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EX-99.3 - EX-99.3 - Premier, Inc.d30619dex993.htm

Exhibit 99.2

CECITY.COM, INC.

Consolidated Financial Statements as of June 30, 2015 and

December 31, 2014 (unaudited) and for the six months

ending June 30, 2015 and 2014 (unaudited)


TABLE OF CONTENTS

 

CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

  

Consolidated Balance Sheets (Unaudited)

     2   

Consolidated Statements of Income (Loss) (Unaudited)

     3   

Consolidated Statements of Changes in Stockholders’ Equity (Deficit) (Unaudited)

     4   

Consolidated Statements of Cash Flows (Unaudited)

     5   

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

     6 - 11   

 

1


CECITY.COM, INC.

Consolidated Balance Sheets

(unaudited)

 

     June 30, 2015      December 31, 2014  

Assets

  

Cash

   $ 3,752,452       $ 1,713,977   

Accounts receivable (net of $25,000 and $106,767 allowance for doubtful accounts, respectively)

     5,098,159         2,414,237   

Employee advances

     11,814         2,412   

Prepaid expenses

     237,774         259,982   

Other assets

     68,844         —     
  

 

 

    

 

 

 

Total Current Assets

     9,169,043         4,390,608   
  

 

 

    

 

 

 

Property and equipment, net

     574,643         321,169   

Intangible assets, net

     43,210         32,406   
  

 

 

    

 

 

 

Total Assets

   $ 9,786,896       $ 4,744,183   
  

 

 

    

 

 

 

Current Liabilities

     

Accounts payable

   $ 663,383       $ 671,420   

Accrued expenses and other payables

     417,623         601,211   

Shareholder revolving demand note

     1,045,000         1,195,000   

Capital lease payable, current portion

     120,163         73,217   

Deferred revenue, current portion

     4,392,620         5,410,789   
  

 

 

    

 

 

 

Total Current Liabilities

     6,638,789         7,951,637   
  

 

 

    

 

 

 

Capital lease payable, net of current portion

     119,150         45,039   

Deferred revenue, net of current portion

     2,887,443         2,430,622   
  

 

 

    

 

 

 

Total Liabilities

     9,645,382         10,427,298   
  

 

 

    

 

 

 

Stockholders’ Equity (Deficit)

     

Common stock; par value $0.01 per share; 100,000 shares authorized

     

Class A voting common stock, 100 shares issued and outstanding

     1         1   

Class B nonvoting common stock, 9,900 shares issued and outstanding

     99         99   

Paid in excess of par value

     100         100   

Retained earnings (deficit)

     141,314         (5,683,315
  

 

 

    

 

 

 

Total Stockholders’ Equity (Deficit)

     141,514         (5,583,115
  

 

 

    

 

 

 

Total Liabilities and Stockholders’ Equity (Deficit)

   $ 9,786,896       $ 4,744,183   
  

 

 

    

 

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

2


CECITY.COM, INC.

Consolidated Statements of Income (Loss)

(unaudited)

 

     For the six months ended  
     June 30, 2015     June 30, 2014  

Revenue

   $ 14,803,702      $ 7,074,001   

Cost of revenue

     4,373,477        4,153,202   
  

 

 

   

 

 

 

Gross Profit

     10,430,225        2,920,799   
  

 

 

   

 

 

 

Operating Expenses:

    

Selling general and administrative

     4,017,158        3,391,671   

Amortization of purchased intangible assets

     1,593        1,573   
  

 

 

   

 

 

 

Total Operating Expenses

     4,018,751        3,393,244   
  

 

 

   

 

 

 

Operating Income (Loss)

     6,411,474        (472,445
  

 

 

   

 

 

 

Other Income (Expense)

    

Income from sale of tax credit

     192,870        —     

Income from equity method investment

     21,070        23,126   

Interest income

     4,270        3,087   

Interest expense

     (5,055     (3,695
  

 

 

   

 

 

 

Total Other Income

     213,155        22,518   
  

 

 

   

 

 

 

Net Income (Loss)

   $ 6,624,629      $ (449,927
  

 

 

   

 

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

3


CECITY.COM, INC.

Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

(unaudited)

 

     Class A
Voting
Common
Stock
     Class B
Nonvoting
Common
Stock
     Paid in
Excess
of Par
Value
     Retained
Earnings
(Deficit)
    Total  

Balance at December 31, 2013

   $ 1       $ 99       $ 100       $ (4,927,240   $ (4,927,040

Net loss

     —           —           —           (756,075     (756,075
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Balance at December 31, 2014

   $ 1       $ 99       $ 100       $ (5,683,315   $ (5,683,115
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Net income

     —           —           —           6,624,629        6,624,629   

Stockholders’ distributions

     —           —           —           (800,000     (800,000
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Balance at June 30, 2015

   $ 1       $ 99       $ 100       $ 141,314      $ 141,514   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

4


CECITY.COM, INC.

Consolidated Statements of Cash Flows

(unaudited)

 

     June 30, 2015     June 30, 2014  

Cash flows from operating activities

    

Net income (loss)

   $ 6,624,629      $ (449,927

Adjustments to reconcile net income to net cash provided by operating activities:

    

Provision for doubtful accounts

     1,653        54,415   

Depreciation

     65,386        51,616   

Amortization of intangible assets

     1,593        1,573   

Income from equity method investment

     (21,070     (23,126

Changes in:

    

Receivables

     (2,720,327     454,826   

Prepaid expenses

     22,208        (46,205

Other assets

     (68,844     —     

Accounts payable

     (8,037     14,257   

Accrued expenses and other payables

     (183,588     (44,355

Deferred revenue

     (561,348     879,030   
  

 

 

   

 

 

 

Net cash provided by operating activities

     3,152,255        892,104   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchase of equipment

     (153,400     (23,532

Payments received on note receivable

     46,420        47,272   
  

 

 

   

 

 

 

Net cash (used in) provided by investing activities

     (106,980     23,740   
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Payments on capital lease payable

     (56,800     (38,379

Payments on shareholder loan

     (150,000     —     

Distributions to shareholders

     (800,000     —     
  

 

 

   

 

 

 

Net cash used in financing activities

     (1,006,800     (38,379
  

 

 

   

 

 

 

Net increase in cash

     2,038,475        877,465   

Cash balance, beginning of period

     1,713,977        419,788   
  

 

 

   

 

 

 

Cash balance, end of period

   $ 3,752,452      $ 1,297,253   
  

 

 

   

 

 

 

Supplemental Disclosure of Cash Flow Information:

    

Cash payments for Interest

   $ 5,055      $ 3,695   

Supplemental Disclosure of Non-Cash Investing Activities

    

Equipment financed by capital lease

     (177,857     (63,245

See accompanying notes to the unaudited consolidated financial statements.

 

5


CECITY.COM, INC.

Notes to the Consolidated Financial Statements (unaudited)

Note 1 – Business and Basis of Presentation

Description of Business

CECity.com, Inc. (“CECity” or the “Corporation”) is a leading enterprise healthcare technology Corporation that combines its (patent-pending) cloud-based clinical data registry, performance measurement, advanced data analytics, qualified value-based reporting and data-driven learning management platforms with a broad network of strategic partners for data, distribution, education and quality improvement content, to achieve meaningful clinical, quality and financial improvement outcomes for key stakeholders across the healthcare paradigm.

CECity’s platforms, programs, and related applications are made accessible to clients and related healthcare professionals and patients either through (i) private branded web portals (ii) neutrally branded, multi-tenant portals or (iii) via a data feed to provide CECity information or content via third party platforms. CECity provides access to its cloud platforms, programs, and related applications via a Software as a Service (“SaaS”) model which provides recurring revenue to the Corporation.

CECity also provides professional services (e.g. implementation, content acquisition and conversion, and platform customizations) in support of customers related to the hosting and support of the CECity platforms. These services are offered on a time and materials basis.

CECity customers include stakeholders directly involved in the delivery of care (e.g. health systems, Integrated Delivery Networks, academic medical centers, Accountable Care Organizations (“ACOs”), pharmacies, individual healthcare professionals and provider networks); payers of healthcare delivery (e.g. national commercial health plans and Center for Medicare and Medicaid Services (“CMS”)); regulators (e.g. medical specialty boards); professional associations (e.g. medical specialty societies); and life science companies (e.g. pharmaceutical manufacturers).

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Accordingly, the financial statements reflect all adjustments that, in the opinion of management, are necessary for a fair presentation of consolidated results of operations and consolidated financial condition for the periods shown, including normal recurring adjustments. There are no elements of other comprehensive income.

Use of Estimates

The preparation of the Corporation’s financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Estimates are evaluated on an ongoing basis, including allowances for doubtful accounts, useful lives of property and equipment, and other contingencies. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

 

6


CECITY.COM, INC.

Notes to the Consolidated Financial Statements (unaudited)

 

Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies as described in the December 31, 2014 Consolidated Financial Statements.

Recently Issued Accounting Standards

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of the update is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The update also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers, an amendment to ASU 2014-09, which deferred the effective date of the update. The update will be effective for annual reporting periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted only as of an annual reporting period beginning after December 15, 2016, including interim periods within that reporting period, or an annual reporting period beginning after December 15, 2016 and interim reporting periods within annual reporting periods beginning one year after the annual reporting period in which an entity first applies the guidance under ASU 2014-09. Early adoption is not permitted. The update allows for either full retrospective or modified retrospective adoption. The Corporation is currently evaluating the transition method that will be elected as well as the impact of the adoption of the update on its consolidated financial statements and related disclosures.

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which effectively eliminates the presumption that a general partner should consolidate a limited partnership, modifies the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities, and affects the consolidation analysis of reporting entities that are involved with VIEs (particularly those that have fee arrangements and related party relationships). In some cases, consolidation conclusions will change under the new guidance and, in other cases, a reporting entity will need to provide additional disclosures if an entity that currently is not considered a VIE, is considered a VIE under the new guidance. The new standard will be effective for fiscal years beginning after December 15, 2016, and for interim periods within fiscal years beginning after December 15, 2017, with early adoption permitted. The new standard allows for either full retrospective or modified retrospective adoption. The new standard will be effective for the Corporation for the fiscal year ending December 31, 2017. The Corporation is currently evaluating the impact of the adoption of the new standard on its consolidated financial statements and related disclosures.

Note 2 – Prepaid Expenses

Prepaid expenses consisted of the following:

 

     June 30, 2015      December 31, 2014  

Insurance

   $ 119,640       $ 154,032   

Licenses

     110,792         98,608   

Other prepaids

     7,342         7,342   
  

 

 

    

 

 

 

Total prepaid expenses

   $ 237,774       $ 259,982   
  

 

 

    

 

 

 

 

7


CECITY.COM, INC.

Notes to the Consolidated Financial Statements (unaudited)

 

Note 3 – Investment

Investment in Pharmacy Quality Solutions, Inc.

In 2013, the Corporation became a 49 percent owner in a joint venture, Pharmacy Quality Solutions, Inc. (“PQS”). The other 51 percent is owned by PQA, Inc., a nonprofit organization. CECity determined that PQS is a variable interest entity (“VIE”), as it does not have sufficient equity at risk to finance its activities without additional subordinated financial support. CECity does not consolidate PQS, as the Corporation is not the primary beneficiary. CECity does not have power to direct the most important activities of PQS that most significantly impact PQS’ economic performance, since CECity does not have control of the Board of Directors and cannot directly influence the daily activities performed by PQS management.

CECity accounts for its interests in PQS under the equity method of accounting. CECity’s equity method investment in PQS was initially recognized on the balance sheet at the amount of the initial capital contribution. Subsequently, CECity recognizes its share of PQS’s income or losses by adjusting the carrying amount of the equity investment and reporting the recognized earnings or losses in income. As of June 30, 2015, CECity’s investment in PQS has a carrying value of zero (refer to Note 6 – Related Party Notes).

Note 4 – Accrued Expenses and Other Payables

Accrued expenses and other payables consisted of the following:

 

     June 30, 2015      December 31, 2014  

Profit sharing and 401(k) payable

   $ 252,529       $ 171,199   

Accrued bonus

     76,976         153,950   

Wages

     52,000         37,240   

Deferred rent

     32,697         —     

Accrued insurance and other

     3,421         238,822   
  

 

 

    

 

 

 

Total accrued expenses and other payables

   $ 417,623       $ 601,211   
  

 

 

    

 

 

 

 

8


CECITY.COM, INC.

Notes to the Consolidated Financial Statements (unaudited)

 

Note 5 – Leases

Capital leases

The amounts of computer equipment and related accumulated amortization recorded under capital leases were as follows:

 

     June 30, 2015      December 31, 2014  

Lease on equipment

   $ 385,754       $ 238,763   

Less accumulated amortization

     (93,482      (77,103
  

 

 

    

 

 

 

Net amount

   $ 292,272       $ 161,660   
  

 

 

    

 

 

 

The total amount leased is pledged as security under the provisions of the long-term lease agreements.

On January 23, 2015, the Corporation entered into a three year capital lease for computer equipment of $134,602. On March 23, 2015, the Corporation entered into a three year capital lease for computer equipment of $31,620.

Minimum lease payments have been capitalized for the financial statements. The leases are non-cancelable and expire at various times through March 2018. The following is a schedule of future minimum lease payments and the present value of the net minimum lease payments:

 

     June 30, 2015      December 31, 2014  

Total minimum lease payments

   $ 212,881       $ 118,256   

Less: Amount representing interest

     (20,731      (3,539
  

 

 

    

 

 

 

Present value of net minimum payments

     192,150         114,717   

Less: Current portion

     (106,762      (73,217
  

 

 

    

 

 

 

Net amount

   $ 85,388       $ 41,500   
  

 

 

    

 

 

 

Future minimum lease payments required under capital leases for the next five years for the twelve months ending June 30, are as follows:

 

2016

   $ 106,762   

2017

     66,167   

2018

     39,952   

2019

     —     

2020 and beyond

     —     
  

 

 

 

Total

   $ 212,881   
  

 

 

 

Operating leases

The Corporation leases its office facilities under a five-year operating lease, which began September 1, 2005. The lease contained an option to renew for five additional years, which the Corporation exercised in June 2010, effective September 1, 2010. The Corporation agreed to an amendment of its lease on January 19, 2015. Under the amendment the lease for its current facilities will be extended until August 31, 2020. Monthly payments are required of $33,321 plus the Corporation’s proportionate share of operating expenses and real estate taxes. The amendment also included an expansion to the Corporation’s facilities. Under the agreement current payment terms on the expanded facilities require no monthly payments until April 1, 2015. As such, the total expense is recognized over the lease term resulting in a deferred rent balance as of June 30, 2015 of $32,697. Under the agreement, payment terms on the expansion includes monthly base rent of $9,600 plus the Corporation’s proportionate share of operating expenses and real estate taxes. The payment period starts April 1 to August 31, 2015 with 2 percent escalations going forward.

The Corporation leased computer equipment under a three year operating lease, which began August 15, 2014. Under the agreement, current payment terms require monthly payments of $7,397. On January 15, 2015, the Corporation amended the original lease by adding additional computer equipment with monthly payments of $6,588 for two years and eight months.

 

9


CECITY.COM, INC.

Notes to the Consolidated Financial Statements (unaudited)

 

 

Future minimum lease payments required under operating leases for the next five years for the twelve months ending June 30, are as follows:

 

2016

   $ 686,370   

2017

     696,457   

2018

     577,037   

2019

     533,838   

2020 and beyond

     626,012   
  

 

 

 

Total

   $ 3,119,714   
  

 

 

 

Note 6 – Related Party Notes

Transactions with PQS

Through the normal course of business, CECity sells hosting services to PQS. Revenue generated from the sale of these services to PQS represent $778,747 and $416,234 for the six months ended June 30, 2015 and June 30, 2014, respectively. In addition, CECity has recognized $1,159 and $2,473 in interest income from the PQS Revolving Promissory Note for the six months ended June 30, 2015 and 2014, respectively. Receivables from PQS have carrying values of zero and zero and fair values of $97,427 and $72,077 at June 30, 2015 and December 31, 2014, respectively.

PQS Revolving Promissory Note

CECity provided PQS with a revolving promissory note in 2013. The note bears a maximum principal sum of $700,000, an interest rate of 1.01 percent per annum and matures on February 28, 2017. The fair value of the note was $232,099 at December 31, 2014 and $185,679 at June 30, 2015. Advances under this note were in lieu of payment in full for outstanding invoices for services rendered by the Corporation for PQS.

Principal and interest payments are due to the Corporation on a semi-annual basis (February 28 and August 31) commencing February 28, 2014. Principal due is equal to the actual principal amount outstanding under this note divided by the number of remaining principal payment dates.

CECity has not committed to provide additional financial support to PQS, nor can the Corporation be assured that PQS will have imminent profitable returns. Therefore, CECity continues to recognize its share of additional subsequent losses, after the equity method investment is reduced to zero, to the extent that the 2013 advance of the Revolving Loan to PQS and any other receivables from PQS remain outstanding. As of June 30, 2015 and December 31, 2014, both CECity’s notes receivable from PQS and its other receivables from PQS have a carrying value of zero as a result of CECity’s share of PQS’s losses exceeding the Corporation’s investment in PQS. PQS made certain payments on the note receivable which were offset by the write-down of the other receivables resulting in a net gain of $21,070 and $23,126 for the six months ended June 30, 2015 and June 30, 2014, respectively.

CECity has no additional exposure related to its investment in PQS and has no further obligations to fund PQS.

Shareholder Revolving Demand Note

The Corporation has available for its use a $2,000,000 revolving demand note from the majority shareholder that was entered into on January 13, 2012. The note does not bear interest and expires January 31, 2017. The note requires no security and does not contain debt covenants. The Corporation made a payment on the shareholder loan of $150,000 during the first six months of 2015. As of June 30, 2015, the Corporation had $1,045,000 outstanding under the demand note classified as a current liability as it can be called at any time.

 

10


CECITY.COM, INC.

Notes to the Consolidated Financial Statements (unaudited)

 

Note 7 – Subsequent Events

Sale of corporation

On August 20, 2015, Premier Healthcare Solutions, Inc. purchased 100% of the outstanding shares of capital stock of the Corporation for approximately $400,000,000, subject to post-closing adjustments based on CECity’s actual (i) net working capital, (ii) cash and cash equivalents and (iii) indebtedness at closing.

All subsequent events have been evaluated through November 5, 2015, which is the date the financial statements were issued.

 

11