Attached files
Exhibit 99.3
ADVANTAGE
RN, LLC
AND
SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
For the
Years Ended
December 31, 2015
and 2014
INDEPENDENT
AUDITOR’S REPORT
To The
Members
Advantage
RN, LLC and Subsidiaries
We have
audited the accompanying consolidated balance sheets of Advantage
RN, LLC and Subsidiaries as of December 31, 2015 and 2014, and the
related consolidated statements of income, members’ equity
and cash flows for the years then ended and the related notes to
the financial statements.
Management’s Responsibility for the Financial
Statements
Management
is responsible for the preparation and fair presentation of these
financial statements in accordance with accounting principles
generally accepted in the United States of America; this includes
the design, implementation, and maintenance of internal control
relevant to the preparation and fair presentation of financial
statements that are free from material misstatement, whether due to
fraud or error.
Auditor’s Responsibility
Our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits in
accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the
financial statements are free of material
misstatement.
An
audit involves performing procedures to obtain audit evidence about
the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement of
the financial statements, whether due to fraud or error. In making
those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of
the financial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s
internal control. Accordingly, we express no such opinion. An audit
also includes evaluating the appropriateness of accounting policies
used and the reasonableness of significant accounting estimates
made by management, as well as evaluating the overall presentation
of the financial statements.
We
believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.
Opinion
In our
opinion the financial statements referred to above present fairly,
in all material respects, the financial position of Advantage RN,
LLC and Subsidiaries as of December 31, 2015 and 2014, and the
results of its operations and its cash flows for the years then
ended in conformity with accounting principles generally accepted
in the United States of America.
Dayton,
Ohio
March
31, 2016
1
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Advantage RN, LLC and Subsidiaries
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Consolidated Balance Sheets
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December 31, 2015 and 2014
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2015
|
2014
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ASSETS
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CURRENT ASSETS
|
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Cash
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$983,160
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$1,358,953
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Accounts
receivable, trade
|
14,477,624
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8,429,242
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Unbilled
accounts receivable
|
1,325,565
|
2,077,319
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Employee
advances
|
189,200
|
167,000
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Prepaid
expenses
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786,335
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873,572
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Total
current assets
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17,761,884
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12,906,086
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PROPERTY AND EQUIPMENT, at cost
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Furniture,
fixtures and equipment
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1,038,267
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995,933
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Vehicles
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111,087
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72,499
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Leasehold
improvements
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296,921
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121,191
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1,446,275
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1,189,623
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Less
accumulated depreciation
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1,021,342
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903,462
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424,933
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286,161
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Employee
advances
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-
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5,572
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$18,186,817
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$13,197,819
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LIABILITIES AND MEMBERS' EQUITY
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CURRENT LIABILITIES
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Line
of credit
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$5,567,117
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$3,271,343
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Current
portion, long-term debt
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1,098,575
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827,300
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Accounts
payable, trade
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473,931
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658,528
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Accrued
payroll, commissions and
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related
expenses and withholdings
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1,437,307
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2,438,671
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Accrued
other expenses and
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other
current liabilities
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110,675
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415,728
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Total
current liabilities
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8,687,605
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7,611,570
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LONG-TERM DEBT
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Notes
payable
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2,470,797
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1,332,855
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Less
current portion
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1,098,575
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827,300
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1,372,222
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505,555
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MEMBERS' EQUITY
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8,126,990
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5,080,694
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$18,186,817
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$13,197,819
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See accompanying notes.
2
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Advantage RN, LLC and Subsidiaries
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Consolidated Statements of Income
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Years Ended December 31, 2015 and 2014
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2015
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%
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2014
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%
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REVENUE FROM SERVICES
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$83,440,209
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100.0
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$63,720,986
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100.0
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DIRECT COSTS OF SERVICES
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64,738,365
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77.6
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49,602,003
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77.8
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Gross
profit
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18,701,844
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22.4
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14,118,983
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22.2
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SELLING, GENERAL AND
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ADMINISTRATIVE EXPENSES
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11,699,605
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14.0
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10,147,932
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15.9
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Income
from operations
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7,002,239
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8.4
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3,971,051
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6.2
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OTHER INCOME (EXPENSE)
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Interest
income
|
108
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-
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7,607
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-
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Loss
on sale of
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property
and equipment
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-
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-
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(1,027)
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-
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Other
income
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6,490
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-
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204,401
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0.3
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Interest
expense
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(217,111)
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(0.3)
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(133,716)
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(0.2)
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Other
expenses
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(105,101)
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(0.1)
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(91,276)
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(0.1)
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Legal
expenses
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(54,870)
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(0.1)
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(621,195)
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(1.0)
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Organizational
costs
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(116,036)
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(0.1)
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(75,208)
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(0.1)
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Settlements
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(488,659)
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(0.6)
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(820,637)
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(1.3)
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Total
other income (expense)
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(975,179)
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(1.2)
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(1,531,051)
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(2.4)
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Net
income
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$6,027,060
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7.2
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$2,440,000
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3.8
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See accompanying notes.
3
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Advantage RN, LLC and Subsidiaries
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Consolidated Statements of Members' Equity
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Years Ended December 31, 2015 and 2014
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2015
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2014
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BEGINNING BALANCE
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$5,080,694
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$5,777,250
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Net
income
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6,027,060
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2,440,000
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Distributions
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(2,980,764)
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(3,136,556)
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ENDING BALANCE
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$8,126,990
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$5,080,694
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See accompanying notes.
4
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Advantage RN, LLC and Subsidiaries
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Consolidated Statements of Cash Flows
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Years Ended December 31, 2015 and 2014
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2015
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2014
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OPERATING ACTIVITIES
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Net
income
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$6,027,060
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$2,440,000
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Adjustments
to reconcile net income to net
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cash
(used in) provided by operating activities:
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Depreciation
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117,881
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123,142
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Loss
on sale of property and equipment
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-
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1,027
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Bad
debt expense
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25,387
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151,641
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Changes
in operating assets and liabilities:
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Accounts
receivable, trade and unbilled
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(5,322,015)
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(1,617,338)
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Prepaid
expenses and other assets
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70,609
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(115,475)
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Accounts
payable and accrued expenses
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(1,491,014)
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1,020,175
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Net
cash (used in) provided by operating activities
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(572,092)
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2,003,172
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INVESTING ACTIVITIES
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Employee
and other advances
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-
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18,902
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Proceeds
from sale of property and equipment
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-
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13,500
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Purchase
of property and equipment
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(256,653)
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(91,056)
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Net
cash used in investing activities
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(256,653)
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(58,654)
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FINANCING ACTIVITIES
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Net
borrowings on line of credit
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2,295,774
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2,348,434
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Proceeds
from note payable
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2,000,000
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-
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Principal
payments on notes payable
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(862,058)
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(790,379)
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Distributions
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(2,980,764)
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(3,136,556)
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Net
cash provided by (used in) financing activities
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452,952
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(1,578,501)
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(Decrease)
increase in cash during the year
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(375,793)
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366,017
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Cash,
beginning of year
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1,358,953
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992,936
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Cash,
end of year
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$983,160
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$1,358,953
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SUPPLEMENTAL CASH FLOW INFORMATION:
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Cash
paid during the year for interest
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$218,163
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$130,164
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Cash
paid during the year for state income taxes
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$100,846
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$310,262
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See accompanying notes.
5
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 new
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 travel
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; Los
Angeles, California; Tustin, California; and Sacramento,
California. Advantage On Call, LLC is an expansion of the
Company’s current 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.
6
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
2. Summary of Significant Accounting Policies
Use of Estimates
The
preparation of financial statements in conformity with generally
accepted accounting principles 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 quality financial
institution.
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. Generally
accepted accounting principles 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 $25,387 and $151,641 in 2015 and
2014, 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.
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 $117,881 and $90,316 for 2015 and 2014,
respectively.
7
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
2. Summary of Significant Accounting Policies
(Continued)
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 $244,439 and
$207,137 for 2015 and 2014, respectively.
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. Although the
Company’s federal income tax returns for the years 2012 -
2014 are subject to examination by the Internal Revenue Service, it
has not indicated any intent to do so. The Company’s 2009 and
2010 payroll taxes are under examination by the Internal Revenue
Service.
Subsequent Events
Management has
evaluated subsequent events through March 31, 2016, the date which
the financial statements were available to be issued, and concluded
no events have occurred which should be disclosed.
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 $398,907 and $364,481 during
2015 and 2014, respectively. Future minimum lease payments are:
2016 - $242,470; 2017 - $188,512; 2018 - $141,834; 2019 - $144,683;
and 2020 - $147,609.
Note
4. Retirement Plan
The
Company offers a 401(k) plan with a discretionary matching
contribution from the Company. Employer contributions totaled
$197,789 and $149,371 for 2015 and 2014, respectively.
Note 5. Line of Credit
The
Company has a Promissory Note with a bank. The note allows
borrowings up to $8,000,000, bears interest at the daily LIBOR rate
plus 2.12% (2.55% and 2.30% at December 31, 2015 and 2014,
respectively), is collateralized by all of the Company’s
assets, and is guaranteed by a Member of the Company for
$1,250,000, and is payable on demand. The balance due on the note
was $5,567,117 and $3,271,343 at December 31, 2015 and 2014,
respectively.
8
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
6. Long Term Debt
Long
term debt consists of the following at December 31:
|
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2015
|
2014
|
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|
|
|
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Promissory
note to a bank;
|
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payable
in monthly principal
|
|
|
|
payments
of $33,333 with
|
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|
|
interest
at LIBOR plus 3.00%,
|
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|
|
(3.422%
at December 31, 2015) ,
|
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matures
April 2020, and is
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collateralized
by all business assets
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and
guaranteed by the managing
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member.
|
$1,733,333
|
$-
|
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Promissory
note to a bank;
|
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payable
in monthly principal
|
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|
|
payments
of $38,889 with
|
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|
|
interest
at LIBOR plus 2.50%,
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|
|
(2.922%
at December 31, 2015 and
|
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|
2.669%
at December 31, 2014),
|
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matures
January 2017, and is
|
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|
|
collateralized
by all business assets.
|
505,556
|
972,222
|
|
|
|
|
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Promissory
note to a bank;
|
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|
|
payable
in monthly principal
|
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|
|
and
interest payments of
|
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|
$15,430
matured August 2015.
|
-
|
102,059
|
|
|
|
|
|
Installment
loan agreements with
|
|
|
|
finance
companies; payable
|
|
|
|
in
monthly principal and
|
|
|
|
interest
payments of $33,130,
|
|
|
|
with
interest at 3.95% to
|
|
|
|
4.99%,
matures July 2016,
|
|
|
|
and
are uncollateralized.
|
231,908
|
258,574
|
|
|
$2,470,797
|
$1,332,855
|
The
aggregate maturities of long term debt are as follows: for the
years ending 2016 - $1,098,575; 2017 - $438,889; 2018 - $400,000;
2019 - $400,000; and 2020 - $133,333.
Interest expense
was $217,111 and $133,716 for 2015 and 2014,
respectively.
9
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Standby Letter of
Credit
The
Company has a standby letter of credit of $810,000 outstanding at
December 31, 2015. The letter is maintained to back the
Company’s self-insured workers’ compensation program
and matures in October 2016.
Note 8. Reclassifications
Certain
reclassifications in other income (expense) have been made to the
prior year’s financial statements to conform to the current
year presentation. These reclassifications had no effect on
previously reported results of operations or members’
equity.
Note 9. Legal Expenses
The
Company has various legal costs that have arisen in the ordinary
course of business. Legal expenses are included in other income
(expense) on the statements of income and totaled $54,870 and
$621,195 in 2015 and 2014, respectively.
Note 10. Organizational
Costs
Organizational
costs are costs associated with establishing new office locations,
closing old offices, and the purchase of nurse and hospital
contracts from other travel nursing companies. Organizational costs
charged to operations totaled $116,036 and $75,208 for 2015 and
2014, respectively.
Note 11. Settlements
Settlements
represent nonrecurring expenses to resolve various issues and
differences with certain members and employees of the Company,
insurance claims, and audits in certain states. Settlements totaled
$488,659 and $820,637 in 2015 and 2014, respectively.
Note 12. Assessments, Claims and
Litigation
The
Company is currently a party to various claims and legal
proceedings that have arisen in the ordinary course of business. If
management believes that a loss arising from such claims and legal
proceedings is probable and can reasonably be estimated, the
Company records the amount of the loss (including estimated legal
costs). As management becomes aware of additional information
concerning such contingencies, any potential liability related to
those matters is assessed and the estimates are revised, if
necessary. Based upon currently available information and with the
advice of counsel, management believes that the ultimate outcome of
its current claims and legal proceedings, individually and in the
aggregate, will not have a material adverse effect on the
Company’s financial position, cash flows or results of
operations. However, claims and legal proceedings are subject to
inherent uncertainties and rulings unfavorable to the Company could
occur. If an unfavorable ruling were to occur, there exists the
possibility of a material adverse effect on the Company’s
financial position, cash flows or results of
operations.
10