALLEY HEALTH CARE, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) Nature of Business and Summary of Significant Accounting Policies
Nature of Business
Coosa Valley Health Care, Inc. operates a 124-bed nursing home facility in Glencoe, Alabama. The nursing home is licensed by the state of Alabama and is, therefore, subject to the rules and regulations of Alabama.
The accompanying financial statements have been prepared in accordance with the requirements for interim financial statements and, accordingly, they omit disclosures, which would substantially duplicate those contained in the most recent financial statements as of June 30, 2010. The financial statements as of September 30, 2010 and 2009 and June 30, 2010 are unaudited and, in the opinion of management, include all adjustments considered necessary for a fair presentation. The results of operations for the quarter ended September 30, 2010 are not necessarily indicative of the results of a full years operation.
(2) Fair Value Measurements
ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
·
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
·
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
·
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The estimated fair values of the Companys short-term financial instruments, including cash, receivables and payables arising in the normal course of business, and current portions of debt, approximate their individual carrying amounts due to their relatively short period of time between origination and expected realization. The Company does not have any other financial instruments measured at fair value on a recurring basis that require further disclosure. Property and equipment held for sale as of September 30, 2010 and June 30, 2010 were measured at fair value on a nonrecurring basis and are recorded at the lower of cost or fair value less costs to sell. The fair value of property and equipment held for sale was determined using level 3 inputs based on the amount of the sales contract.
4
(3) Subsequent Events
Effective October 1, 2010, the Company sold its land, building, equipment, furniture and fixtures related to its nursing facility to Coosa Nursing ADK, LLC for $8,812,500. The Company received cash proceeds of $8,246,000 (including additional consideration of $33,500 for inventory, supplies and bed taxes) and entered into a $600,000 promissory note with the purchaser. The transaction resulted in a gain on sale of $8,512,038.
The Company entered into a promissory note receivable in the amount of $600,000 with Coosa Nursing ADK, LLC and AdCare Health Systems, Inc. concurrent with the sale of assets. Under the terms of the note receivable, the Company will receive monthly payments of $100,000 plus accrued interest beginning on November 1, 2010 and continuing on the first day of each month until the note is paid in full. The note receivable matures on April 1, 2011 and earns interest at a rate of eight percent per year.
Concurrent with the sale of assets, the Company paid off its note payable with a financial institution. The note payable had an outstanding balance of $395,875 as of September 30, 2010 and was scheduled to mature on February 7, 2014.
In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through December 14, 2010, the date the financial statements were issued.
5
COOSA VALLEY HEALTH CARE, INC.
GLENCOE, ALABAMA
FINANCIAL STATEMENTS AS OF
JUNE 30, 2010 AND 2009
(UNAUDITED)
COOSA VALLEY HEALTH CARE, INC.
CONTENTS
Balance Sheets (Unaudited)
1
Statements of Operations and Accumulated Deficit (Unaudited)
3
Statements of Cash Flows (Unaudited)
4
Notes to Financial Statements (Unaudited)
5
COOSA VALLEY HEALTH CARE, INC.
BALANCE SHEETS
JUNE 30, 2010 AND 2009 | |||||
(UNAUDITED) | |||||
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ASSETS | |||||
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2010 |
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2009 | ||
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Current Assets |
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Cash |
$ 180,198 |
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$ 109,918 | ||
Patient Accounts Receivable, Net of Allowance for Doubtful |
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Accounts of $35,261 and $77,635 in 2010 and 2009 |
551,096 |
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579,254 | ||
Prepaid Expenses |
14,716 |
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19,713 | ||
Property and Equipment, Held for Sale |
332,893 |
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- | ||
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1,078,903 |
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708,885 | ||
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Property and Equipment |
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Land |
- |
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50,000 | ||
Buildings and Improvements |
- |
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1,481,905 | ||
Furniture, Fixtures and Equipment |
- |
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864,154 | ||
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- |
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2,396,059 | ||
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Accumulated Depreciation |
- |
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(2,015,169) | ||
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- |
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380,890 | ||
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Total Assets |
$1,078,903 |
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$1,089,775 |
The accompanying notes are an integral part of these balance sheets.
1
COOSA VALLEY HEALTH CARE, INC.
BALANCE SHEETS
JUNE 30, 2010 AND 2009 | |||||
(UNAUDITED) | |||||
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LIABILITIES AND STOCKHOLDERS DEFICIT | |||||
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2010 |
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2009 | ||
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Current Liabilities |
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Current Maturities of Long-Term Debt |
$ 420,393 |
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$ 99,835 | ||
Accounts Payable |
134,473 |
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154,635 | ||
Taxes and Other Employee Withholding |
70,567 |
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76,814 | ||
Accrued Salaries and Wages |
87,672 |
|
99,703 | ||
Accrued Expenses |
27,950 |
|
26,075 | ||
Estimated Third-Party Payor Settlements |
40,051 |
|
40,051 | ||
Loan from Stockholder |
150,000 |
|
150,000 | ||
Due to Related Parties |
163,921 |
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110,442 | ||
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1,095,027 |
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757,555 | ||
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Long-Term Debt |
- |
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419,897 | ||
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Stockholders Deficit |
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Common Stock, $0.10 Par Value; 100,000 Shares |
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Authorized and Outstanding |
10,000 |
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10,000 | ||
Accumulated Deficit |
(26,124) |
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(97,677) | ||
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(16,124) |
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(87,677) | ||
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Total Liabilities and Stockholders Deficit |
$1,078,903 |
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$1,089,775 |
The accompanying notes are an integral part of these balance sheets.
2
COOSA VALLEY HEALTH CARE, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE YEARS ENDED JUNE 30 | |||
(UNAUDITED) | |||
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2010 |
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2009 |
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Revenue |
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Net Patient Services |
$6,267,097 |
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$6,583,923 |
Other |
29,521 |
|
34,467 |
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|
6,296,618 |
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6,618,390 |
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Operating Expenses |
|
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Administrative |
1,096,745 |
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1,279,910 |
Employee Benefits |
309,695 |
|
336,535 |
Nursing Service |
3,193,063 |
|
3,058,532 |
Rehabilitation Therapy |
72,512 |
|
104,886 |
Dietary |
733,237 |
|
765,845 |
Housekeeping |
254,056 |
|
253,871 |
Laundry |
88,513 |
|
97,884 |
Operation of Plant |
204,059 |
|
230,067 |
Social Services |
37,387 |
|
38,531 |
Activities |
32,294 |
|
21,126 |
Medical Records |
- |
|
648 |
Provision for Bad Debts |
45,869 |
|
118,498 |
Depreciation and Amortization |
54,160 |
|
82,430 |
Interest |
39,829 |
|
40,131 |
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6,161,419 |
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6,428,894 |
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Operating Income |
135,199 |
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189,496 |
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Other Income |
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Interest |
954 |
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3,855 |
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Net Income |
136,153 |
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193,351 |
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Accumulated Deficit, Beginning |
(97,677) |
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(18,028) |
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Dividends Paid |
(64,600) |
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(273,000) |
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Accumulated Deficit, Ending |
$ (26,124) |
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$ (97,677) |
The accompanying notes are an integral part of these consolidated statements.
3
COOSA VALLEY HEALTH CARE, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30 | |||
(UNAUDITED) | |||
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2010 |
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2009 |
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Cash Flows from Operating Activities |
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Net Income |
$ 136,153 |
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$ 193,351 |
Adjustments to Reconcile Net Income to |
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Cash Provided by Operating Activities |
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Depreciation and Amortization |
54,160 |
|
82,430 |
Provision for Bad Debts |
45,869 |
|
118,498 |
Change In |
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|
Patient Account Receivables, Net |
(17,710) |
|
(41,167) |
Other Receivables |
- |
|
18,442 |
Prepaid Expenses |
4,996 |
|
57,890 |
Accounts Payable |
(20,162) |
|
(13,059) |
Taxes and Other Employee Witholding |
(6,247) |
|
(15,484) |
Accrued Salaries and Wages |
(12,031) |
|
(53,258) |
Accrued Expenses |
1,874 |
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(54,405) |
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|
186,902 |
|
293,238 |
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Cash Flows from Investing Activities |
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Purchases of Property and Equipment |
(6,163) |
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(41,458) |
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Cash Flows from Financing Activities |
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Payments to and Borrowings from Related Parties |
53,479 |
|
(61,118) |
Loan from Stockholder |
- |
|
150,000 |
Principal Payments on Long-Term Debt |
(99,338) |
|
(85,870) |
Dividends Paid |
(64,600) |
|
(273,000) |
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|
(110,459) |
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(269,988) |
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Net Increase (Decrease) in Cash |
70,280 |
|
(18,208) |
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|
Cash, Beginning |
109,918 |
|
128,126 |
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Cash, Ending |
$ 180,198 |
|
$ 109,918 |
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Supplemental Disclosure of Cash Flow Information |
|
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Cash Payments for Interest |
$ 38,016 |
|
$ 35,876 |
The accompanying notes are an integral part of these consolidated statements.
4
COOSA VALLEY HEALTH CARE, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) Nature of Business and Summary of Significant Accounting Policies
Nature of Business
Coosa Valley Health Care, Inc. operates a 124-bed nursing home facility in Glencoe, Alabama. The nursing home is licensed by the state of Alabama and is, therefore, subject to the rules and regulations of Alabama.
Use of Estimates
Generally accepted accounting principles require management to make estimates and assumptions when preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates.
Receivables and Concentrations of Credit Risk
The Company grants credit without collateral to its residents. Most of the residents are insured under governmental programs or third-party contractual agreements. The collectibility or reliability of accounts receivable is dependent primarily upon the performance of the government unit, the third-party payor or the residents family. Management does not believe significant credit risks are associated with accounts receivable. Adequate provision for doubtful accounts has been established based upon historical experience, the aging of the account and the payor classification. Uncollectible accounts are written off after all collection efforts have been exhausted.
The Company maintains its cash balances in a financial institution located in Gadsden, Alabama. The balances are fully insured by the Federal Deposit Insurance Corporation under the Transaction Account Guarantee Program (which has been extended until December 31, 2010).
Property and Equipment - Held for Sale
On March 7, 2010, the Company entered into a purchase agreement with Coosa Nursing ADK, LLC to sell the land, building, equipment, furniture and fixtures related to its nursing facility. The sales price is $8,812,500 and is expected to finalize on October 1, 2010. The property and equipment held for sale are reported at the lower of their carrying amount or fair value less cost to sell. Depreciation of property and equipment was discontinued when classified as held for sale.
5
(1) Nature of Business and Summary of Significant Accounting Policies (Continued)
Property and Equipment and Depreciation
Depreciation of property and equipment is computed principally on the straight-line method over the following estimated useful lives:
|
Years |
|
|
Buildings and Improvements |
5-40 |
Furniture, Fixtures and Equipment |
5-25 |
Maintenance and repairs of property and equipment are charged to operations and major improvements are capitalized. Upon retirement, sale or other disposition of property and equipment, the cost and accumulated depreciation are eliminated from the accounts and a gain or loss is included in operations.
Revenue Recognition
Revenues are derived from services rendered to patients for long-term care and rehabilitation therapy services.
Revenues are recorded when services are provided based upon established rates adjusted for amounts expected to be received under third-party contractual arrangements with governmental providers, Medicare and Medicaid. These revenues and receivables are stated at amounts estimated by management to be at their net realizable value.
For private pay in long-term care, the Company bills in advance for the following month, with the remittance being due on receipt of the statement and generally by the tenth day of the month services are performed.
Payments are received from the Medicare program under a prospective payment system (PPS). For skilled nursing services, Medicare pays a fixed fee per Medicare patient day based on the acuity level of the patient.
Medicaid program payments for long-term care services are based upon fixed per diem rates negotiated with a managed care organization contracted by the state of Alabama.
Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation. Noncompliance with such laws and regulations can be subject to regulatory actions including fines, penalties and exclusion from the Medicare and Medicaid programs. Management believes the Company is in material compliance with all applicable laws and regulations.
The Medicare PPS methodology requires that patients be assigned to Resource Utilization Groups (RUGs) based on the acuity level of the patient to determine the amount paid for patient services. The assignment of patients to the various RUG categories is subject to post-payment review by Medicare intermediaries. Management believes the Company has made adequate provision for any adjustments that may result from these reviews. Any differences between the net revenues recorded and the final determination will be adjusted in future periods as adjustments become known.
6
(1) Nature of Business and Summary of Significant Accounting Policies (Continued)
Significant Accounting Policies (Continued)
Income Taxes
The Company, with consent of its stockholders, has elected to be taxed under sections of federal and state income tax law which provide that, in lieu of corporation income taxes, the stockholders separately account for their pro rata shares of the Companys items of income, deductions, losses and credits. As a result of this election, no income taxes have been recognized in the accompanying financial statements.
The Financial Accounting Standards Board (FASB) issued guidance on accounting for uncertainty in income taxes. The Company adopted this new guidance for the year ended June 30, 2010. Management evaluated the Companys tax positions and concluded that the Company had taken no uncertain tax positions that require adjustment to the financial statements to comply with the provisions of this guidance. With few exceptions, the Company is no longer subject to income tax examinations by the U.S. federal or state tax authorities before 2006.
Recently Adopted or Issued Accounting Pronouncements
FASBs Accounting Standards Codification (ASC) became effective July 1, 2009. At that date, ASC became FASBs officially recognized source of authoritative generally accepted accounting principles applicable to all public and nonpublic nongovernmental entities, superseding existing FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force and related literature. All other accounting literature is considered nonauthoritative. The change to ASC affects the way companies refer to generally accepted accounting principles in financial statements and accounting policies. Citing particular content in ASC involves specifying the unique numeric path to the content through the topic, subtopic, section and paragraph of the structure.
In May 2009, FASB issued ASC 855, Subsequent Events. This statement establishes principles and requirements for subsequent events, setting forth the period after the balance sheet date during which management of a reporting entity shall evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity shall recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity shall make about events or transactions that occurred after the balance sheet date. This statement is effective for interim or annual financial periods ending after June 15, 2009, and shall be applied prospectively. The adoption of this statement did not have a material effect on the Companys financial condition or results of operations.
In September 2006, FASB issued ASC Topic 820 (formerly Statement of Financial Accounting Standards No. 157, Fair Value Measurements) which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurement. ASC 820 also emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and sets out a fair value hierarchy with the highest priority being quoted prices in active markets. Under ASC 820, fair value measurements are disclosed by level within that hierarchy. On January 1, 2009, the Company adopted the remaining provisions of ASC 820 as it relates to nonfinancial assets and liabilities that are not recognized or disclosed at fair value on a recurring basis. The adoption of ASC 820 did not have a material impact on the Companys financial position, results of operations or cash flows.
7
(2) Patient Accounts Receivable
Patient accounts receivable consist of the following at June 30:
|
2010 |
|
2009 |
|
|
|
|
Private Pay |
$ 91,613 |
|
$ 99,638 |
Medicaid |
356,362 |
|
422,308 |
Medicare |
116,923 |
|
118,307 |
Other |
21,459 |
|
16,636 |
|
|
|
|
|
586,357 |
|
656,889 |
|
|
|
|
Allowance for Doubtful Accounts |
(35,261) |
|
(77,635) |
|
|
|
|
|
$551,096 |
|
$579,254 |
(3) Long-Term Debt
The Company has a mortgage note payable to a financial institution which matures on February 7, 2014. The mortgage note payable bears interest at 6 percent and is secured by real estate. A stockholder of the Company has guaranteed the debt. The debt has been classified in current liabilities as of June 30, 2010 since the debt is expected to be repaid with proceeds from the sale of property and equipment held for sale.
(4) Restrictive Stock Transfer and Stock Purchase Agreement
The Company and its stockholders have entered into a buy-sell agreement that requires the Company or remaining stockholders to purchase the shares of the deceased stockholder. The purchase price is set annually by the stockholders. In the event of the death of a stockholder, the agreement is funded through life insurance. If the insurance death benefits are less than the purchase price, the Company may pay the deficiency over a period of ten years with interest at the prime rate not to exceed 15 percent. On December 2, 2000, one of the stockholders passed away. The value of the shares at the date of death was $140,920. As of June 30, 2010, the Company had not purchased the shares owned by the deceased stockholder. Interest is due at a rate to be determined.
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(5) Concentrations in Revenue Sources
The Company provides patient care services under various third-party agreements. The principal sources of revenue under these contracts are derived primarily through the Medicaid and Medicare programs, as well as contracts with private pay patients who do not qualify for assistance from the other programs.
The percentage of the Companys income from each of these sources for the years ended June 30 is as follows:
|
2010 |
|
2009 |
|
|
|
|
Private Pay |
8.3% |
|
7.2% |
Medicaid |
80.5 |
|
81.2 |
Medicare |
10.6 |
|
11.5 |
Other |
0.6 |
|
0.1 |
|
|
|
|
|
100.0% |
|
100.0% |
The percentage attributable to the patients includes revenues from private pay patients as well as the patients portions for services rendered under Medicaid and Medicare contracts, while Medicaid and Medicare percentages include only amounts actually due from those programs.
(6) Related Party Transactions
The Company purchases certain supplies from a related company through common ownership. Total purchases for the years ended June 30, 2010 and 2009 totaled $131,290 and $91,524, respectively. At June 30, 2010 and 2009, the amount owed to the related party and included in the Companys accounts payable totaled $6,409 and $5,443, respectively.
The Company reimburses health insurance premiums paid by a related company through common ownership. Both companies are covered by the same insurance carrier. Total payments for the years ended June 30, 2010 and 2009 totaled $161,273 and $149,754, respectively. As of June 30, 2010 and 2009, the amount owed to the related party and included in the Companys accounts payable totaled $14,966 and $12,537, respectively.
The Company purchases certain services for nurse aid training from a company whose owners are related. Total payments made for the years ended June 30, 2010 and 2009 totaled $40,936 and $43,848, respectively. As of June 30, 2010 and 2009, the amount owed to the related party and included in the Companys accounts payable totaled $6,720 for each year.
The Company incurred $433,025 and $517,216 in management fees from a related party for the years ended June 30, 2010 and 2009, respectively. The related party charges the Company fees based on its proration of cost between two nursing homes. In addition, the related party has advanced funds to the Company in the amount of $163,921 and $110,442 as of June 30, 2010 and 2009, respectively. The loan balance fluctuates monthly and bears no stated rate of interest.
A stockholder of the Company has advanced funds to the nursing home. As of June 30, 2010 and 2009, the balance totaled $150,000. The loan is payable upon demand and bears interest at 6.5 percent. Interest accrued as of June 30, 2010 and 2009 totaled $3,966 and $1,656, respectively. Total interest paid for the years ended June 30, 2010 and 2009 totaled $9,096 and $0, respectively.
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(7) Employee 401(k) Pension Plan
Employees of the Company may participate in a 401(k) pension plan, whereby employees may elect to make contributions pursuant to a salary reduction agreement upon meeting age and length-of-service requirements. The Company currently makes a contribution of 100 percent of the employee contribution up to 4 percent of compensation. The Company contributions for the years ended June 30, 2010 and 2009 totaled $27,911 and $48,494, respectively, which are recorded as an expense in the accompanying statements of operations.
(8) Contingent Liabilities
The Company has several legal claims that generally involve workers compensation and medical malpractice issues. In the opinion of management, the ultimate disposition of these claims is not expected to have a material adverse effect on the Companys financial position, results of operation or cash flows. No amounts have been recorded in the accompanying financial statements related to these claims.
The Company has had no general or professional liability insurance since May 31, 2001 and has never had employment practices insurance. The cost of any settlement arising from claims for these coverages must be borne by the Company.
(9) Fair Value Measurements
ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
·
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
·
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
·
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The estimated fair values of the Companys short-term financial instruments, including cash, receivables and payables arising in the normal course of business, and current portions of debt, approximate their individual carrying amounts due to their relatively short period of time between origination and expected realization. The Company does not have any other financial instruments measured at fair value on a recurring basis that require further disclosure. Property and equipment held for sale are measured at fair value on a nonrecurring basis and are recorded at the lower of cost or fair value less costs to sell. The fair value of property and equipment held for sale was determined using level 3 inputs based on the amount of the sales contract.
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(10) Subsequent Events
Effective October 1, 2010, the Company sold its land, building, equipment, furniture and fixtures related to its nursing facility to Coosa Nursing ADK, LLC for total consideration of $8,812,500 which included cash of $8,212,500 and a short-term note receivable of $600,000.
In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through December 14, 2010, the date the financial statements were issued.
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