CROSS COUNTRY HEALTHCARE INC - FORM 8-K/A - EX-99.1 - UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET OF ADVANTAGE RN, LLC AND SUBSIDIA - September 15, 2017

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EX-99.4 - UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION - CROSS COUNTRY HEALTHCARE INCccm_ex994.htm
EX-99.3 - AUDITED CONSOLIDATED BALANCE SHEETS OF ADVANTAGE RN, LLC AND SUBSIDIARIES AS OF - CROSS COUNTRY HEALTHCARE INCccrn_ex993.htm
EX-99.2 - AUDITED CONSOLIDATED BALANCE SHEETS OF ADVANTAGE RN, LLC AND SUBSIDIARIES AS OF - CROSS COUNTRY HEALTHCARE INCccrn_ex992.htm
EX-23.1 - CONSENT OF HAMMERMAN, GRAF, HUGHES & COMPANY, INC., INDEPENDENT AUDITORS - CROSS COUNTRY HEALTHCARE INCccrn_ex231.htm
8-K/A - AMENDED CURRENT REPORT - CROSS COUNTRY HEALTHCARE INCccrn_8ka.htm
 
Exhibit 99.1
 
 
 
Advantage RN, LLC
and Subsidiaries
 
Consolidated Financial Statements
 
 
For the Periods Ended
June 30, 2017 and 2016
(unaudited)
 
 
 
 
 
Advantage RN, LLC and Subsidiaries
Consolidated Balance Sheets
June 30, 2017 and December 31, 2016
(unaudited)
 
 
 
6/30/2017
 
 
12/31/2016
 
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
Cash
 $3,845,461 
 $652,217 
Accounts receivable, trade
  12,720,746 
  15,199,402 
Unbilled accounts receivable
  1,912,230 
  1,946,892 
Employee advances
  188,900 
  156,000 
Prepaid expenses
  265,926 
  658,706 
Total current assets
  18,933,263 
  18,613,217 
 
    
    
PROPERTY AND EQUIPMENT, at cost
    
    
Furniture, fixtures and equipment
  863,098 
  801,836 
Vehicles
  19,216 
  19,216 
Leasehold improvements
  197,779 
  192,682 
 
  1,080,093 
  1,013,734 
Less accumulated depreciation
  749,499 
  691,333 
 
  330,594 
  322,401 
 
    
    
 
 $19,263,857 
 $18,935,618 
 
    
    
LIABILITIES AND MEMBERS' EQUITY
    
    
 
    
    
CURRENT LIABILITIES
    
    
Line of credit
 $4,643,508 
 $1,878,940 
Current portion, long-term debt
  1,430,362
  1,651,421 
Accounts payable, trade
  314,288 
  18,266 
Accrued payroll, commissions and
    
    
 related expenses and withholdings
  148,783 
  1,936,885 
Accrued other expenses and
    
    
 other current liabilities
  1,902,521 
  430,013 
Total current liabilities
  8,439,462
  5,915,525 
 
    
    
LONG-TERM DEBT
    
    
Notes payable
  3,247,028 
  4,168,087 
Less current portion
  1,430,362
  1,651,421
 
  1,816,666
  2,516,666 
 
    
    
MEMBERS' EQUITY
  9,007,729 
  10,503,427 
 
    
    
 
 $19,263,857 
 $18,935,618 
 
 
 
1
 
 
Advantage RN, LLC and Subsidiaries
Consolidated Statements of Income
Six Months Ended June 30, 2017 and 2016
(unaudited)
 
 
 
2017
 
 % 
 
2016
 
 % 
 
 
 
 
 
 
 
 
 
 
 
 
 
REVENUE FROM SERVICES
 $52,526,334 
  100.0 
 $49,719,482 
  100.0 
 
    
    
    
    
DIRECT COSTS OF SERVICES
  41,101,819 
  78.2 
  38,406,437 
  77.2 
 
    
    
    
    
Gross profit
  11,424,515 
  21.8 
  11,313,045 
  22.8 
 
    
    
    
    
SELLING, GENERAL AND
    
    
    
    
 ADMINISTRATIVE EXPENSES
  6,854,884 
  13.1 
  6,201,207 
  12.5 
 
    
    
    
    
Income from operations
  4,569,631 
  8.7 
  5,111,838 
  10.3 
 
    
    
    
    
OTHER INCOME (EXPENSE)
    
    
    
    
Interest income
  1,074 
  -
 
  3 
 -
Loss on sale of
    
    
    
    
 property and equipment
  - 
  - 
  (11,117)
  - 
Other income
  113 
  -
 
  780 
  -
Interest expense
  (89,587)
  (0.2)
  (90,786)
  (0.2)
Other expenses
  (59,064)
  (0.1)
  (33,785)
  (0.1)
Legal expenses-nonoperational
  (382,716)
  (0.7)
  (242,464)
  (0.5)
Organizational costs
  - 
  - 
  -
 
  - 
Settlements and prior years
    
    
    
    
 expenses-nonoperational
  (550,876)
  (1.1)
  (223,123)
  (0.4)
 
    
    
    
    
Total other income (expense)
  (1,081,056)
  (2.1)
  (600,492)
  (1.2)
 
    
    
    
    
Net income
 $3,488,575 
  6.6 
 $4,511,346
 
  9.1 
 
 
 
2
 
 
Advantage RN, LLC and Subsidiaries
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2017 and 2016
(unaudited)
 
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
OPERATING ACTIVITIES
 
 
 
 
 
 
Net income
 $3,488,575 
 $4,511,346 
Adjustments to reconcile net income to net
    
    
cash provided by operating activities:
    
    
 Depreciation
  58,165 
  57,786 
 Loss on sale of property and equipment
  - 
  11,117 
 Bad debt expense
  42,000 
  10,000 
Changes in operating assets and liabilities:
    
    
Accounts receivable, trade and unbilled
  2,471,319 
  115,936 
Prepaid expenses and other assets
  389,780 
  551,878 
Accounts payable and accrued expenses
  (19,572)
  1,380,464 
Net cash provided by operating activities
  6,430,267 
  6,638,527 
 
    
    
INVESTING ACTIVITIES
    
    
Employee and other advances
  (29,900)
  17,600 
Purchase of property and equipment
  (66,359)
  (5,056)
Net cash (used in) provided by investing activities
  (96,259)
  12,544 
 
    
    
FINANCING ACTIVITIES
    
    
Net borrowings (repayments) on line of credit
  2,764,568 
  (3,681,339)
Principal payments on notes payable
  (921,059)
  (632,111)
Capital withdrawals
  (4,984,273)
  (1,153,029)
Net cash used in financing activities
  (3,140,764)
  (5,466,479)
 
    
    
Increase in cash during the six months
  3,193,244 
  1,184,592 
 
    
    
Cash, beginning of year
  652,217 
  983,160 
 
    
    
Cash, end of period
 $3,845,461 
 $2,167,752 
 
 
 
3
Advantage RN, LLC and Subsidiaries
Notes to Consolidated Financial Statements
For the Periods Ended June 30, 2017 and 2016
(unaudited)
 
 
 
Note 1. Organization
 
Advantage RN, LLC (the Company) is a specialty staffing company employing healthcare professionals for travel assignments at hospitals and other medical facilities across the country. The Company was established in 2003 and is headquartered in West Chester, Ohio, with satellite offices in: Clearwater and Delray Beach, Florida; and Charlotte, North Carolina.
 
In 2013 the Company established Advantage RN Local Staffing, LLC, a subsidiary wholly owned by Advantage RN, LLC. Advantage RN Local Staffing, LLC is a specialty staffing company employing healthcare professionals for local assignments at hospitals and other medical facilities across the country.
 
In 2011 the Company established Advantage On Call, LLC, a subsidiary wholly owned by Advantage RN, LLC. Advantage On Call, LLC is a specialty staffing company employing healthcare professionals for per diem nurses, therapy and government assignments at hospitals and other medical facilities across the country and operates out of various satellite offices in: San Diego, California; Las Vegas, Nevada; Centerville, Ohio; Tustin, California; and Sacramento, California. Advantage On Call, LLC is an expansion of the Company’s nurse staffing business line.
 
In 2009 the Company established Advantage Locums, LLC, a subsidiary wholly owned by Advantage RN, LLC. Advantage Locums, LLC operates out of Salt Lake City, Utah and provides locum tenens (temporary physician substitute) for hospitals, clinics and medical practices.
 
The accompanying consolidated financial statements include the accounts of Advantage RN, LLC, Advantage Locums, LLC, Advantage On Call, LLC and Advantage RN Local Staffing, LLC. Intercompany transactions and balances have been eliminated in the consolidation.
 
The Company is organized under the limited liability company laws of the State of Ohio. The rights and obligations of the equity holders of the Company (the Members) are governed by an Operating Agreement (the Agreement) as amended and restated on September 30, 2008. The Company does not have a termination date. Profits of the Company are allocated among all of the Members, in accordance with their percentage interests, based upon the number of total units (Class A and B) of the Company each Member owns. Losses are allocated to the Class A Member. The management of the Company and all decisions concerning the business affairs of the Company are specified to be made by the Class A Member (the Manager). Cash, when available, is distributed to the Members, as determined by the Manager, at his sole discretion. The Agreement provides for mandatory annual distributions to each Member equal to the state and federal income tax owed by each Member, as a result of the Member’s ownership interest in the Company, to the extent the Company has cash available.
 
The Agreement also provides that no Member shall be bound by, or be personally liable for the expenses, liabilities or obligations of the Company. The liability of each Member shall be limited solely to the Member’s investment in the Company. No Member shall be obligated to restore any negative capital account balance.
 
Note 2. Summary of Significant Accounting Policies
 
Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
 
Cash
 
For the purposes of the consolidated statements of cash flows, cash consists of cash on deposit that can be redeemed on demand. The Company maintains its cash balances, which at times may exceed federally insured limits, with a high credit quality financial institution.

 
4
Advantage RN, LLC and Subsidiaries
Notes to Consolidated Financial Statements
For the Periods Ended June 30, 2017 and 2016
(unaudited) 
 
  
Note 2. Summary of Significant Accounting Policies (Continued)
 
Accounts Receivable and Concentration of Risk
 
Accounts receivable potentially subject the Company to concentrations of credit risk. The Company’s customers are primarily hospitals and medical centers throughout the United States. Accounts receivable represent amounts due from these institutions. The Company performs ongoing credit evaluations of customers’ financial condition and generally does not require collateral. The Company has elected to record bad debts using the direct write-off method. GAAP require that the allowance method be used to recognize bad debts; however, the effect of using the direct write-off method is not materially different from the results that would have been obtained under the allowance method. The Company writes off specific accounts based on an on-going review of collectibility as well as management’s past experience with the customer. If amounts become uncollectible they will be charged to operations when that determination is made. The Company had bad debt expense of $42,000 and $10,000 for the six months ended June 30, 2017 and 2016, respectively. The Company’s contract terms generally specify payment in seven to forty-five days. Receivables are considered past due based on the particular negotiated contract terms. Overall, based on the large number of customers in differing geographic areas throughout the United States, the Company believes the concentration of credit risk is limited.
 
The Company’s accounts receivable have been pledged as collateral under terms of the Company’s various credit agreements.
 
Unbilled Receivables
 
Unbilled receivables represent revenues earned in the current period but not yet billed to the customer.
 
Property and Equipment and Depreciation
 
Property and equipment are recorded at cost. Expenditures for major additions and improvements which substantially increase the life of property and equipment are capitalized. Routine maintenance and repairs are charged to expense as incurred. At retirement or sale, the costs of the assets and the related accumulated depreciation are removed from the accounts and resulting gains and losses are included in income. Depreciation is provided over the estimated useful lives of the related assets using accelerated and straight-line methods for financial statement purposes. The estimated useful lives are: five years for vehicles; three to seven years for furniture, fixtures and equipment; and three to ten years for leasehold improvements. Depreciation expense was $58,165 and $57,786 for the six months ended June 30, 2017 and 2016, respectively.
 
Revenue Recognition
 
Revenue consists of temporary staffing revenue. Revenue is recognized when services are rendered.
 
Advertising
 
Advertising costs are expensed as incurred. Advertising expense totaled $123,467 and $135,866 for the six months ended June 30, 2017 and 2016, respectively.
 
Subsequent Events
 
Management has evaluated subsequent events through September 15, 2017, the date which the financial statements were available to be issued.
 
 
 
5
Advantage RN, LLC and Subsidiaries
Notes to Consolidated Financial Statements
For the Periods Ended June 30, 2017 and 2016
(unaudited) 
 
 
Note 2. Summary of Significant Accounting Policies (Continued)
 
Income Taxes
 
As a limited liability company, the Company’s federal taxable income or loss is allocated to Members in accordance with their respective ownership interests. Therefore, the financial statements do not include a provision for federal income taxes.
 
Management is not aware of any tax positions taken by the Company on its tax returns that they consider to be uncertain. Tax returns for the years ended 2014, 2015 and 2016 are still open and subject to examination by the Internal Revenue Service.
 
The company records penalties and interest related to uncertain tax positions, if any, in operating expenses. No such penalties or interest were recognized at June 30, 2017 or 2016.
 
Note 3. Lease Agreements
 
The Company leases operating and office facilities for various terms under non-cancellable operating lease agreements that expire at various dates. Rent expense totaled $212,954 and $186,746 for the six months ended June 30, 2017 and 2016, respectively. Future minimum lease payments are: 2017 - $159,405; 2018 - $190,251; 2019 - $145,171; 2020 - $148,097; and 2021 - $49,691.
 
In February 2016, the Financial Accounting Standards Board issued new guidance on accounting for leases, which generally requires all leases to be recognized by the Company in the statement of financial position by recording an asset representing its right to use the underlying asset and recording a liability, which represents the Company’s obligation to make lease payments. The provisions of this guidance are effective for reporting periods beginning after December 15, 2019; early adoption is permitted. These provisions are to be applied using a modified retrospective approach. The Company is currently evaluating the effect that this new guidance will have on the Company’s financial statements.
 
Note 4. Employee Benefit Plans
 
The Company offers a 401(k) plan that covers substantially all employees and allows for discretionary matching contributions from the Company. Employer contributions totaled $161,577 and $120,761 for the six months ended June 30, 2017 and 2016, respectively.
 
The Company is partially self-insured for medical benefits provided to employees. The Company uses a third-party administrator to process claims and handle other duties of the plan. The Company maintains stop-loss insurance policies that generally limit total medical claims to $150,000 per individual and $1,000,000 maximum aggregate payments for the Company. The Company has established a liability for outstanding claims as well as incurred but unreported claims. While management uses what it believes are pertinent factors in estimating the plan liability, the actual liability is subject to change based upon unexpected claims experience and fluctuations in enrollment during the plan year. At June 30, 2017, and December 31, 2016, the Company recognized a liability for self-insured medical expenses of approximately $140,000 and $240,000, respectively.
 
Note 5. Line of Credit
 
The Company has a line of credit agreement with a bank that allows borrowings up to $10,000,000, bears interest at the Daily LIBOR Rate plus 2.125% (3.35% and 2.90% at June 30, 2017 and December 31, 2016, respectively), is collateralized by substantially all of the Company’s assets, and is guaranteed by the managing member of the Company. The balances due on the note were $4,643,508 and $1,878,940 at June 30, 2017 and December 31, 2016, respectively. The line matures in July 2018.
 
 
6
Advantage RN, LLC and Subsidiaries
Notes to Consolidated Financial Statements
For the Periods Ended June 30, 2017 and 2016
(unaudited) 
 
 
Note 6. Long-Term Debt
 
Long-term debt consists of the following:
 
 
 
June 30,
2017
 
 
December 31,
2016
 
Term note to a bank; payable in monthly principal
 
 
 
 
 
 
payments of $83,333 plus interest at LIBOR plus
 
 
 
 
 
 
3.00% (4.04% at June 30, 2017 and 3.60% at
December 31, 2016, respectively) through
 
 
 
 
 
 
July 2019, and is collateralized by all business
 
 
 
 
 
 
assets and guaranteed by the managing member.
 $2,083,333 
 $2,583,333
 
    
    
Promissory note to a bank; payable in monthly
    
    
principal payments of $33,333 plus interest at LIBOR
    
    
plus 3.00% (4.04% at June 30, 2017 and 3.59% at
    
    
December 31, 2016, respectively) through April 2020,
    
    
and is collateralized by substantially all assets and
    
    
guaranteed by the managing member.
  1,133,333 
  1,333,333 
 
    
    
Promissory note to a bank; payable in monthly
    
    
principal payments of $38,889 plus interest at
    
    
LIBOR plus 2.50% (3.15% at June 30, 2017 and
    
    
December 31, 2016),
    
    
through January 2017.
 -
  38,889
 
    
    
Installment loan agreements with finance companies;
    
    
payable in monthly principal and interest payments of
    
    
$30,312 with interest at 4.45% to 5.06%, matures
    
    
July 2017, and are uncollateralized.
 30,362
 212,532
  Total long-term debt
  3,247,028
 4,168,087
  Less current portion
  1,430,362
  1,651,421
 
 $1,816,666
 $2,516,666
 
The aggregate maturities of long-term debt are as follows: for the years ending 2017 - $730,362; 2018 - $1,400,000; 2019 - $983,333; and 2020 - $133,333.
 
Note 7. Standby Letter of Credit
 
The Company has a standby letter of credit of $810,000 outstanding at June 30, 2017. The letter is maintained to back the Company’s self-insured workers’ compensation program and matures in October 2017.
 
Note 8. Organizational Costs
 
Organizational costs are costs associated with establishing new office locations, and closing old offices.
 
Note 9. Legal Expenses-Nonoperational
 
The Company has various legal costs that have arisen outside the ordinary course of business. Legal expenses are included in other income (expense) on the consolidated statements of income and totaled $382,716 and $242,464 for the six months ended June 30, 2017 and 2016, respectively.
 
 
 
7
Advantage RN, LLC and Subsidiaries
Notes to Consolidated Financial Statements
For the Periods Ended June 30, 2017 and 2016
(unaudited) 
 
 
Note 10. Settlements and Prior Years Expenses-Nonoperational
 
Settlements and prior years expenses represent nonrecurring and prior years expenses to resolve various customer billing and payroll issues and differences with certain members and employees of the Company, insurance claims, and audits in certain states. Settlements totaled $550,876 and $223,123 for the six months ended June 30, 2017 and 2016, respectively.
 
Note 11. Contingencies
 
The Company is self-insured for its workers’ compensation claims in certain states. The Company carries excess workers’ compensation and employers’ liability insurance that requires a $250,000 Company retention per incident. The policy also provided excess employer liability insurance of $1,000,000 per incident or in aggregate per policy year. The Company has established a liability for outstanding claims as well as incurred but unreported claims. While management uses what it believes are pertinent factors in estimating the liability, the actual liability is subject to change based upon unexpected claims experience and fluctuations in enrollment during the plan year. At June 30, 2017, and December 31, 2016, the Company recognized a liability for self-insured workers’ compensation expenses of approximately $115,000 and $117,000, respectively.
 
Periodically the Company is a party to various claims and legal proceedings that have arisen in the ordinary course of business, the aggregate effects of which, in management’s and legal counsel’s opinion, would not be material to the financial condition or results of operations of the Company.
 
The Internal Revenue Service (IRS) has examined the Company’s treatment of travel expenses paid to nurses in the form of per diem reimbursements. As part of this examination, the IRS has proposed a recharacterization of these reimbursements to gross wages for certain tax periods in 2009 and 2010. The Company disagrees with this proposal and intends to vigorously defend its original characterization. If the Company is unsuccessful in defending its position it could be liable for certain payroll taxes and federal income tax withholding on the amount recharacterized. The Company believes that it will be able to prevail and that an unfavorable outcome is not likely. However, if an unfavorable outcome were to occur, the Company could potentially experience a loss that could have an adverse effect on the Company’s financial position, cash flows, and results of operations. The Company is unable to estimate a potential loss or range of potential losses in the unlikely event of an unfavorable outcome.
 
 
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