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Das Pflegeland

(sole proprietorship)

Report on the Review of the Interim Financial Statements

as of June 30, 2014

for the Period of January 1 until June 30, 2014

(Expressed in Euros)

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Das Pflegeland (sole proprietorship)

Balance Sheets

As of June 30, 2014 and as of December 31, 2013

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Das Pflegeland (sole proprietorship)

Statement of Operations

As of June 30, 2014 and as of December 31, 2013

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Das Pflegeland (sole proprietorship)

Statements of Changes in Equity

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Das Pflegeland (sole proprietorship)

Statements of Cash Flow

Years ended June 30, 2014 and December 31, 2013

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Das Pflegeland (sole proprietorship)

Notes to the financial statements

Expressed in Euros

June 30, 2014

A.

General Information and Basis of Presentation

1.

General Information

Domicile and Legal Form of the Company

„Das Pflegeland“ is a care enterprise managed by Dr. Orhan Karahodza in the legal form of a sole proprietorship. The proprietorship is domiciled in Badestraße 36, 70372 Stuttgart, Germany.

Business Activities

As care service provider „Das Pflegeland“ is engaged in the medical homecare and specialized in acute posthospital treatment and breathing improvement or rather the control of long-time home breathing. “Das Pflegeland” is able to take over the breathing care of all breathing patients with different clinical pictures within 24 hours:

- ALS - amyotrophic lateral sclerosis

- Persistent vegetative state

- Chronic obstructive pulmonary disease (COPD)

- Pneumonia

- Respiratory insufficiency

- Apoplectic stroke (Apoplexy)   

General Principles and Accounting Standards

The present financial statements of the sole proprietorship “Das Pflegeland” for the period from January 1 to June 30, 2014 are presented in Euro (EUR) and have been prepared in conformity with generally accepted accounting principles in the United States of America (“US GAAP”) in accordance with the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC").

The statement of operations has been prepared in accordance with the nature of expense method of presentation.

The year-end financial statements convey a true and fair view of the net assets, financial position and results of operations of the sole proprietorship “Das Pflegeland“.

Recently Issued Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

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Estimates and Assumptions

The preparation of the financial statements in conformity with U.S. GAAP requires estimates and assumptions to be made by the proprietor. These influence the assessment of assets and liabilities, the disclosure of contingent liabilities at the balance sheet date as well as the presentation of income and expenditures for the period under review.

In particular, this relates to allowances for bad debts, the amount and likelihood of utilization of other provisions as well as the economic lifetime of assets. The Proprietor bases his judgment of these assumptions and estimates on past experience and the results of carefully weighing up different scenarios. Changes in the economic situation that deviate from the assumptions applied and that lie beyond the control of the proprietor may result in the actual amounts differing from the original estimates. If the original basis of estimation changes, accounting for the respective balance sheet items will be adjusted with an effect on the income statement.

2.

Accounting and Valuation Principles

Intangible Assets

Intangible Assets which were acquired in return for payment are carried at cost, reduced by normal straight-line amortization from the date on which they are first ready for use. Amortizations will be taken straight-line above the economic useful life of two to three years.

Property, Plant and Equipment

Property, plant and equipment is carried at cost less cumulative depreciation. Depreciation is recognized on a straight-line basis over the expected useful life of the asset. Expenditure for maintenance and repairs is expensed in the period in which it is incurred. The cost of an asset and the related cumulative depreciation are derecognized when assets are scrapped or disposed of, with any book gains or losses recognized in the income statement under “Other operating income” or “Other operating expenses”. Fifty years were assumed as useful life expectancy for buildings. The expected useful life for the other assets is calculated between two and ten years.

Accordingly, low-value assets with an acquisition value of no more than EUR 410 are fully depreciated in the year of acquisition. All other assets with acquisition values greater than this are capitalized and depreciated over their normal useful lives.

Impairment and Write-downs of Intangible Assets and Property, Plant and Equipment

Where the value of intangible assets or property, plant and equipment calculated using the principles described above is greater than the value attributed to them at the balance sheet date, impairment losses and write-downs are recognized accordingly. The fair value to be applied is calculated on the basis of either the net proceeds of sale or the present value of the estimated future cash flows from the use of the asset – whichever is higher. Impairment losses and write-downs are reported in other operating expenses.

Impairment losses are reversed if the reasons for their recognition no longer exist. The reversal of an impairment loss is limited to the amortized carrying amount that would have resulted if no impairment losses have been recognized in the past. Income from such reversals is reported in “Other operating income”. Impairment losses on goodwill may not be reversed.

Receivables and other assets

Receivables and other assets are carried at the nominal value. Appropriate bad debt allowances are recognized for trade receivables in order to cover possible default risks.

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Cash

Cash comprises all freely available liquid funds such as cash in hand and cash in current accounts, as well as other current bank balances available.

Payables

Liabilities are carried at amortized cost on the balance sheet date, which generally corresponds to the amount due on settlement.

Accruals

Accruals are liabilities payable for goods or services received that are neither paid nor invoiced or formally agreed upon by the supplier at the balance sheet date.

Other Provisions

Provisions for other financial obligations are recognized when a present obligation towards a third party arises from a past event, future settlement is probable and the amount can be reliably estimated. Non-current provisions with a remaining term of more than one year are recognized at the amount required to settle the obligation, discounted to the balance sheet date.

Income Taxes and Uncertain Tax Positions

The Proprietorship is not subject to German income taxes as it is exempt from trade income tax as a care service provider that charges more than 40 % of its care services to the compulsory national social security agencies.

Revenue Recognition

The Company recognizes revenue when the following four conditions have been met: (i) there is persuasive evidence that an arrangement exists; (ii) delivery has occurred or service has been rendered; (iii) the price is fixed or determinable; and (iv) collection is reasonably assured. The Company's revenue is derived primarily from providing health care services to residents and is recognized on the date services are provided at amounts billable to the individual.

Fair Value Measurements and Financial Instruments

ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:

Level 1

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in

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active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3

Level 3 applies to assets or liabilities for which there are no observable inputs to the valuation methodology that are relevant to the measurement of the fair value of the assets or liabilities.

The Company’s financial instruments consist principally of cash, accounts payable and advances. Pursuant to ASC 820, the fair value of cash is determined based on “Level 1” inputs. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.

3.

Intangible Assets

Changes in intangible assets in the reporting period and in the previous year are shown in the statements of changes in fixed assets, which is attached as an appendix.

The position “intangible assets” only consists of software licenses.

There were no impairment write-downs to the lower value in use for the financial year as in the previous year.

4.

Property, Plant and Equipment

Changes in property, plant and equipment in the reporting period and in the previous year are shown in the consolidated statements of changes in fixed assets, which are attached as an appendix.

The item “Land, property rights and buildings, including buildings on third-party land” consists of the 50% share of flat or fractional property unit where the Administration of the sole proprietorship is registered. The whole flat or fractional property unit was acquired under Bosnian Law by the proprietor and his wife. The remaining 50% share is allotted to the operating assets of the proprietorship of the wife.

The whole flat or fractional property unit is encumbered with a mortgage property charge in an amount of EUR 110.000,00 for the loan to finance the property. The loan is repayable on maturity, so it values EUR 110.000,00 and has a remaining term until November 2018. In accordance with the allocation of half of the flat or fractional property unit, the loan is allocated to the proprietorship “Das Pflegeland” with 50% and has a carrying amount on the balance sheet date and in the previous year of EUR 55.000,00.

There are no other material restrictions on ownership or title in respect of the property, plant and equipment reported.

Depreciation on the lower value in use was not taken in the financial year and in the previous year.   

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5.

Trade Receivables

The position “trade receivables” includes receivables of care-services fully provided on the balance sheet date. The billing of all care-services is made on a monthly basis.

Value adjustments for trade receivables were not necessary in the financial year and the previous year.

6.

Other Assets

The position “other assets” basically consists of amounts refunded by health insurance companies and employee loans.

7.

Cash and cash Equivalents

The position “cash and cash equivalents“ mainly includes short-term bank balances.

8.

Proprietors’ Equity

As of June 30, 2014 after taking into account the net profit of the year as well as capital contributions and transfer of reserves by the proprietor, the proprietors’ equity amounts to EUR -57.194,77 (previous year: EUR -532.311,95). The negative proprietors’ equity is shown on the assets side of the balance sheet under the position “claim against proprietor” because of transfer from reserves due to the existing payment obligation of the proprietor.

9.

Long-term financial Liabilities

Non-current financial liabilities fully result from bank liabilities and include the 50% share of the loan to finance the flat or fractional property unit as well as the long-term portion of the loans to finance vehicles.   

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	June 30, 2014		Dec. 31, 2013
	EUR		EUR
Loan financing of the flat or fractional property unit	55.000,00		55.000,00

The interest rate to finance flat or fractional property unit amounts to 4,8%.

10.

Short-term financial liabilities  

The short-term financial liabilities are composed as follows:

	June 30, 2014		Dec. 31, 2013
	EUR		EUR
Current account liabilities to banks	0,00		392.795,78
Settlement account Premium-Pflegedienst Pflegeland	190.095,78		298.302,76
Short-term portion of the loans financing vehicles	7.907,00		19.235,52
Other short-term financial liabilities	1.136,00		1.136,00
	199.138,78		711.470,06

Due to the current nature of these items, their market value does not deviate significantly from the carrying amounts presented.

11.

Accruals

Accruals are liabilities payable for goods or services received that are neither paid nor invoiced or formally agreed upon by the supplier on the balance sheet date. All of the reported amounts are short-term in nature.

12.

Other liabilities

The long-term financial liabilities are composed as follows:

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	June 30, 2014		Dec. 31, 2013
	EUR		EUR
Liabilities from wages and salaries	97.072,85		78.256,01
Liabilities from income and church taxes	17.575,99		9.917,96
Liabilities resulting from social securities	156.349,00		71.523,14
Other short-term liabilities	925,93		885,93
	271.923,77		160.583,04

13.

Provisions

The provisions fully consist of duties in connection with the preparation of the year-end financial statement of the current year.

14.

Notes on the cash flow statement

The cash flow statement has been prepared using the indirect method. Business transactions not affecting cash have not been included in the cash flow statement. Payments for investments in intangible assets and property, plant and equipment include only cash-effective acquisitions.

15.

Financial instruments and risk management

Financial instruments, which potentially expose the Company to concentrations of credit risk, consist primarily of cash and cash equivalents and accounts receivable. Cash and cash equivalents, are held with various financial institutions. These balances are maintained with high quality financial institutions which management believes limits the risk.

Details of the individual categories of financial instruments are provided in the notes on the respective balance sheet and income statement items.

Principles of the Risk Management System

Regarding its assets, liabilities and planned transactions, the proprietorship „Das Pflegeland“ is subject to default risk and liquidity risk and the risk from changes in interest rates. The aim of financial risk management is to minimize these risks through ongoing operating and finance-oriented activities. The proprietor is directly responsible for the implementation of the financial policy and ongoing risk management.

Categories of Financial Instruments

The proprietorship „Das Pflegeland“ holds financial instruments exclusively in form of financial liabilities carried at amortized cost as well as in form of receivables carried at amortized cost. Financial instruments carried at fair value do not exist.

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Default risk

The Company is exposed to counterparty default risk as a result of its operating activities and certain financing activities.

In its operating business, accounts receivable are monitored on a decentralized, ongoing basis. Default risks are taken into account through specific valuation allowances and flat-rate specific valuation allowances.

Liquidity risk

Revolving liquidity planning is performed in order to ensure the Company’s solvency and financial flexibility at all times. To the extent necessary, a liquidity reserve is held in the form of credit facilities and, if required, in cash.

Risk of changes in the interest rate

The proprietorship is subject to risks of changes in the interest rate only to a limited extent and basically in relation to the 50 % share of the loan for financing the flat or fractional property unit. The interest rate is determined until November 2018.

16.

Related parties

Business transactions with related parties are on the one hand transactions with enterprises, which the proprietor of the proprietorship „Das Pflegeland“ holds a significant participating share of or over which he exercises significant influence. On the other hand, these are business transactions with close members of the family of the proprietor.

In the reporting period relevant in this context are the relation to the sole proprietorship of the wife of the proprietor as well as to Medicus-Stuttgart GmbH, Stuttgart (formerly: Medicus 24 GmbH), in which the proprietor holds 100% of the shares.

Between the proprietorship „Das Pflegeland“ and the sole proprietorship of the wife of the proprietor exists a settlement account, which shows a negative balance, i.e. a liability in the amount of EUR -190.095,78 (previous year: EUR -298.302,76) from the perspective of proprietorship „Das Pflegeland“. The settlement account is not subject to interest payments.

During the period under review, the proprietorship „Das Pflegeland“ obtained services in an amount of EUR 0,00 (previous year: EUR 30.000,00) from Medicus-Stuttgart GmbH, Stuttgart (formerly: Medicus 24 GmbH).

17.

SIGNIFICANT POST-BALANCE SHEET DATE EVENTS

The proprietor intends to transfer the proprietorship „Das Pflegeland“ with all assets and liabilities, rights, accounts receivables and claims as well as duties and legal relationships to the Beatmungspflege 24 in exchange for ownership in the company.

Beyond this no major changes regarding the situation of the proprietorship as well as with respect to the branch environment resulted.

Stuttgart, October 31, 2014

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Dr. Orhan Karahodza

Das Pflegeland (sole proprietorship) – Appendix to the Notes

Statements of Changes in Fixed Assets

As of June 30, 2014