Exhibit 99.1

 

FERNHILL ESTATES, LLC

PACIFIC GARDENS ESTATES, LLC

SHERIDAN CARE CENTER, LLC

Oregon

 

COMBINED FINANCIAL STATEMENTS

For the Year Ended December 31, 2019

 

 

FERNHILL ESTATES, LLC, PACIFIC GARDENS ESTATES, LLC,

AND SHERIDAN CARE CENTER, LLC

 

TABLE OF CONTENTS

For the Year Ended December 31, 2019

 

Page

 

INDEPENDENT AUDITOR’S REPORT			1 – 2
FINANCIAL STATEMENTS
Combined Balance Sheet			3
Combined Statement of Income and Changes in Member’s Equity			4
Combined Statement of Cash Flows			5
Notes to Combined Financial Statements			6 – 9
SUPPLEMENTARY INFORMATION
Combining Balance Sheet			10
Combining Statement of Income and Changes in Members’ Equity			11
Combining Statement of Cash Flows			12

 

 

 

Independent Auditor’s Report

 

Board of Directors and Stockholders

Dakavia Management Corp

Salem, Oregon

 

Report on the Combined Financial Statements

 

We have audited the accompanying combined financial statements of Fernhill Estates LLC, Pacific Garden LLC, and Sheridan Care Center LLC, subsidiaries of Dakavia Management Corp, which comprise the combined balance sheet as of December 31, 2019, and the related combined statements of income and changes in members’ equity, and cash flows for the year then ended, and the related notes to the combined financial statements.

 

Management’s Responsibility for the Financial Statements

 

Management is responsible for the preparation and fair presentation of these combined 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 combined 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 combined 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 combined financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the combined 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 combined 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 combined financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

 

INDEPENDENT AUDITOR’S REPORT (Continued)

 

Opinion

 

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of Fernhill Estates LLC, Pacific Garden LLC, and Sheridan Care Center LLC as of December 31, 2019, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

 

Emphasis of Matter

 

As discussed in Note 1, the financial statements present only Fernhill Estates LLC, Pacific Garden LLC, and Sheridan Care Center LLC, and do not purport, and do not, present fairly the financial position of Dakavia Management, Inc. as of December 31, 2019 and results of its operations and cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter.

 

Report on Supplementary Information

 

Our audits were conducted for the purpose of forming an opinion on the combined financial statements as a whole. The supplemental combining information is presented for purposes of additional analysis and is not a required part of the combined financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the combined financial statements. The information has been subjected to the auditing procedures applied in the audit of the combined financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the combined financial statements or to the combined financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the combined financial statements as a whole.

 

Boldt Carlisle + Smith 

Certified Public Accountants 

Salem, Oregon 

February 28, 2020

 

 

FINANCIAL STATEMENTS

 

 

 

FERNHILL ESTATES, LLC, PACIFIC GARDENS ESTATES, LLC,

AND SHERIDAN CARE CENTER, LLC

 

COMBINED BALANCE SHEET

December 31, 2019

 

ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	244,751
Accounts receivable, net			1,634,095
Inventory			5,873
Prepaid expenses			92,578
Escrow accounts held by landlords			140,008
Other current assets			3,958
TOTAL CURRENT ASSETS			2,121,263
NONCURRENT ASSETS
Receivables from related parties			2,511,417
Deposits			420,000
Property and equipment, net			951,120
TOTAL NONCURRENT ASSETS			3,882,537
TOTAL ASSETS		$	6,003,800
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable		$	391,838
Accrued expenses			518,147
Current portion of long-term debt			5,023
TOTAL CURRENT LIABILITIES			915,008
LONG-TERM LIABILITIES
Long-term debt			2,208
TOTAL LIABILITIES			917,216
EQUITY
Member's equity			5,086,584
TOTAL EQUITY			5,086,584
TOTAL LIABILITIES AND EQUITY		$	6,003,800

 

See accompanying notes

 

 

FERNHILL ESTATES, LLC, PACIFIC GARDENS ESTATES, LLC,

AND SHERIDAN CARE CENTER, LLC

 

COMBINED STATEMENT OF INCOME AND CHANGES IN

MEMBERS' EQUITY

For the Year Ended December 31, 2019

 

REVENUES		$	14,400,202
EXPENSES
Administration and general			1,824,181
Environmental services			962,045
Dietary			816,044
Social services			140,367
Activities			82,853
Nursing			6,839,261
Property and related			2,133,111
Depreciation			90,167
TOTAL EXPENSES			12,888,029
OPERATING INCOME			1,512,173
OTHER INCOME AND EXPENSES
Miscellaneous income			52,882
Oregon provider tax			(997,769	)
Miscellaneous expenses			(18,070	)
TOTAL OTHER INCOME AND EXPENSES			(962,957	)
Net income			549,216
Member's equity - beginning			4,637,368
Distributions to member			(100,000	)
Member's equity - ending		$	5,086,584

 

See accompanying notes

 

 

FERNHILL ESTATES, LLC, PACIFIC GARDENS ESTATES, LLC,

AND SHERIDAN CARE CENTER, LLC

 

COMBINED STATEMENT OF CASH FLOWS

For the Year Ended December 31, 2019

 

CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	549,216
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense			90,167
(Increase) decrease in assets:
Accounts receivable			(67,321	)
Prepaid expenses			(5,279	)
Escrow accounts held by Summit			(2,956	)
Due from related parties			(120,368	)
Other current assets			(23,206	)
Increase (decrease) in liabilities:
Accounts payable			44,439
Accrued expenses			(58,891	)
Net cash provided by operating activities			405,801
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for purchases of property and equipment			(309,992	)
Net cash (used in) investing activities			(309,992	)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions			(100,000	)
Principal payments on long term debt			(7,683	)
Net cash (used in) financing activities			(107,683	)
(Decrease) in cash			(11,874	)
Cash - beginning of year			256,625
Cash - end of year		$	244,751
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid		$	5,440

  

See accompanying notes

 

 

FERNHILL ESTATES, LLC, PACIFIC GARDENS ESTATES, LLC,

AND SHERIDAN CARE CENTER, LLC

 

NOTES TO COMBINED FINANCIAL STATEMENTS

December 31, 2019

 

1.            Summary of business operations and significant accounting principles and policies

 

(a)

Description of business

 

Fernhill Estates, LLC, Pacific Gardens Estates, LLC, and Sheridan Care Center, LLC (the Companies) are single-member LLC’s wholly owned by Dakavia Management Corp. The Companies operate skilled nursing facilities within Oregon.

 

The combined financial statements include the accounts of the three companies which operate under a single master lease with three wholly-owned subsidiaries of Summit Healthcare REIT, Inc. as landlords. All significant intercompany accounts and transactions have been eliminated in combination.

 

(b)

Concentration of credit risk

 

The Companies have deposits with one financial institution which are insured by the Federal Deposit Insurance Corporation up to $250,000. Account balances did not exceed federally insured limits during 2019.

 

(c)

Cash equivalents

 

For purposes of reporting cash flows, cash includes cash on hand, checking, savings, and money market accounts.

 

(d)

Receivables

 

The Companies maintain allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management uses a set percentage of billings to determine the amount of allowances to accrue. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the allowance and a credit to accounts receivable.

 

(e)

Inventory

 

Inventory consists of supplies which are stated at cost.

 

(f)

Depreciation of property and equipment

 

Property and equipment are stated at cost less accumulated depreciation computed using the straight-line and accelerated methods over 3 to 39 years.

 

(g)

Income taxes

 

As limited liability companies, the Companies are not taxpaying entities for federal income tax purposes. Accordingly, the Companies’ taxable income or loss are allocated to their members in accordance with their respective percentage ownership. Therefore, no provision or liability for income taxes has been included in the accompanying financial statements.

 

 

NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)

 

1.

Summary of business operations and significant accounting principles and policies (continued)

 

(h)

Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

(i)

Risk management

 

The Companies are exposed to various risks of loss related to errors and omissions; automobile; damage to and destruction of assets; bodily injury; and worker’s compensation for which the Companies carry commercial insurance. There has been no significant reduction in insurance coverage from the prior year and settled claims have not reached the level of commercial coverage in any of the past three fiscal years.

 

(j)

Revenue recognition

 

Effective January 1, 2018, the Companies adopted accounting guidance, issued by the Financial Accounting Standards Board (“FASB”) in May 2014, clarifying the principles for recognizing revenue from certain contracts with customers. Management has evaluated the nature of services provided by the Companies and has determined the adoption of this guidance was not material to the Company’s financial statements.

 

(k)

Subsequent events

 

Management has evaluated events subsequent to year end through February 28, 2020 which is the date that the financial statements were available to be issued, for possible disclosure in the financial statements.

 

2.

Receivables

 

Accounts receivables		$	1,644,092
Other receivables			7,364
Allowance for doubtful accounts			(17,361	)
		$	1,634,095

 

Receivables accounts over 90 days past due at December 31, 2019 were $245,555.

 

 

NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)

 

3.            Property and equipment

 

Leasehold improvements		$	969,274
Furniture and fixtures			119,511
Machinery and equipment			226,502
			1,315,287
Less accumulated depreciation			(364,167	)
		$	951,120

 

Depreciation charged to operations for 2019 amounted to $90,167.

 

4.            Related party balances and transactions

 

The Companies are wholly owned by Dakavia Management Corp to whom they pay a management fee. The management fee effective from January 1, 2019 to February 28, 2019 was 6 percent of gross revenue and 5 percent effective March 1, 2019. Management fees for 2019 were $742,309.

 

The Companies also had receivables at year-end with Kent Emry, a shareholder in Dakavia Management Corp, and Myrtle Point Care Center, LLC, a subsidiary of Dakavia Management Corp as follows:

 

Dakavia Management Corp		$	2,485,802
Kent Emry			25,158
Myrtle Point Care Center, LLC			457
		$	2,511,417

 

The daughter of a shareholder of Dakavia Management Corp, was the Administrator at Fernhill Estates, LLC and was paid $70,000 in wages and $1,230 in bonuses during the year.

 

5.            Long-term debt

 

The Companies entered into a loan to finance the purchase of equipment with monthly payments of $450 including interest at 7.6 percent.

 

Balance at December 31, 2019		$	7,231
Current portion			(5,023	)
Noncurrent portion		$	2,208

 

Future maturities are as follows:

 

December 31, 2020		$	5,023
December 31, 2021			2,208

 

 

 

NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)

 

6.

Lease

 

The Companies lease their respective facilities under a master lease agreement with Summit Healthcare REIT. The lease expires on July 31, 2027. Lease payments increase 2 percent annually.

 

The following is a schedule of the future minimum lease payments:

 

Year		Amount
2020		$	1,927,251
2021			1,965,796
2022			2,005,112
2023			2,045,214
2024			2,086,118
2025 and thereafter			12,520,759
		$	22,550,250

 

Rent expense for the year was $1,900,024.

 

7.	Retirement plan

 

As of May 2019, Dakavia Management Corp sponsored a 401(k) retirement plan which covers the employees of the Companies, as well as employees of other Dakavia Management Corp subsidiaries. Substantially all employees are eligible and are automatically enrolled. Employee deferrals are matched at 100 percent for the first percent and half a percent of any additional contributions up to 6 percent. Employer matching contributions of $34,298 were made for 2019.

 

8.	Concentration

 

The Companies provide services to residents of Oregon who are Medicaid or Medicare recipients and receives approximately 94 percent of revenue from these programs. Accordingly, the company is subject to a concentration of revenue risks related to the Oregon Medicaid and Medicare Programs.

 

 

SUPPLEMENTARY INFORMATION

 

 

FERNHILL ESTATES, LLC, PACIFIC GARDENS ESTATES, LLC,
AND SHERIDAN CARE CENTER, LLC
COMBINING BALANCE SHEET
December 31, 2019
		Fernhill Estates, LLC				Pacific Gardens Estates, LLC				Sheridan Care Center, LLC				Subtotals				Eliminations				Totals
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	87,712			$	61,844			$	95,195			$	244,751			$	-			$	244,751
Accounts receivable, net			401,280				727,997				504,818				1,634,095				-				1,634,095
Inventory			1,441				1,701				2,731				5,873				-				5,873
Prepaid expenses			25,317				42,032				25,229				92,578				-				92,578
Escrow accounts held by landlords			58,615				27,108				54,285				140,008				-				140,008
Other current assets			-				1,826				2,132				3,958				-				3,958
TOTAL CURRENT ASSETS			574,365				862,508				684,390				2,121,263				-				2,121,263
NONCURRENT ASSETS
Receivables from related parties			1,296,506				480,197				2,388,570				4,165,273				(1,653,856	)			2,511,417
Deposits			113,706				205,000				101,294				420,000				-				420,000
Property and equipment, net			302,114				318,522				330,484				951,120				-				951,120
															-
TOTAL NONCURRENT ASSETS			1,712,326				1,003,719				2,820,348				5,536,393				(1,653,856	)			3,882,537
TOTAL ASSETS		$	2,286,691			$	1,866,227			$	3,504,738			$	7,657,656			$	(1,653,856	)		$	6,003,800
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable		$	59,218			$	189,427			$	143,193			$	391,838			$	-			$	391,838
Accrued expenses			143,198				241,397				133,552				518,147				-				518,147
Due to related parties			-				1,323,719				330,137				1,653,856				(1,653,856	)			-
Current portion of long-term debt			-				5,023				-				5,023				-				5,023
TOTAL CURRENT LIABILITIES			202,416				1,759,566				606,882				2,568,864				(1,653,856	)			915,008
LONG-TERM LIABILITIES
Long-term debt			-				2,208				-				2,208				-				2,208
TOTAL LIABILITIES			202,416				1,761,774				606,882				2,571,072				(1,653,856	)			917,216
EQUITY
Member's equity			2,084,275				104,453				2,897,856				5,086,584				-				5,086,584
TOTAL EQUITY			2,084,275				104,453				2,897,856				5,086,584				-				5,086,584
TOTAL LIABILITIES AND EQUITY		$	2,286,691			$	1,866,227			$	3,504,738			$	7,657,656			$	(1,653,856	)		$	6,003,800

 

 

FERNHILL ESTATES, LLC, PACIFIC GARDENS ESTATES, LLC,
AND SHERIDAN CARE CENTER, LLC
COMBINING STATEMENT OF INCOME AND CHANGES IN
MEMBERS' EQUITY
For the Year Ended December 31, 2019
		Fernhill Estates, LLC				Pacific Gardens Estates, LLC				Sheridan Care Center, LLC				Totals
REVENUES		$	3,715,300			$	6,549,666			$	4,135,236			$	14,400,202
EXPENSES
Administration and general			478,796				797,928				547,457				1,824,181
Environmental services			267,479				453,655				240,911				962,045
Dietary			203,916				363,156				248,972				816,044
Social services			41,388				71,680				27,299				140,367
Activities			24,723				41,151				16,979				82,853
Nursing			1,774,914				3,148,995				1,915,352				6,839,261
Property and related			568,410				1,038,554				526,147				2,133,111
Depreciation			23,384				43,040				23,743				90,167
TOTAL EXPENSES			3,383,010				5,958,159				3,546,860				12,888,029
OPERATING INCOME			332,290				591,507				588,376				1,512,173
OTHER INCOME AND EXPENSES
Miscellaneous income			15,929				26,133				10,820				52,882
Oregon provider tax			(268,593	)			(451,043	)			(278,133	)			(997,769	)
Miscellaneous expenses			(9,706	)			(6,561	)			(1,803	)			(18,070	)
TOTAL OTHER INCOME AND EXPENSES			(262,370	)			(431,471	)			(269,116	)			(962,957	)
Net income			69,920				160,036				319,260				549,216
Member's equity - beginning			2,064,355				(55,583	)			2,628,596				4,637,368
Distributions to member			(50,000	)			-				(50,000	)			(100,000	)
Member's equity - ending		$	2,084,275			$	104,453			$	2,897,856			$	5,086,584

 

 

COMBINING STATEMENT OF CASH FLOWS

For the Year Ended December 31, 2019

 

		Fernhill Estates, LLC				Pacific Gardens Estates, LLC				Sheridan Care Center, LLC				Eliminations				Totals
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	69,920			$	160,036			$	319,260			$	-			$	549,216
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense			23,384				43,040				23,743				-				90,167
(Increase) decrease in assets:
Accounts receivable			30,584				(90,841	)			(7,064	)			-				(67,321	)
Prepaid expenses			(1,819	)			(4,153	)			693				-				(5,279	)
Escrow accounts held by Summit Healthcare REIT			(8,518	)			37,842				(32,280	)			-				(2,956	)
Receivable from related parties			21,193				102,586				(175,500	)			(68,647	)			(120,368	)
Other current assets			-				(22,574	)			(632	)			-				(23,206	)
Increase (decrease) in liabilities:
Accounts payable			(19,735	)			37,339				26,835				-				44,439
Accrued expenses			(27,363	)			(8,657	)			(22,871	)			-				(58,891	)
Due to related parties			-				(116,647	)			48,000				68,647				-
Net cash provided by operating activities			87,646				137,971				180,184				-				405,801
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for purchases of property and equipment			(27,943	)			(110,949	)			(171,100	)			-				(309,992	)
Net cash (used in) investing activities			(27,943	)			(110,949	)			(171,100	)			-				(309,992	)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions			(50,000	)			-				(50,000	)			-				(100,000	)
Principal payments on long term debt			(3,027	)			(4,656	)			-				-				(7,683	)
Net cash (used in) financing activities			(53,027	)			(4,656	)			(50,000	)			-				(107,683	)
Increase (decrease) in cash			6,676				22,366				(40,916	)			-				(11,874	)
Cash - beginning of year			81,036				39,478				136,111				-				256,625
Cash - end of year		$	87,712			$	61,844			$	95,195			$	-			$	244,751
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid		$	1,181			$	2,853			$	1,406			$	-			$	5,440