Cross Country -- 8-K


 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________

FORM 8-K/A

______________

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) September 9, 2008

[http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=6000526&doc=8]

______________

Cross Country Healthcare, Inc.

 (Exact name of registrant as specified in its charter)

______________


Delaware

0-33169

13-4066229

(State or Other Jurisdiction

(Commission

(I.R.S. Employer

of Incorporation)

File Number)

Identification No.)

6551 Park of Commerce Blvd., N.W., Boca Raton, FL 33487

(Address of Principal Executive Office) (Zip Code)

(561) 998-2232

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 









This Amendment 1 is being filed to furnish: 1) audited financial statements of the acquired company as required by Rule 3-05(b) of Regulation S-X; and 2) pro forma financial information as required by Article 11 of Regulation S-X, both in connection with the transaction described in Item 2.01 of this Current Report on Form 8-K, originally filed on September 11, 2008.



Item 9.01

Financial Statements and Exhibits

(a)  Financial statements of businesses acquired

Consolidated Financial Statements of MDA Holdings, Inc. and Subsidiaries for the years ending December 31, 2007 and 2006 with the Report of Independent Auditor are filed as Exhibit 99.1 to this Current Report.

Consolidated Financial Statements of Jamestown Indemnity, Ltd. for the years ending December 31, 2007 and 2006 with the Report of Independent Auditor are filed as Exhibit 99.2 to this Current Report on Form 8-K.

Unaudited Consolidated Financial Statements of MDA Holdings, Inc. and Subsidiaries for the six months ending June 30, 2008 and 2007 are filed as Exhibit 99.3 to this Current Report.

(b)  Pro forma financial information

The Unaudited Pro Forma Consolidated Financial Information of Cross Country Healthcare, Inc. and MDA for the three months ended March 31, 2008, the six months ended June 30, 2008, as of June 30, 2008, the nine months ended September 30, 2008 and for the year ended December 31, 2007 are filed as Exhibit 99.4 to this Current Report on Form 8-K.

(d)  Exhibits


          

Exhibit

     

Description

 

1.01*

 

Credit Agreement, dated November 10, 2005 and Amended and Restated as of September 9, 2008, by and among Cross Country Healthcare, Inc. as Borrower and the Lenders referenced therein

 

10.1**

 

Purchase Agreement, dated as of July 22, 2008, by and among Cross Country Healthcare, Inc., StoneCo H, Inc., MDA Holdings, Inc., Medical Doctor Associates, Inc., Allied Health Group, Inc., Credent Verification and Licensing Services, Inc. and Jamestown Indemnity, Ltd., and MDA Employee Stock Ownership and 401(k) Plan – ESOP Component Trust

 

23.1

 

Consent of Moore and Cubbedge LLP

 

23.2

 

Consent of Grant Thornton

 

99.1

 

Consolidated Financial Statements of MDA Holdings, Inc. and Subsidiaries for the years ending December 31, 2007 and 2006 with Report of Independent Auditor

 

99.2

 

Consolidated Financial Statements of Jamestown Indemnity, Ltd. for the years ending December 31, 2007 and 2006 with Report of Independent Auditor

 

99.3

 

Unaudited Consolidated Financial Statements of MDA Holdings, Inc. and Subsidiaries for the six months ending June 30, 2008 and 2007

 

99.4

 

The Unaudited Pro Forma Consolidated Financial Information of Cross Country Healthcare, Inc. and MDA for the three months ended March 31, 2008, the six months ended June 30, 2008, as of June 30, 2008, the nine months ended September 30, 2008 and for the year ended December 31, 2007

———————

*

Previously filed as an exhibit to the Company’s Form 8-K dated September 9, 2009, and incorporated by reference herein.

**

Previously filed as an exhibit to the Company’s Form 8-K dated July 22, 2009, and incorporated by reference herein.




2



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.


         

CROSS COUNTRY HEALTHCARE, INC.

 

 

  

 

 

 

 

By:  

/s/ EMIL HENSEL

 

 

Emil Hensel

Chief Financial Officer

 

 

Dated:  November 25, 2008















3



LINKS

 

Item 9.01     Financial Statements and Exhibits






CONSENT OF INDEPENDENT ACCOUNTING FIRM

EXHIBIT 23.1


[http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=6000526&doc=9]



CONSENT OF INDEPENDENT ACCOUNTING FIRM


We consent to the incorporation by reference in the following Registration Statements:

 

(1)

Registration Statement (Form S-3 No. 333-120189) and the related Prospectus of Cross Country Healthcare, Inc.;

 

(2)

Registration Statement (Form S-8 No. 333-74862) pertaining to Cross Country Healthcare, Inc.’s Amended and Restated 1999 Stock Option Plan and Cross Country Healthcare, Inc.’s Amended and Restated Equity Participation Plan; and

 

(3)

Registration Statement (Form S-8 No. 333-145484) pertaining to Cross Country Healthcare, Inc.’s 2007 Stock Incentive Plan

 

of our report dated April 16 and November 19, 2008 with respect to the consolidated financial statements and schedules of MDA Holdings, Inc. and Subsidiaries, for the year ended December 31, 2007.


[http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=6000526&doc=10]

Moore and Cubbage, LLP

Certified Public Accountants

Marietta, Georgia

November 19, 2008




CONSENT OF INDEPENDENT ACCOUNTING FIRM

EXHIBIT 23.2


[http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=6000526&doc=11]



CONSENT OF INDEPENDENT ACCOUNTING FIRM

We consent to the incorporation by reference in the following Registration Statements:

 (1)

Registration Statement (Form S-3 No. 333-120189) and the related Prospectus of Cross Country Healthcare, Inc.;

 (2)

Registration Statement (Form S-8 No. 333-74862) pertaining to Cross Country Healthcare, Inc.’s Amended and Restated 1999 Stock Option Plan and Cross Country Healthcare, Inc.’s Amended and Restated Equity Participation Plan; and

 (3)

Registration Statement (Form S-8 No. 333-145484) pertaining to Cross Country Healthcare, Inc.’s 2007 Stock Incentive Plan

of our report dated November 19, 2008 with respect to the consolidated financial statements of Jamestown Indemnity, Ltd., for the year ended December 31, 2007.

[http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=6000526&doc=12]

Grant Thornton

 

Grand Cayman, Cayman Islands

 

November 19, 2008

 




United States Securities and Exchange Commission Edgar Filing

EXHIBIT 99.1








MDA HOLDINGS, INC. AND

SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2007 and 2006








MDA HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

TABLE OF CONTENTS

For the Years Ended December 31, 2007 and 2006

 

 

 

 

 

Page(s)

 

 

 

 

 

 

Independent Auditors’ Report

 

1-2

 

 

 

Consolidated Financial Statements:

 

 

 

 

 

Balance Sheets

 

3-4

 

 

 

Statements of Income

 

5

 

 

 

Statements of Changes in Shareholders’ Equity

 

6

 

 

 

Statements of Cash Flows

 

7-8

 

 

 

Notes to Consolidated Financial Statements

 

9-17

 

 

 

Supplemental Schedules:

 

 

  

 

 

Consolidating Balance Sheet - MDA Holdings, Inc. and Subsidiaries

 

18

 

 

 

Consolidating Statement of Income - MDA Holdings, Inc. and Subsidiaries

 

19

  

 

 

Consolidating Statement of Cash Flows - MDA Holdings, Inc. and Subsidiaries

 

20

 

 

 







[http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=6000526&doc=13]


INDEPENDENT AUDITORS’ REPORT





To the Board of Directors

MDA Holdings, Inc. and Subsidiaries

Norcross, Georgia



We have audited the accompanying consolidated balance sheets of MDA Holdings, Inc. and Subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the financial statements of Jamestown Indemnity, LTD, a wholly owned subsidiary, which statements reflect total assets of $10,458,568 and $7,423,454 as of December 31, 2007 and 2006, respectively, and total revenues of $3,245,500 and $3,161,000 for the years ended December 31, 2007 and 2006, respectively. Those statements were audited by other auditors whose report has been furnished to us, and in our opinion, insofar as it relates to the amounts included for Jamestown Indemnity, LTD, is based solely on the report of the other auditors.


We conducted our audits in accordance with auditing standards generally accepted in the United States of America. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion.


In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MDA Holdings, Inc. and Subsidiaries as of December 31, 2007 and 2006, 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.



1







Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying financial information listed as supplemental schedules in the table of contents is presented for purposes of additional analysis and is not a required part of the financial statements of MDA Holdings, Inc. and Subsidiaries. The information has not been subjected to the auditing procedures applied in the examination of the basic financial statements, and accordingly, we express no opinion on it.


As discussed in Note 15 to the financial statements, the 2007 financial statements have been restated to correct a misstatement.


 

 

 

 

 

 

[http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=6000526&doc=14]

 

 

 

 

      

   

 Moore & Cubbedge, LLP



April 16, 2008,

Except for note 15, as to which the date is November 19, 2008
























2






MDA HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2007 and 2006

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

Restated
2007

 

2006

 

Current Assets:

     

 

 

     

 

 

 

Cash

 

$

10,411,543

 

$

3,210,550

 

Restricted cash

 

 

5,000,000

 

 

5,000,000

 

Receivables:

 

 

 

 

 

 

 

Trade - net of allowance of $928,738 and $1,222,297

 

 

12,777,565

 

 

13,962,256

 

Unbilled receivables

 

 

6,610,711

 

 

6,704,131

 

Due from employees

 

 

29,229

 

 

9,205

 

Other

 

 

88,216

 

 

38,594

 

Prepaid expenses

 

 

152,826

 

 

1,070,159

 

Income tax receivable

 

 

7,094

 

 

275,616

 

 

 

 

 

 

 

 

 

Total Current Assets

 

 

35,077,184

 

 

30,270,511

 

 

 

 

 

 

 

 

 

Property and Equipment, at cost:

 

 

 

 

 

 

 

Furniture and equipment

 

 

1,043,183

 

 

936,218

 

Leasehold improvements

 

 

354,468

 

 

188,752

 

Computers and software

 

 

2,279,830

 

 

1,058,089

 

WIP - Internally developed software

 

 

894,192

 

 

 

 

 

 

4,571,673

 

 

2,183,059

 

Less accumulated depreciation and amortization

 

 

(1,839,232

)

 

(1,445,763

)

 

 

 

 

 

 

 

 

Net Property and Equipment

 

 

2,732,441

 

 

737,296

 

 

 

 

 

 

 

 

 

Other Assets

 

 

 

 

 

 

 

Deposits

 

 

27,742

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets

 

$

37,837,367

 

$

31,007,807

 





See accompanying notes to the consolidated financial statements.


3






MDA HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Continued)

December 31, 2007 and 2006

 

 

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

 

 

Restated
2007

 

2006

 

Current Liabilities:

     

 

 

     

 

 

 

Bank overdraft

 

$

1,936,605

 

$

2,764,560

 

Line of credit

 

 

 

 

 

Accounts payable

 

 

963,431

 

 

883,551

 

Accrued provider payroll

 

 

3,582,464

 

 

4,728,240

 

Accrued commissions, bonuses and vacation

 

 

2,259,990

 

 

2,086,499

 

Accrued income taxes

 

 

5,851

 

 

55,610

 

Outstanding claims reserve

 

 

558,970

 

 

77,528

 

IBNR reserve

 

 

6,382,395

 

 

5,008,165

 

Other accrued liabilities

 

 

681,510

 

 

533,203

 

Redemption notes - current portion

 

 

186,570

 

 

 

Term notes - current portion

 

 

112,729

 

 

 

ESOP notes - current portion

 

 

915,326

 

 

 

 

 

 

 

 

 

 

 

Total Current Liabilities

 

 

17,585,841

 

 

16,137,356

 

 

 

 

 

 

 

 

 

Long-Term Liabilities:

 

 

 

 

 

 

 

Accrued incentive

 

 

1,409,386

 

 

 

Redemption notes, net of current portion

 

 

5,205,249

 

 

6,189,666

 

Term notes, net of current portion

 

 

3,887,271

 

 

4,000,000

 

ESOP notes, net of current portion

 

 

28,131,601

 

 

29,846,927

 

 

 

 

 

 

 

 

 

Total Long-Term Liabilities

 

 

38,633,507

 

 

40,036,593

 

 

 

 

 

 

 

 

 

Total Liabilities

 

 

56,219,348

 

 

56,173,949

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' Equity:

 

 

 

 

 

 

 

Common stock, no par value; 100,000,000 authorized;
402,607 shares issued and outstanding

 

 

 

 

 

Retained earnings

 

 

9,398,870

 

 

4,491,517

 

Contra equity - unearned ESOP shares

 

 

(27,780,851

)

 

(29,657,659

)

 

 

 

 

 

 

 

 

Total Shareholders' Equity

 

 

(18,381,981

)

 

(25,166,142

)

 

 

 

 

 

 

 

 

Total Liabilities and Shareholders’ Equity

 

$

37,837,367

 

$

31,007,807

 




See accompanying notes to the consolidated financial statements.


4






MDA HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

For the Years Ended December 31, 2007 and 2006

 

 

 

 

 

Restated
2007

 

2006

 

 

 

 

 

 

 

 

 

Sales

     

$

158,022,031

     

$

146,781,661

 

 

 

 

 

 

 

 

 

Cost of services

 

 

117,933,490

 

 

112,236,542

 

 

 

 

 

 

 

 

 

Gross profit

 

 

40,088,541

 

 

34,545,119

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

29,629,635

 

 

23,974,147

 

ESOP administrative expenses

 

 

149,040

 

 

168,873

 

ESOP compensation expense

 

 

1,981,347

 

 

330,335

 

 

 

 

 

 

 

 

 

Operating income

 

 

8,328,519

 

 

10,071,764

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

Interest income

 

 

643,793

 

 

251,548

 

Interest expense

 

 

(3,522,169

)

 

(3,826,258

)

Miscellaneous

 

 

358,020

 

 

398,430

 

 

 

 

 

 

 

 

 

Total other income (expense)

 

 

(2,520,356

)

 

(3,176,280

)

 

 

 

 

 

 

 

 

Income from continuing operations before income taxes

 

 

5,808,163

 

 

6,895,484

 

 

 

 

 

 

 

 

 

Income tax (expense) benefit:

 

 

 

 

 

 

 

Current

 

 

(368,986

)

 

378,775

 

Deferred

 

 

 

 

(380,702

)

 

 

 

 

 

 

 

 

Total income tax (expense) benefit

 

 

(368,986

)

 

(1,927

)

 

 

 

 

 

 

 

 

Income from continuing operations

 

 

5,439,177

 

 

6,893,557

 

 

 

 

 

 

 

 

 

Discontinued operations:

 

 

 

 

 

 

 

Loss from operations of discontinued component

 

 

(636,364

)

 

(410,515

)

 

 

 

 

 

 

 

 

Net income

 

$

4,802,813

 

$

6,483,042

 




See accompanying notes to the consolidated financial statements.


5






MDA HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the Years Ended December 31, 2007 and 2006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common
Stock

 

Additional
Paid-in
Capital

 

Retained
Earnings

 

Unearned
ESOP Shares

 

Total

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Balance, December 31, 2005

     

$

 

$

     

$

(1,771,957

)

$

(30,207,562

)

$

(31,979,519

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Release of ESOP shares

 

 

 

 

 

 

(219,568

)

 

549,903

 

 

330,335

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

 

 

 

 

6,483,042

 

 

 

 

6,483,042

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2006

 

 

 

 

 

 

4,491,517

 

 

(29,657,659

)

 

(25,166,142

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Release of ESOP shares

 

 

 

 

 

 

104,540

 

 

1,876,808

 

 

1,981,348

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (restated)

 

 

 

 

 

 

4,802,813

 

 

 

 

4,802,813

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2007 (restated)

 

$

 

$

 

$

9,398,870

 

$

(27,780,851

)

$

(18,381,981

)





See accompanying notes to the consolidated financial statements.


6






MDA HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2007 and 2006

 

 

 

 

 

Restated
2007

 

2006

 

 

 

 

 

 

 

 

 

Cash Flows from Operating Activities:

     

 

 

     

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

4,802,813

 

$

6,483,042

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

393,469

 

 

319,113

 

Non-cash ESOP expense

 

 

1,981,347

 

 

330,335

 

Deferred income taxes

 

 

 

 

380,702

 

 

 

 

 

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Restricted cash and cash equivalents

 

 

 

 

(2,500,000

)

Receivables

 

 

1,208,465

 

 

(557,891

)

Prepaids

 

 

1,760,554

 

 

(303,057

)

Income tax receivable

 

 

268,522

 

 

572,012

 

Deposits

 

 

(27,742

)

 

5,000

 

Accounts payable

 

 

79,880

 

 

390,567

 

Bank overdraft

 

 

(827,955

)

 

(80,030

)

Accrued provider payroll

 

 

(1,145,776

)

 

(30,380

)

Accrued commissions, bonuses, and vacation

 

 

1,582,877

 

 

178,183

 

Losses payable

 

 

(16,882

)

 

 

Unearned premium reserve

 

 

(787,000

)

 

 

Other accrued liabilities

 

 

108,969

 

 

(269,563

)

Accrued income taxes

 

 

(49,759

)

 

23,610

 

IBNR Reserve

 

 

1,855,672

 

 

2,764,665

 

 

 

 

 

 

 

 

 

Total adjustments to net income

 

 

6,384,641

 

 

1,223,266

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

 

11,187,454

 

 

7,706,308

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of property, equipment and software

 

 

(2,388,614

)

 

(436,761

)

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

 

(2,388,614

)

 

(436,761

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continued on next page

 

 

 

 

 

 

 




See accompanying notes to the consolidated financial statements.


7






MDA HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2007 and 2006

 

 

 

 

 

 

 

 

 

 

 

 

Restated
2007

 

2006

 

Cash Flows from Financing Activities:

     

 

 

     

 

 

 

Term note borrowings

 

 

 

 

4,000,000

 

Repayments on revolving line of credit

 

 

 

 

(5,526,560

)

Principal payments on ESOP notes payable

 

 

(800,000

)

 

(1,853,026

)

Principal payments on redemption notes payable

 

 

(797,847

)

 

(2,276,939

)

 

 

 

 

 

 

 

 

Net cash used in financing activities

 

 

(1,597,847

)

 

(5,656,525

)

 

 

 

 

 

 

 

 

Net increase in cash

 

 

7,200,993

 

 

1,613,022

 

 

 

 

 

 

 

 

 

Cash at beginning of year

 

 

3,210,550

 

 

1,597,528

 

 

 

 

 

 

 

 

 

Cash at end of year

 

$

10,411,543

 

$

3,210,550

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosures:

 

 

 

 

 

 

 

Interest paid in cash

 

$

3,522,169

 

$

3,826,258

 

Income taxes paid in cash

 

$

378,920

 

$

216,847

 





See accompanying notes to the consolidated financial statements.


8






MDA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2007 and 2006

 

 



1)  Summary of Significant Accounting Policies:


Organization and Purpose

MDA Holdings, Inc. and Subsidiaries (the “Company”) is primarily engaged in providing staffing solutions to the healthcare community throughout the United States. The Company is also engaged in credentialing and licensing services and provides medical professional liability insurance to the Company through the "Captive".

Principles of Consolidation

The accompanying financial statements include the accounts of all wholly-owned subsidiaries after elimination of all significant intercompany items and transactions. The affiliated companies included within the consolidated financial statements and their related business activities are as follows:

Medical Doctors Associates, Inc.

Medical Doctors Associates, Inc. provides locum tenens and permanent physician staffing solutions to the healthcare community throughout the United States.

Allied Health Group, Inc.

Allied Health Group, Inc. services health care clients with staffing needs in the mid-level or allied health care provider role (Physician Assistants, Nurse Practitioners, Physical Therapist, and Occupational Therapist) on a temporary and permanent basis. The purpose of AHG is to meet the needs of the changing health care industry through the use of quality mid-level health care providers while containing cost and promoting efficiency.

Credent Verification and Licensing, Inc.

Credent is a national, full-service Credentials Verification Organization (CVO) specializing in credentialing and licensing services. The Company discontinued the credentialing and licensing activities of Credent during 2007. See Note 13.

Jamestown Indemnity, LTD

In April 2005, the Company incorporated Caduceus Ltd. (the “Captive”) under the Companies Law of the Cayman Islands. Subsequently, in August 2005, the Captive was renamed Jamestown Indemnity, LTD and in September 2005 obtained an unrestricted Class “B” Insurer’s License, subject to the provisions of the Cayman Islands Insurance Law. The Captive provides medical professional liability reinsurance, which follows the fortunes of an underlying insurance policy of the Company and its subsidiaries for medical professional liability insurance reinsurance. In most States, the underlying policy has a deductible of the first $500,000 of each occurrence, inclusive of defense costs, and the Company reinsures that risk with the



9



MDA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2007 and 2006

 

 




1)

Significant Accounting Policies (Continued):

Captive. The Captive’s reinsurance policy is a deductible buy-back reinsurance policy covering the deductible element of the Company’s insurance. The reinsurance policy covers the periods from April 1, 2006 to April 1, 2007, and for the period from April 1, 2007 to April 1, 2008.

Basis of Accounting

Assets and liabilities are recorded and revenues and expenses are recognized on the accrual basis of accounting.

Use of 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.

Cash and Cash Equivalents

The Company considers all instruments with an original maturity of three months or less to be cash equivalents. Accounts are insured by the Federal Deposit Insurance Corporation up to $100,000. At December 31, 2007 and 2006, amounts on deposit exceeded federally insured limits by $5,681,190 and $227,391, respectively.

Receivables

The Company provides an allowance for doubtful collections that is based upon review of outstanding receivables, historical collection information, and existing economic conditions. Trade receivables are due 30 days after issuance of the invoice. Receivables past due more than 120 days are considered delinquent. Delinquent receivables are written off based on individual credit evaluation and specific circumstances of the customer.

Property and Equipment

Property and equipment are recorded at cost. The capitalization threshold is $1,000. Depreciation is computed using the straight-line method over the estimated useful lives of the assets which range from three to seven years. Leasehold improvements are amortized over the lesser of the remaining lease terms or the service lives of the improvements using the straight-line method. Costs incurred in the development of software to be used in operations have been capitalized as work in process (WIP) and will be depreciated over the useful life of the internally developed software as the discrete projects come online. Depreciation expense for the years ended December 31, 2007 and 2006 was $393,469 and $319,113, respectively.



10



MDA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2007 and 2006

 

 




1)

Significant Accounting Policies (Continued):

Insurance Premiums Written

Insurance premiums are recognized as income over the period covered by the insurance policy. The portion of insurance premiums that will be carried in the future are deferred and reported as unearned premium reserve.

Provisions for Insurance Loss

The Captive provides medical professional liability reinsurance, the nature of which produces an inherent difficulty in quantifying the ultimate cost of settlement of losses which may result from claims on the Company.

The provision for outstanding losses includes an amount for outstanding claims determined from reports and individual cases and an amount based upon estimates by the directors and management for losses incurred but not reported. Such liabilities are necessarily based on estimates and the ultimate cost may be in excess of, or less than, the amounts provided. The methods of making such estimates and for establishing the resulting provision are continually reviewed and any resulting adjustments are reflected in earnings at the time the adjustments are known.

The Company’s liability for losses is ultimately based on management’s expectations of future events, supported by an actuarial review. It is reasonably possible that the expectations associated with these amounts could change in the near term (i.e., within one year) and that the effect of such changes could be material to the financial statements.

Compensated Absences

The Company allows employees to accumulate up to 5 days of annual leave. Annual leave accumulated in excess of 5 days is forfeited at the end of the year. Upon termination, employees are paid for all accrued annual leave earned and unforfeited.

 

Income Taxes

Effective January 1, 2006, the Company elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code and similar state statutes. Under those provisions, the shareholder is responsible for individual income taxes on the Company’s taxable income or loss. Certain states do not recognize this election. Tax expense reflected in the financial statements are for amounts due in those states.

 

 



11



MDA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2007 and 2006

 

 




2)

Restricted Cash

Under the terms of the Company’s reinsurance policy it is required to guarantee the payment of claims to its insured parties primary medical malpractice insurance carrier via a letter of credit. The value of this letter of credit amounted to $5,000,000 at December 31, 2007 and 2006, which is secured against cash held by the Captive in a restricted account.  

3)

Outstanding Loss Reserves

 

 

Restated
2007

 

2006

 

Provision for losses incurred:

 

 

 

 

 

 

 

Outstanding case reserves

 

$

558,970

     

$

77,528

 

Incurred but not reported reserve

 

 

6,382,395

 

 

5,008,165

 

 

 

 

 

 

 

 

 

 

 

$

6,941,365

 

$

5,085,693

 

 

Activity for the outstanding loss provision is summarized as follows:

 

 

 

 

 

 

 

 

Balance at beginning of year

 

$

5,085,693

 

$

2,321,028

 

 

 

 

 

 

 

 

 

Incurred related to:

 

 

 

 

 

 

 

Current period

 

 

2,125,074

 

 

2,412,593

 

Prior period

 

 

298,087

 

 

450,848

 

 

 

 

2,423,161

 

 

2,863,441

 

Paid related to:

 

 

 

 

 

 

 

Current period

 

 

(58,321

)

 

 

Prior Period

 

 

(509,168

)

 

(98,776

)

 

 

 

(567,489

)

 

(98,776

)

 

 

 

 

 

 

 

 

 

 

$

6,941,365

 

$

5,085,693

 




12



MDA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2007 and 2006

 

 




4)

Line of Credit

Effective November 1, 2005, the Company entered into a financing arrangement with a financial institution which provided a $10,000,000 revolving line of credit with interest at the Prime Rate or LIBOR plus 2.25%. Additionally, the Company was required to pay a Commitment Fee in the amount of three eighths of one percent (.375%) of the daily unused facility. The borrowings are in a first priority position over other debt and are collateralized by ESOP pledged shares and all assets of MDA Holdings, Inc., Medical Doctors Associates, Inc., Allied Health Group, Inc., and Credent, Inc. The Company is required to maintain financial covenants and was in compliance with these covenants as of December 31, 2007 and 2006, respectively. The initial term of the agreement is for a three year period commencing November 1, 2005.

The prime rate at December 31, 2007 and 2006 was 7.25% and 8.25%, respectively. There was no outstanding balance on the line of credit at December 31, 2007 and 2006, respectively.

5)

Long-Term Liabilities

The Company has several Stock Redemption and ESOP term notes payable outstanding at December 31, 2007 and 2006.  Additionally, the Company has an unsecured term note payable outstanding at December 31, 2007 and 2006. These notes bear interest at 9%. The redemption notes have maturities ranging from May 1, 2018 to January 1, 2027. The ESOP and term notes mature in 2023. Scheduled future principal repayments on these notes as of December 31, 2007 are as follows:

 

 

Redemption
Notes

 

ESOP Notes

 

Term Note

 

2008

     

$

186,570

     

$

915,326

     

$

112,729

 

2009

 

 

223,386

 

 

1,096,706

 

 

135,192

 

2010

 

 

244,341

 

 

1,199,586

 

 

147,874

 

2011

 

 

267,262

 

 

1,312,114

 

 

161,745

 

2012

 

 

292,333

 

 

1,435,199

 

 

176,918

 

2013 – 2017                  

 

 

1,928,212

 

 

9,466,509

 

 

1,166,944

 

2018 - 2022

 

 

1,087,887

 

 

12,212,006

 

 

1,827,064

 

2023 - 2027

 

 

1,161,828

 

 

1,409,481

 

 

271,534

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

5,391,819

 

$

29,046,927

 

$

4,000,000

 

6)

Operating Lease Commitments

The Company leases office space and equipment under non-cancelable agreements accounted for as operating leases. The following is a schedule of future minimum rental payments under operating leases as of December 31, 2007:



13



MDA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2007 and 2006

 

 




6)

Operating Lease Commitments (Continued)

Year Ended December 31,

     

 

 

2008

 

$

1,012,662

2009

 

 

978,086

2010

 

 

659,790

2011

 

 

630,348

2012

 

 

562,646

2013 and thereafter

 

 

350,000

 

 

$

4,193,532


Future minimum rental payments include payments under a lease with an entity partially owned by a former shareholder which expires February 28, 2014. Rental expense under this operating lease amounted to $300,000 for 2007 and $300,000 for 2006. Total rental expense under all operating leases amounted to $903,926 and $732,357 for 2007 and 2006, respectively.

7)

401(K) Savings Plan

All permanent employees of the Company may participate in a 401(K) savings plan, whereby the employees may elect to make contributions pursuant to a salary reduction agreement upon meeting the age and length of employment requirement. The plan is administered by the Company. Contributions of the Company are made at the discretion of the Board of Directors. The Company contributed $ 236,357 and $ 96,970 to the plan during the years ended December 31, 2007 and 2006, respectively.

8)

Employee Stock Ownership Plan

The Company sponsors a leveraged employee stock ownership plan (“ESOP”). Employees of the Company and its participating subsidiaries are eligible to participate in the Plan provided they are a "Covered Employee". A Covered Employee is any person employed by MDA Holdings, Inc. or its subsidiaries, with the exception of any employee of Allied Health Group, Inc. who is classified as an allied health care provider actually providing healthcare services. Persons not included in the Company's payroll records (i.e. Independent contracting leased employees) are not considered Covered Employees. Effective January 1, 2006, eligible participants must have attained 21 years of age and completed six months of service. Employees vest after completion of three years of service for employees terminating on or after January 1, 2007. A year of service is a calendar year of at least 1,000 hours of service. Service on and after January 1, 2004, will be included in each employees vesting schedule.

During 2005, the ESOP purchased 402,607 shares of common stock from the shareholders of the Company. The transaction was financed by cash and term notes to the shareholders from the ESOP and guaranteed by the Company. The Company accounts for these ESOP shares in accordance with Statement of Position 93-6. The debt of the ESOP is recorded as debt and the shares pledged as collateral are reported as unearned ESOP shares in the Balance Sheet of the Company. As shares are released from collateral, the Company



14



MDA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2007 and 2006

 

 




8)

Employee Stock Ownership Plan (Continued)

Reports compensation expense equal to the current market price of the shares, and the shares become outstanding. Dividends on allocated ESOP shares are recorded as a reduction of retained earnings; dividends on unallocated ESOP shares are recorded as a reduction of debt and accrued interest. As of December 31, 2007 and 2006, 287,729 and 307,168 shares remained unallocated, respectively. The Company’s stock was estimated to have a value at December 31, 2007 and 2006 of $101.68 and of $58.00 per share, respectively.

9)  Stock Redemption

Effective November 11, 2005, the Company redeemed 97,393 shares of treasury stock from its shareholders for a total purchase price of $9,403,489 by entering into term notes. The notes bear interest at 9% and have maturities ranging from May 1, 2018 to January 1, 2027.

10)

Advertising Costs

The Company incurs advertising costs related to physician placements. These costs are expensed as incurred. Total advertising costs for 2007 and 2006 were $305,804 and $300,608, respectively.

11) Concentration of Risk

The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and trade accounts receivable. The Company places its cash and temporary cash investments with high quality credit institutions. The Company routinely assesses the financial strength of its customers and, as a consequence, believes that its trade accounts receivable credit risk exposure is limited.

12) Income Taxes


Income tax benefit (expense) is comprised of the following components:


 

 

2007

 

2006

 

Current:

     

 

 

     

 

 

 

Current Federal Income Tax

 

$

 

$

347,945

 

Current State Income Tax

 

 

(368,986

)

 

30,830

 

 

 

 

(368,986

)

 

378,775

 

Deferred Federal & State Income tax   

 

 

 

 

(380,702

)

 

 

$

(368,986

)

$

(1,927

)




15



MDA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2007 and 2006

 

 




13)

 Discontinued Operations

During 2007, certain operations were discontinued within Credent related to licensing and credentialing services. Reclassifications have been made to the 2006 statement of income in order to present the discontinued operations in a consistent manner with the 2007 classifications. Revenues for the discontinued operations for the years ended 2007 and 2006 totaled $639,885 and $646,316, respectively ($497,954 and $437,385, respectively, after eliminations). It is not anticipated that any assets will be disposed of or impaired relative to the discontinued operations.

14)

Performance Share Plan

On October 1, 2005 the Company adopted a performance share plan designed to retain designated key employees of the Company and its Subsidiaries. The maximum aggregate award available to the employee group under the plan would be the issuance of 23,151 of performance shares. A performance share is one synthetic equity unit with a value equal to the fair market value of one share of Company stock held by the MDA Holdings, Inc. ESOP Plan.

Additionally, on January 1, 2007 the Company adopted the 2007 Tier II Performance Share Plan. The maximum aggregate award available to the employee group under this plan would be the issuance of 15,000 of performance shares. A performance share is one synthetic equity unit with a value equal to the fair market value of one share of Company stock held by the MDA Holdings, Inc. ESOP Plan.

Financial performance goals were established and the performance periods to which the award relates begin January 1, 2006 and January 1, 2007. Performance shares would be eligible for vesting at the rate of 20 percent for each performance period based on rolling three-year performance periods (with the exception that the first performance period is composed of two years) beginning January 1, 2006 and ending December 31, 2011 unless other arrangements have been agreed to in individual award agreements.

Subject to certain provisions, any earned and vested performance shares will be converted to a cash amount, based on the fair market value of company stock as of the date of the participant’s termination of service. 20 percent of all converted performance shares will be paid on or as soon as practicable after the May 1st which follows the date of conversion. The remaining 80 percent will be paid in 20 percent installments on the successive anniversaries of the date on which the first installment is paid. In the event of a change in control, all vested and unvested performance shares will be paid, in a single sum in cash, on the date on which the change in control occurs.



16



MDA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2007 and 2006

 

 



14) Performance Share Plan (Continued)

At December 31, 2007, the liability for vested share units and compensation cost for the year totaled $1,409,386. The number and value of the vested share units at December 31, 2007 were as follows:


 

 

Unit
Value

 

Vested
Units

 

Total

2005 Plan

     

$

101.68

     

9,361

     

$

951,826

 

 

 

 

 

 

 

 

 

2007 Plan

 

$

101.68

 

4,500

 

$

457,560

 

 

 

 

 

13,861

 

$

1,409,386

An external valuation was performed to estimate an ending fair value using a combination of the Discounted Cash Flow Method, the Merged and Acquired Method, and the Guideline Public Company Method. The estimated value was determined to be $105 per share. After considering the synthetic units vested at December 31, 2007, management estimates that the diluted fair market value of outstanding shares and synthetic units vested to be $101.68.


15) Restatement

These financial statements have been restated from the balances previously reported to reflect an adjustment of $365,704 to the outstanding loss reserves which were understated, as of December 31, 2007. This adjustment is the result of an error in the calculation of the 2007 year end balance.




17



 








SUPPLEMENTAL SCHEDULES











 



MDA HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEET

December 31, 2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MDA
Holdings,
Inc.

 

MDA

 

Allied
Health
Group

 

Credent

 

Jamestown
Indemnity,
LTD

 

Subtotal

 

Eliminating
Entries

 

Consolidated
Total

 

Assets

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

5,782,890

 

$

64

 

$

440

 

$

 

$

4,628,149

 

$

10,411,543

 

$

 

$

10,411,543

 

Restricted cash

 

 

 

 

 

 

 

 

 

 

5,000,000

 

 

5,000,000

 

 

 

 

5,000,000

 

Receivables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade, net of allowance

 

 

 

 

12,397,011

 

 

317,845

 

 

62,709

 

 

 

 

12,777,565

 

 

 

 

12,777,565

 

Unbilled receivables

 

 

 

 

6,315,446

 

 

295,265

 

 

 

 

 

 

6,610,711

 

 

 

 

6,610,711

 

Due from employees

 

 

5,700

 

 

23,529

 

 

 

 

 

 

 

 

29,229

 

 

 

 

29,229

 

Other

 

 

76,730

 

 

11,486

 

 

 

 

 

 

819,500

 

 

907,716

 

 

(819,500

)

 

88,216

 

Intercompany receivable:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Due from Credent

 

 

97,245

 

 

 

 

 

 

 

 

 

 

97,245

 

 

(97,245

)

 

 

Due from MDA

 

 

 

 

 

 

 

 

108,053

 

 

 

 

108,053

 

 

(108,053

)

 

 

Due from AHG

 

 

36,373

 

 

 

 

 

 

6,232

 

 

 

 

42,605

 

 

(42,605

)

 

 

Due from MDA Holdings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prepaid expenses

 

 

55,701

 

 

 

 

17,300

 

 

 

 

10,919

 

 

83,920

 

 

 

 

83,920

 

Prepaid insurance

 

 

 

 

 

 

37,835

 

 

 

 

 

 

37,835

 

 

 

 

37,835

 

Prepaid software license fees

 

 

31,071

 

 

 

 

 

 

 

 

 

 

31,071

 

 

 

 

31,071

 

Income tax receivable

 

 

7,094

 

 

 

 

 

 

 

 

 

 

7,094

 

 

 

 

7,094

 

Total current assets

 

 

6,092,804

 

 

18,747,536

 

 

668,685

 

 

176,994

 

 

10,458,568

 

 

36,144,587

 

 

(1,067,403

)

 

35,077,184

 

Property and equipment, at cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Furniture and equipment

 

 

165,324

 

 

826,336

 

 

 

 

51,523

 

 

 

 

1,043,183

 

 

 

 

1,043,183

 

Leasehold improvements

 

 

204,540

 

 

149,928

 

 

 

 

 

 

 

 

354,468

 

 

 

 

354,468

 

Computers and software

 

 

755,708

 

 

1,448,539

 

 

1,464

 

 

74,119

 

 

 

 

2,279,830

 

 

 

 

2,279,830

 

WIP - Internally developed software

 

 

 

 

894,192

 

 

 

 

 

 

 

 

894,192

 

 

 

 

894,192

 

Less accumulated depreciation

 

 

(223,589

)

 

(1,516,099

)

 

(762

)

 

(98,782

)

 

 

 

(1,839,232

)

 

 

 

(1,839,232

)

Net property and equipment

 

 

901,983

 

 

1,802,896

 

 

702

 

 

26,860

 

 

 

 

2,732,441

 

 

 

 

2,732,441

 

Other assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

 

 

27,742

 

 

 

 

 

 

 

 

27,742

 

 

 

 

27,742

 

Investment in AHG

 

 

422,633

 

 

 

 

 

 

 

 

 

 

422,633

 

 

(422,633

)

 

 

Investment in Credent

 

 

(10,918

)

 

 

 

 

 

 

 

 

 

(10,918

)

 

10,918

 

 

 

Investment in Jamestown Indemnity, LTD

 

 

2,598,536

 

 

 

 

 

 

 

 

 

 

2,598,536

 

 

(2,598,536

)

 

 

Investment in MDA

 

 

12,198,110

 

 

 

 

 

 

 

 

 

 

12,198,110

 

 

(12,198,110

)

 

 

Total other assets

 

 

15,208,361

 

 

27,742

 

 

 

 

 

 

 

 

15,236,103

 

 

(15,208,361

)

 

27,742

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

22,203,148

 

$

20,578,174

 

$

669,387

 

$

203,854

 

$

10,458,568

 

$

54,113,131

 

$

(16,275,764

)

$

37,837,367

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bank overdraft

 

$

93,741

 

$

1,813,063

 

$

27,784

 

$

2,017

 

$

 

$

1,936,605

 

$

 

$

1,936,605

 

Accounts payable

 

 

104,653

 

 

846,796

 

 

 

 

11,982

 

 

 

 

963,431

 

 

 

 

963,431

 

Accrued provider payroll

 

 

 

 

3,423,832

 

 

158,632

 

 

 

 

 

 

3,582,464

 

 

 

 

3,582,464

 

Accrued incentives

 

 

249,042

 

 

1,983,484

 

 

12,464

 

 

15,000

 

 

 

 

2,259,990

 

 

 

 

2,259,990

 

Accrued income taxes

 

 

 

 

5,851

 

 

 

 

 

 

 

 

5,851

 

 

 

 

5,851

 

Outstanding claims reserve

 

 

 

 

 

 

 

 

 

 

1,100,352

 

 

1,100,352

 

 

 

 

1,100,352

 

IBNR reserve

 

 

 

 

 

 

 

 

 

 

5,841,013

 

 

5,841,013

 

 

 

 

5,841,013

 

Unearned premium reserve

 

 

 

 

 

 

 

 

 

 

819,500

 

 

819,500

 

 

(819,500

)

 

 

Other accrued liabilities

 

 

289,560

 

 

198,985

 

 

5,269

 

 

88,529

 

 

99,167

 

 

681,510

 

 

 

 

681,510

 

Redemption notes — current portion

 

 

186,570

 

 

 

 

 

 

 

 

 

 

186,570

 

 

 

 

186,570

 

Term notes - current portion

 

 

112,729

 

 

 

 

 

 

 

 

 

 

112,729

 

 

 

 

112,729

 

ESOP notes - current portion

 

 

915,326

 

 

 

 

 

 

 

 

 

 

915,326

 

 

 

 

915,326

 

Intercompany payables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Due to Credent

 

 

 

 

108,053

 

 

6,232

 

 

 

 

 

 

114,285

 

 

(114,285

)

 

 

Due to MDA Holdings

 

 

 

 

 

 

36,373

 

 

97,245

 

 

 

 

133,618

 

 

(133,618

)

 

 

Total current liabilities

 

 

1,951,621

 

 

8,380,064

 

 

246,754

 

 

214,773

 

 

7,860,032

 

 

18,653,244

 

 

(1,067,403

)

 

17,585,841

 

Long-term liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accrued incentive

 

 

1,409,386

 

 

 

 

 

 

 

 

 

 

1,409,386

 

 

 

 

1,409,386

 

Redemption notes, net of current portion

 

 

5,205,249

 

 

 

 

 

 

 

 

 

 

5,205,249

 

 

 

 

5,205,249

 

Term notes, net of current portion

 

 

3,887,271

 

 

 

 

 

 

 

 

 

 

3,887,271

 

 

 

 

3,887,271

 

ESOP notes, net of current portion

 

 

28,131,601

 

 

 

 

 

 

 

 

 

 

28,131,601

 

 

 

 

28,131,601

 

Total long-term liabilities

 

 

38,633,507

 

 

 

 

 

 

 

 

 

 

38,633,507

 

 

 

 

38,633,507

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

40,585,128

 

 

8,380,064

 

 

246,754

 

 

214,773

 

 

7,860,032

 

 

57,286,751

 

 

(1,067,403

)

 

56,219,348

 

Shareholders' equity :

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

 

 

 

 

500

 

 

 

 

250

 

 

750

 

 

(750

)

 

 

Additional paid in capital

 

 

 

 

10,941,193

 

 

 

 

 

 

1,014,750

 

 

11,955,943

 

 

(11,955,943

)

 

 

Retained earnings

 

 

4,596,058

 

 

(6,317,941

)

 

488,978

 

 

287,965

 

 

417,100

 

 

(527,840

)

 

5,123,897

 

 

4,596,057

 

Current income (loss)

 

 

4,802,813

 

 

7,574,858

 

 

(66,845

)

 

(298,884)

 

 

1,166,436

 

 

13,178,378

 

 

(8,375,565

)

 

4,802,813

 

Contra equity - unearned ESOP shares

 

 

(27,780,851

)

 

 

 

 

 

 

 

 

 

(27,780,851

)

 

 

 

(27,780,851

)

Total shareholders' equity

 

 

(18,381,980

)

 

12,198,110

 

 

422,633

 

 

(10,919

)

 

2,598,536

 

 

(3,173,620

)

 

(15,208,361)

 

 

(18,381,981

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders equity

 

$

22,203,148

 

$

20,578,174

 

$

669,387

 

$

203,854

 

$

10,458,568

 

$

54,113,131

 

$

(16,275,764)

 

$

37,837,367

 



18



 



MDA HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF INCOME

For the Year Ended December 31, 2007

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

MDA Holdings,
Inc.

 

 

MDA

 

 

Allied
Health Group

 

 

Credent

 

 

Jamestown
Indemnity,
LTD

 

 

Subtotal

 

 

Eliminating Entries

 

 

Consolidated Total

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$

 

 

$

152,778,671

 

 

$

7,178,585

 

 

$

1,427,513

 

 

$

 

 

$

161,384,769

 

 

$

(3,362,738

)

 

$

158,022,031

 

Fees

 

 

11,895,218

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,895,218

 

 

 

(11,895,218

)

 

 

 

Underwriting income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,245,500

 

 

 

3,245,500

 

 

 

(3,245,500

)

 

 

 

  

 

 

11,895,218

 

 

 

152,778,671

 

 

 

7,178,585

 

 

 

1,427,513

 

 

 

3,245,500

 

 

 

176,525,487

 

 

 

(18,503,456

)

 

 

158,022,031

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales / underwriting expense

 

 

 

 

 

116,202,812

 

 

 

5,875,778

 

 

 

34,308

 

 

 

2,423,161

 

 

 

124,536,059

 

 

 

(6,602,569

)

 

 

117,933,490

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

11,895,218

 

 

 

36,575,859

 

 

 

1,302,807

 

 

 

1,393,205

 

 

 

822,339

 

 

 

51,989,428

 

 

 

(11,900,887

)

 

 

40,088,541

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general & administrative expenses

 

 

10,057,541

 

 

 

17,408,743

 

 

 

1,095,781

 

 

 

971,585

 

 

 

95,985

 

 

 

29,629,635

 

 

 

 

 

 

29,629,635

 

ESOP administration

 

 

149,040

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

149,040

 

 

 

 

 

 

149,040

 

ESOP compensation expense

 

 

1,981,347

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,981,347

 

 

 

 

 

 

1,981,347

 

Management fee

 

 

 

 

 

11,545,693

 

 

 

271,254

 

 

 

78,271

 

 

 

 

 

 

11,895,218

 

 

 

(11,895,218

)

 

 

 

Total operating expenses

 

 

12,187,928

 

 

 

28,954,436

 

 

 

1,367,035

 

 

 

1,049,856

 

 

 

95,985

 

 

 

43,655,240

 

 

 

(11,895,218

)

 

 

31,760,022

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

(292,710

)

 

 

7,621,423

 

 

 

(64,228

)

 

 

343,349

 

 

 

726,354

 

 

 

8,334,188

 

 

 

(5,669

)

 

 

8,328,519

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense ) :

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

162,202

 

 

 

41,509

 

 

 

 

 

 

 

 

 

440,082

 

 

 

643,793

 

 

 

 

 

 

643,793

 

Interest expense

 

 

(911,787

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(911,787

)

 

 

 

 

 

(911,787

)

Interest expense - ESOP

 

 

(2,610,382

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,610,382

)

 

 

 

 

 

(2,610,382

)

Miscellaneous

 

 

183,687

 

 

 

173,755

 

 

 

578

 

 

 

 

 

 

 

 

 

358,020

 

 

 

 

 

 

358,020

 

Investment Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from MDA

 

 

7,574,858

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,574,858

 

 

 

(7,574,858

)

 

 

 

Income (loss) from AHG

 

 

(66,845

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(66,845

)

 

 

66,845

 

 

 

 

Income from Credent

 

 

343,149

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

343,149

 

 

 

(343,149

)

 

 

 

Income from Jamestown

 

 

1,166,436

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,166,436

 

 

 

(1,166,436

)

 

 

 

Total other income (expense)

 

 

5,841,318

 

 

 

215,264

 

 

 

578

 

 

 

 

 

 

440,082

 

 

 

6,497,242

 

 

 

(9,017,598

)

 

 

(2,520,356

)

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations before income taxes

 

 

5,548,608

 

 

 

7,836,687

 

 

 

(63,650

)

 

 

343,349

 

 

 

1,166,436

 

 

 

14,831,430

 

 

 

(9,023,267

)

 

 

5,808,163

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

(103,762

)

 

 

(261,829

)

 

 

(3,195

)

 

 

(200

)

 

 

 

 

 

(368,986

)

 

 

 

 

 

(368,986

)

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

 

5,444,846

 

 

 

7,574,858

 

 

 

(66,845

)

 

 

343,149

 

 

 

1,166,436

 

 

 

14,462,444

 

 

 

(9,023,267

)

 

 

5,439,177

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations of discontinued component - Credent

 

 

(642,033

)

 

 

 

 

 

 

 

 

(642,033

)

 

 

 

 

 

(1,284,066

)

 

 

647,702

 

 

 

(636,364

)

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

4,802,813

 

 

$

7,574,858

 

 

$

(66,845

)

 

$

(298,884

)

 

$

1,166,436

 

 

$

13,178,378

 

 

$

(8,375,565

)

 

$

4,802,813

 




19



 



MDA HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF CASH FLOWS

For the Year Ended December 31, 2007

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

MDA Holdings, Inc.

 

 

MDA

 

 

Allied Health Group

 

 

Credent

 

 

Jamestown Indemnity, LTD

 

 

Subtotal

 

 

Eliminating Entries

 

 

Consolidated Total

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

$

4,802,813

 

 

$

7,574,858

 

 

$

(66,845

)

 

$

(298,884

)

 

$

1,166,436

 

 

 

13,178,378

 

 

$

(8,375,565

)

 

 

4,802,813

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

181,266

 

 

 

181,856

 

 

 

470

 

 

 

29,877

 

 

 

 

 

 

393,469

 

 

 

 

 

 

393,469

 

Non-cash ESOP expense

 

 

1,981,347

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,981,347

 

 

 

 

 

 

1,981,347

 

Earnings of equity investees

 

 

(192,266

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(192,266

)

 

 

192,266

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

 

 

 

1,174,827

 

 

 

3,523

 

 

 

6,341

 

 

 

(819,500

)

 

 

365,191

 

 

 

819,500

 

 

 

1,184,691

 

Accounts receivable-intercompany

 

 

(78,145

)

 

 

792,196

 

 

 

42,951

 

 

 

131,023

 

 

 

 

 

 

888,025

 

 

 

(888,025

)

 

 

 

Employee receivables

 

 

(750

)

 

 

(19,274

)

 

 

 

 

 

 

 

 

 

 

 

(20,024

)

 

 

 

 

 

(20,024

)

Other

 

 

(66,730

)

 

 

17,108

 

 

 

 

 

 

 

 

 

 

 

 

(49,622

)

 

 

 

 

 

(49,622

)

Unbilled receivables

 

 

3,332

 

 

 

60,402

 

 

 

29,686

 

 

 

 

 

 

 

 

 

93,420

 

 

 

 

 

 

93,420

 

Prepaid expenses

 

 

30,147

 

 

 

1,751,537

 

 

 

(35,135

)

 

 

13,458

 

 

 

547

 

 

 

1,760,554

 

 

 

 

 

 

1,760,554

 

Income tax receivable

 

 

268,522

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

268,522

 

 

 

 

 

 

 

268,522

 

Deposits

 

 

 

 

 

(27,742

)

 

 

 

 

 

 

 

 

 

 

 

(27,742

)

 

 

 

 

 

 

(27,742

)

Bank overdraft

 

 

(95,940

)

 

 

(734,020

)

 

 

12,260

 

 

 

(10,255

)

 

 

 

 

 

(827,955

)

 

 

 

 

 

(827,955

)

Accounts payable

 

 

(97,918

)

 

 

177,596

 

 

 

 

 

 

202

 

 

 

 

 

 

79,880

 

 

 

 

 

 

79,880

 

Losses payable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,882

)

 

 

(16,882

)

 

 

 

 

 

(16,882

)

Accounts payable-intercompany

 

 

(835,147

)

 

 

(132,822

)

 

 

38,172

 

 

 

41,772

 

 

 

 

 

 

(888,025

)

 

 

888,025

 

 

 

 

Accrued provider payroll

 

 

 

 

 

(1,119,286

)

 

 

(26,490

)

 

 

 

 

 

 

 

 

 

(1,145,776

)

 

 

 

 

 

(1,145,776

)

Accrued bonuses and commissions

 

 

1,264,928

 

 

 

300,910

 

 

 

2,039

 

 

 

15,000

 

 

 

 

 

 

1,582,877

 

 

 

 

 

 

1,582,877

 

Unearned premium reserve

 

 

 

 

 

 

 

 

 

 

 

 

 

 

32,500

 

 

 

32,500

 

 

 

(819,500

)

 

 

(787,000

)

Other accrued liabilities

 

 

251,642

 

 

 

(226,492

)

 

 

(191

)

 

 

86,622

 

 

 

(2,612

)

 

 

108,969

 

 

 

 

 

 

108,969

 

Outstanding loss reserve

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,855,672

 

 

 

1,855,672

 

 

 

 

 

 

1,855,672

 

Income tax payable

 

 

 

 

 

(49,759

)

 

 

 

 

 

 

 

 

 

 

 

(49,759

)

 

 

 

 

 

(49,759

)

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total adjustments to net income

 

 

2,614,288

 

 

 

2,147,037

 

 

 

67,285

 

 

 

314,040

 

 

 

1,049,725

 

 

 

6,192,375

 

 

 

192,266

 

 

 

6,384,641

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

 

7,417,101

 

 

 

9,721,895

 

 

 

440

 

 

 

15,156

 

 

 

2,216,161

 

 

 

19,370,753

 

 

 

(8,183,299

)

 

 

11,187,454

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(828,584

)

 

 

(1,544,874

)

 

 

 

 

 

(15,156

)

 

 

 

 

 

(2,388,614

)

 

 

 

 

 

(2,388,614

)

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) in investing activities

 

 

(828,584

)

 

 

(1,544,874

)

 

 

 

 

 

(15,156

)

 

 

 

 

 

(2,388,614

)

 

 

 

 

 

(2,388,614

)

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ESOP note payments

 

 

(800,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(800,000

)

 

 

 

 

 

(800,000

)

Redemption note payments

 

 

(797,847

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(797,847

)

 

 

 

 

 

(797,847

)

Dividends paid

 

 

 

 

 

(8,183,299

)

 

 

 

 

 

 

 

 

 

 

 

(8,183,299

)

 

 

8,183,299

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) financing activities

 

 

(1,597,847

)

 

 

(8,183,299

)

 

 

 

 

 

 

 

 

 

 

 

(9,781,146

)

 

 

8,183,299

 

 

 

(1,597,847

)

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash

 

 

4,990,670

 

 

 

(6,278

)

 

 

440

 

 

 

 

 

 

2,216,161

 

 

 

7,200,993

 

 

 

 

 

 

7,200,993

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash at beginning of year

 

 

792,220

 

 

 

6,342

 

 

 

 

 

 

 

 

 

2,411,988

 

 

 

3,210,550

 

 

 

 

 

 

3,210,550

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash at end of year

 

$

5,782,890

 

 

$

64

 

 

$

440

 

 

$

 

 

$

4,628,149

 

 

$

10,411,543

 

 

$

 

 

$

10,411,543

 




20


JAMESTOWN INDEMNITY, LTD

EXHIBIT 99.2




JAMESTOWN INDEMNITY, LTD.

FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS’ REPORT

DECEMBER 31, 2007 AND 2006





JAMESTOWN INDEMNITY, LTD.


CONTENTS


Independent Auditors’ Report

1

Balance Sheets

2

Statements Of Earnings

3

Statements Of Changes In Shareholder’s Equity

4

Statements Of Cash Flows

5

Notes To The Financial Statements

6-8





INDEPENDENT AUDITORS’ REPORT

To the Shareholder of Jamestown Indemnity, Ltd.

We have audited the balance sheets of Jamestown Indemnity, Ltd. (the “Company”) as at December 31, 2007 and 2006 and the related statements of earnings, changes in shareholder’s equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. 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 as established by the Auditing Standards Board of the American Institute of Certified Public Accountants. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal controls over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Jamestown Indemnity, Ltd. as at December 31, 2007 and 2006 and the results of its operations, changes in shareholder equity’s and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

This report, including the opinion, has been prepared for and only for the Company’s directors and shareholder as a body and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come except where expressly agreed by our prior consent in writing.

[http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=6000526&doc=15]

Grand Cayman, Cayman Islands

November 19, 2008



1



JAMESTOWN INDEMNITY, LTD.

BALANCE SHEETS

AS AT DECEMBER 31, 2007 AND 2006



(Expressed in United States dollars)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2007

 

 

2006

 

 

 

Note

 

 

US$

 

 

US$

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

4,628,149

 

 

 

2,411,988

 

Restricted cash

 

 

3

 

 

 

5,000,000

 

 

 

5,000,000

 

Insurance balance receivable

 

 

 

 

 

 

819,500

 

 

 

––

 

Prepayments

 

 

 

 

 

 

10,919

 

 

 

11,466

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets

 

 

 

 

 

US$

10,458,568

 

 

US$

7,423,454

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDER’S EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accruals

 

 

 

 

 

 

37,138

 

 

 

39,750

 

Unearned premium reserve

 

 

 

 

 

 

819,500

 

 

 

787,000

 

Losses payable

 

 

 

 

 

 

62,029

 

 

 

78,911

 

Outstanding loss reserves

 

 

4

 

 

 

6,941,365

 

 

 

5,085,693

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

 

 

 

 

7,860,032

 

 

 

5,991,354

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDER’S EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share capital

 

 

5

 

 

 

250

 

 

 

250

 

Contributed surplus

 

 

7

 

 

 

765,000

 

 

 

765,000

 

Share premium

 

 

6

 

 

 

249,750

 

 

 

249,750

 

Retained earnings

 

 

 

 

 

 

1,583,536

 

 

 

417,100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total shareholder’s equity

 

 

 

 

 

 

2,598,536

 

 

 

1,432,100

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and shareholder’s equity

 

 

 

 

 

US$

10,458,568

 

 

US$

7,423,454 

 


See accompanying notes to the financial statements.





2



JAMESTOWN INDEMNITY, LTD.

STATEMENTS OF EARNINGS

FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006



(Expressed in United States dollars)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2007

 

 

2006

 

 

 

Note

 

 

US$

 

 

US$

 

 

 

 

 

 

 

 

 

 

 

UNDERWRITING INCOME

 

 

 

 

 

 

 

 

 

Premiums written

 

 

 

 

 

3,278,000

 

 

 

3,148,000

 

Movement in unearned premiums

 

 

 

 

 

(32,500

)

 

 

13,000

 

 

 

 

 

 

 

 

 

 

 

Total underwriting income

 

 

 

 

 

3,245,500

 

 

 

3,161,000

 

 

 

 

 

 

 

 

 

 

 

UNDERWRITING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

Claims paid and expenses

 

 

4

 

 

 

567,489

 

 

 

98,776

 

Change in outstanding loss reserves

 

 

 

 

 

 

1,855,672

 

 

 

2,764,665

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

2,423,161

 

 

 

2,863,441

 

 

 

 

 

 

 

 

 

 

 

 

Net underwriting income

 

 

 

 

 

 

822,339

 

 

 

297,559

 

 

 

 

 

 

 

 

 

 

 

 

ADMINISTRATION EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

Management fees

 

 

 

 

 

 

35,000

 

 

 

35,000

 

Actuarial fees

 

 

 

 

 

 

18,934

 

 

 

43,765

 

Letter of credit charges

 

 

 

 

 

 

17,906

 

 

 

9,135

 

Audit fees

 

 

 

 

 

 

12,057

 

 

 

12,068

 

Government fees

 

 

 

 

 

 

9,750

 

 

 

9,354

 

Registered office fees

 

 

 

 

 

 

1,200

 

 

 

800

 

Bank charges

 

 

 

 

 

 

620

 

 

 

700

 

Communication expenses

 

 

 

 

 

 

518

 

 

 

661

 

Legal fees

 

 

 

 

 

 

––

 

 

 

3,985

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

95,985

 

 

 

115,468

 

 

 

 

 

 

 

 

 

 

 

 

Bank interest income

 

 

 

 

 

 

440,082

 

 

 

198,391

 

 

 

 

 

 

 

 

 

 

 

 

NET PROFIT

 

 

 

 

 

 

1,166,436

 

 

 

380,482

 


See accompanying notes to the financial statements.



3



JAMESTOWN INDEMNITY, LTD.

STATEMENTS OF CHANGES IN SHAREHOLDER’S EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006



(Expressed in United States dollars)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained

 

 

Share

 

 

 Contributed

 

 

Share

 

 

Total

 

 

earnings

 

 

premium

 

 

surplus

 

 

capital

 

 

US$

 

 

US$

 

 

US$

 

 

US$

 

 

US$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as at
December 31, 2005

 

 

801,618

 

 

 

36,618

 

 

 

249,750

 

 

 

515,000

 

 

 

250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contributed surplus

 

 

250,000

 

 

 

––

 

 

 

––

 

 

 

250,000

 

 

 

––

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net profit for year

 

 

380,482

 

 

 

380,482

 

 

 

––

 

 

 

––

 

 

 

––

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as at
December 31, 2006

 

 

1,432,100

 

 

 

417,100

 

 

 

249,750

 

 

 

765,000

 

 

 

250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net profit for year

 

 

1,166,436

 

 

 

1,166,436

 

 

 

––

 

 

 

––

 

 

 

––

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as at
December 31, 2007

 

US$

2,598,536

 

 

US$

1,583,536

 

 

US$

249,750

 

 

US$

765,000

 

 

US$

250


See accompanying notes to the financial statements.



4



JAMESTOWN INDEMNITY, LTD.

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006



(Expressed in United States dollars)

 

2007

 

 

2006

 

 

 

US$

 

 

US$

 

Operating activities

 

 

 

 

 

 

Net profit

 

 

1,166,436

 

 

 

380,482

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted cash

 

 

––

 

 

 

(2,500,000

)

Insurance balance receivable

 

 

(819,500

)

 

 

––

 

Prepayments

 

 

547

 

 

 

(2,356

)

Accounts payable and accruals

 

 

(2,612

)

 

 

29,250

 

Unearned premium reserve

 

 

32,500

 

 

 

(13,000

)

Losses payable

 

 

(16,882

)

 

 

78,655

 

Outstanding loss reserves

 

 

1,855,672

 

 

 

2,764,665

 

 

 

 

 

 

 

 

 

 

Cash provided by operating activities

 

 

2,216,161

 

 

 

737,696

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

 

Addition to contributed surplus

 

 

––

 

 

 

250,000

 

 

 

 

 

 

 

 

Cash provided by financing activities

 

 

––

 

 

 

250,000

 

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

 

2,216,161

 

 

 

987,696

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of year

 

 

2,411,988

 

 

 

1,424,292

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of year

 

US$

4,628,149

 

 

US$

2,411,988

 


See accompanying notes to the financial statements.



5



JAMESTOWN INDEMNITY, LTD.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006



(Expressed in United States dollars)

1.

INCORPORATION AND PRINCIPAL ACTIVITY

Jamestown Indemnity, Ltd (the “Company”) was originally incorporated as Caduceus Ltd on April 29, 2005 under the Companies Law of the Cayman Islands. The Company changed its name and on September 6, 2005 and obtained an Unrestricted Class “B” Insurer’s License, subject to the provisions of the Cayman Islands Insurance Law.

The Company is a wholly owned subsidiary of Medical Doctors Association, Inc (the “Parent”), a national solution provider to hospitals and healthcare organizations, based in the United States of America. The Parent company provides locum tenens and contract staffing for all specialties with an emphasis on pediatrics, primary care, surgical specialties, psychiatry, anesthesiology, radiology, and emergency medicine. The Parent conducts business throughout the United States of America.

The Company provides medical professional liability reinsurance, which follows the fortunes of an underlying insurance policy of its Parent and its Parent’s controlled or associated entities for medical professional liability insurance. In most states of the USA the underlying policy has a deductible of the first US$500,000 of each occurrence, inclusive of defense costs, and it reinsures that risk with the Company. The Company’s reinsurance policy is a deductible buy-back reinsurance policy. The Company’s reinsurance policies cover the periods from April 1, 2006 to April 1, 2007 and for the period from April 1, 2007 to April 1, 2008.

2.

PRINCIPAL ACCOUNTING POLICIES

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount 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. While management believes that the amounts included in the financial statements reflect the Company’s best estimates and assumptions, actual results could differ from these estimates. The principal accounting policies are as follows:

Insurance premiums written

Insurance premiums are recognized as income over the period covered by the insurance policy. The portion of insurance premiums that will be carried in the future are deferred and reported as unearned premium reserve.

Outstanding loss reserves

The Company provides medical professional liability insurance, the nature of which produces an inherent difficulty in quantifying the ultimate cost of settlement of losses which may result from claims on the Company.

The provision for outstanding loss reserves includes an amount for outstanding claims determined from reports and individual cases and an amount based upon estimates by the directors and management for losses incurred but not reported. Such liabilities are necessarily based on estimates and the ultimate cost may be in excess of, or less than, the amounts provided. The methods of making such estimates and for establishing the resulting provision are continually reviewed and any resulting adjustments are reflected in earnings at the time the adjustments are known.

The Company’s liability for losses is ultimately based on management’s expectations of future events, supported by an actuarial review. It is reasonably possible that the expectations associated with these amounts could change in the near term (i.e., within one year) and that the effect of such changes could be material to the financial statements.



6



JAMESTOWN INDEMNITY, LTD.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006



(Expressed in United States dollars)

2.

PRINCIPAL ACCOUNTING POLICIES (continued)

Cash and cash equivalents

The Company considers all highly liquid investments with a maturity of three months or less when purchased, to be cash equivalents.

3.

RESTRICTED CASH

Under the terms of the Company’s reinsurance policy it is required to guarantee the payment of claims to its insured parties via a letter of credit. At December 31, 2007 the value of this letter of credit amounted to US$5,000,000 (2006: US$5,000,000) which is secured against the cash held in a restricted account.

4.

OUTSTANDING LOSS RESERVES

 

 

2007

 

 

2006

 

 

 

US$

 

 

US$

 

Provision for losses incurred

     

 

 

 

     

 

 

 

Outstanding case reserves

 

 

558,970

 

 

 

77,528

 

Incurred but not reported reserve

 

 

6,382,395

 

 

 

5,008,165

 

 

 

 

 

 

 

 

 

 

 

 

 

6,941,365

 

 

 

5,085,693

 

 

 

 

 

 

 

 

 

 

Activity for the outstanding loss provision is summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of year

 

 

5,085,693

 

 

 

2,321,028

 

 

 

 

 

 

 

 

 

 

Incurred related to:

 

 

 

 

 

 

 

 

Current period

 

 

1,766,134

 

 

 

2,412,593

 

Prior period

 

 

657,027

 

 

 

450,848

 

 

 

 

2,423,161

 

 

 

2,863,441

 

Paid related to:

 

 

 

 

 

 

 

 

Current period

 

 

(58,321

)

 

 

––

 

Prior period

 

 

(509,168

)

 

 

(98,776

)

 

 

 

 

 

 

 

 

 

 

 

 

(567,489

)

 

 

(98,776

)

 

 

 

 

 

 

 

 

 

 

 

US$

6,941,365

 

 

US$

5,085,693

 


5.

SHARE CAPITAL

 

2007

 

2006

 

US$

 

US$

Authorized

 

 

 

 

 

50,000 shares of US$1.00 each

US$

50,000

 

US$

50,000

 

 

 

 

 

 

Issued and fully paid

 

 

 

 

 

250 shares of US$1.00 each

US$

250

 

US$

250



7



JAMESTOWN INDEMNITY, LTD.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006



(Expressed in United States dollars)

6.

SHARE PREMIUM

This balance represents the excess of the proceeds of issuing shares acquired over and above the par value of the shares.

7.

CONTRIBUTED SURPLUS

This balance represents additional funds paid into the Company by its Parent, in order to increase the Company’s capitalization, and therefore enable it to write a larger policy premium.

8.

FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS

United States accounting standards require all entities to disclose the fair value of financial instruments, both assets and liabilities that are recognized and not recognized in the balance sheet for which it is practicable to estimate fair value.

Fair value estimates are made at a specific point in time, based on market conditions and information about the financial instruments. These estimates are subjective in nature and involve uncertainties and matters of significant judgement and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, insurance balances receivable, accounts payable, accruals, losses payable and outstanding loss reserves. Management does not anticipate any material losses from any concentrations of credit risk and has mitigated its risk by choosing two major international banks located in the United States of America and the Cayman Islands.

9.

TAXATION

Presently no taxation is imposed on income or capital gains the Cayman Islands. Accordingly, no taxation has been recorded in the financial statements.

10.

RELATED PARTIES

The Company’s directors hold positions with the Company’s Parent in the roles of executive vice president, chief financial officer, and as a board member.

11.

CONCENTRATION OF RISK AND ECONOMIC DEPENDENCE

As described in Note 1, the premium written is in respect of related parties. The Company is considered to be economically dependent on its Parent.

12.

SUBSEQUENT EVENTS

On September 9, 2008, 100% of the share capital of the Company was transferred from MDA Holdings, Inc. (formerly known as Medical Doctor Associates, Inc.) to StoneCo H, Inc. StoneCo H, Inc. was subsequently renamed as MDA Holdings, Inc. MDA Holdings, Inc. (formerly known as StoneCo H, Inc.) is 100% owned by the new ultimate parent, Cross Country Healthcare, Inc.




8


United States Securities and Exchange Commission Edgar Filing

EXHIBIT 99.3








MDA HOLDINGS, INC. AND

SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

For the Six Month Periods Ended June 30, 2008 and 2007






MDA HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

TABLE OF CONTENTS

 

 

 

 

 

Page(s)

 

 

 

 

 

 

Consolidated Financial Statements:

 

 

 

 

 

Consolidated Balance Sheets as of June 30, 2008 and  
December 31, 2007

 

1-2

 

 

 

Consolidated Statements of Income for the Six Months Ended
June 30, 2008 and 2007

 

3

 

 

 

Consolidated Statements of Changes in Shareholders’ Equity
for the period from January 1, 2008 to June 30, 2008 and
the Year Ended December 31, 2007

 

4

 

 

 

Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2008 and 2007

 

5

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

7-14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 






MDA HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

June 30,

2008

 

December 31,

2007

 

Current Assets:

     

 

 

     

 

 

 

Cash

 

$

6,859,144

 

$

10,411,543

 

Restricted cash

 

 

5,000,000

 

 

5,000,000

 

Receivables:

 

 

 

 

 

 

 

Trade - net of allowance of $1,042,003, $798,172

 

 

16,525,325

 

 

12,777,565

 

Unbilled receivables

 

 

7,007,855

 

 

6,610,711

 

Due from employees

 

 

4,377

 

 

29,229

 

Other

 

 

23,258

 

 

88,216

 

Prepaid expenses

 

 

2,323,688

 

 

152,826

 

Income tax receivable

 

 

 

 

7,094

 

 

 

 

 

 

 

 

 

Total Current Assets

 

 

37,743,647

 

 

35,077,184

 

 

 

 

 

 

 

 

 

Property and Equipment, at cost:

 

 

 

 

 

 

 

Furniture and equipment

 

 

1,075,980

 

 

1,043,183

 

Leasehold improvements

 

 

369,487

 

 

354,468

 

Computers and software

 

 

4,159,368

 

 

2,279,830

 

WIP - Internally developed software

 

 

 

 

894,192

 

 

 

 

5,604,835

 

 

4,571,673

 

Less accumulated depreciation and amortization

 

 

(2,215,680

)

 

(1,839,232

)

 

 

 

 

 

 

 

 

Net Property and Equipment

 

 

3,389,155

 

 

2,732,441

 

 

 

 

 

 

 

 

 

Other Assets

 

 

 

 

 

 

 

Deposits

 

 

27,742

 

 

27,742

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets

 

$

41,160,544

 

$

37,837,367

 




See accompanying notes to the consolidated financial statements.


1




MDA HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

 

 

June 30,

2008

 

December 31,

2007

 

Current Liabilities:

     

 

 

     

 

 

 

Bank overdraft

 

$

3,021,226

 

$

1,936,605

 

Accounts payable

 

 

1,061,203

 

 

963,431

 

Accrued provider payroll

 

 

4,287,374

 

 

3,582,464

 

Accrued commissions, bonuses and vacation

 

 

2,457,774

 

 

2,259,990

 

Accrued income taxes

 

 

 

 

5,851

 

Outstanding claims reserve

 

 

955,983

 

 

558,970

 

IBNR reserve

 

 

6,931,284

 

 

6,382,395

 

Other accrued liabilities

 

 

551,095

 

 

681,510

 

Redemption notes - current portion

 

 

213,592

 

 

186,570

 

Term notes - current portion

 

 

412,973

 

 

112,729

 

ESOP notes - current portion

 

 

1,048,625

 

 

915,326

 

 

 

 

 

 

 

 

 

Total Current Liabilities

 

 

20,941,129

 

 

17,585,841

 

 

 

 

 

 

 

 

 

Long-Term Liabilities:

 

 

 

 

 

 

 

Accrued incentive

 

 

5,083,787

 

 

1,409,386

 

Redemption notes, net of current portion

 

 

5,096,060

 

 

5,205,249

 

Term notes, net of current portion

 

 

513,093

 

 

3,887,271

 

ESOP notes, net of current portion

 

 

27,511,699

 

 

28,131,601

 

 

 

 

 

 

 

 

 

Total Long-Term Liabilities

 

 

38,204,639

 

 

38,633,507

 

 

 

 

 

 

 

 

 

Total Liabilities

 

 

59,145,768

 

 

56,219,348

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' Equity:

 

 

 

 

 

 

 

Common stock, no par value; 100,000,000 authorized;
402,607 shares issued and outstanding

 

 

 

 

 

Retained earnings

 

 

9,795,627

 

 

9,398,870

 

Contra equity - unearned ESOP shares

 

 

(27,780,851

)

 

(27,780,851

)

 

 

 

 

 

 

 

 

Total Shareholders' Equity

 

 

(17,985,224

)

 

(18,381,981

)

 

 

 

 

 

 

 

 

Total Liabilities and Shareholders’ Equity

 

$

41,160,544

 

$

37,837,637

 




See accompanying notes to the consolidated financial statements.


2




MDA HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

 

 

 

 

Six Months Ended

 

 

 

June 30,

2008

 

June 30,

2007

 

 

 

 

 

 

 

 

 

Sales

     

$

84,714,849

     

$

77,500,046

 

 

 

 

 

 

 

 

 

Cost of services

 

 

63,201,552

 

 

58,024,497

 

 

 

 

 

 

 

 

 

Gross profit

 

 

21,513,297

 

 

19,475,549

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

19,299,671

 

 

13,643,498

 

ESOP administrative expenses

 

 

396,061

 

 

90,031

 

ESOP compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

1,817,565

 

 

5,742,020

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

Interest income

 

 

243,961

 

 

306,637

 

Interest expense

 

 

(1,654,565

)

 

(1,801,100

)

Miscellaneous

 

 

141,087

 

 

122,215

 

 

 

 

 

 

 

 

 

Total other income (expense)

 

 

(1,269,517

)

 

(1,372,248

)

 

 

 

 

 

 

 

 

Income from continuing operations before income taxes

 

 

548,048

 

 

4,369,772

 

 

 

 

 

 

 

 

 

Income tax (expense) benefit:

 

 

 

 

 

 

 

Current

 

 

(151,291

)

 

(264,681

)

Deferred

 

 

 

 

 

 

 

 

 

 

 

 

 

Total income tax (expense) benefit

 

 

(151,291

)

 

(264,681

)

 

 

 

 

 

 

 

 

Income from continuing operations

 

 

396,757

 

 

4,105,091

 

 

 

 

 

 

 

 

 

Discontinued operations:

 

 

 

 

 

 

 

Loss from operations of discontinued component

 

 

 

 

(326,467

)

 

 

 

 

 

 

 

 

Net income

 

$

396,757

 

$

3,778,624

 




See accompanying notes to the consolidated financial statements.


3




MDA HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common
Stock

 

Additional
Paid-in
Capital

 

Retained
Earnings

 

Unearned
ESOP Shares

 

Total

 

 

 

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Balance, December 31, 2006

     

$

 

$

     

$

4,491,517

 

$

(29,657,659

)

$

(25,166,142

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Release of ESOP shares

 

 

 

 

 

 

104,540

 

 

1,876,808

 

 

1,981,348

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

 

 

 

 

4,802,813

 

 

 

 

4,802,813

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2007

 

 

 

 

 

 

9,398,870

 

 

(27,780,851

)

 

(18,381,981

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Release of ESOP shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

 

 

 

 

396,757

 

 

 

 

396,757

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2008

 

$

 

$

 

$

9,795,627

 

$

(27,780,851

)

$

(17,985,224

)





See accompanying notes to the consolidated financial statements.


4




MDA HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

 

 

Six Months Ended

 

 

 

June 30,

2008

 

June 30,
2007

 

 

 

 

 

 

 

 

 

Cash Flows from Operating Activities:

     

 

 

     

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

396,757

 

$

3,778,624

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

376,448

 

 

177,012

 

Non-cash ESOP expense

 

 

 

 

 

Deferred income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Restricted cash and cash equivalents

 

 

 

 

 

Receivables

 

 

(4,055,094

)

 

190,006

 

Prepaids

 

 

(2,170,862

)

 

1,031,653

 

Income tax receivable

 

 

7,094

 

 

251,074

 

Accounts payable

 

 

97,772

 

 

(528,144

)

Bank overdraft

 

 

1,084,621

 

 

(367,322

)

Accrued provider payroll

 

 

704,910

 

 

(401,173

)

Accrued commissions, bonuses, and vacation

 

 

197,784

 

 

(508,626

)

Losses payable

 

 

 

 

 

Other accrued liabilities

 

 

(130,416

)

 

654,338

 

Accrued PSP

 

 

3,674,401

 

 

704,714

 

Accrued income taxes

 

 

(5,851

)

 

(55,610

)

Outstanding claims reserve

 

 

397,013

 

 

454,131

 

IBNR Reserve

 

 

548,889

 

 

359,551

 

 

 

 

 

 

 

 

 

Total adjustments to net income

 

 

726,709

 

 

1,961,604

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

 

1,123,466

 

 

5,740,228

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of property, equipment and software

 

 

(1,033,162

)

 

(623,444

)

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

 

(1,033,162

)

 

(623,444

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continued on next page

 

 

 

 

 

 

 




See accompanying notes to the consolidated financial statements.


5




MDA HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

June 30,

2008

 

June 30,

2007

 

Cash Flows from Financing Activities:

     

 

 

     

 

 

 

Term note repayments

 

 

(3,073,934

)

 

 

Principal payments on ESOP notes payable

 

 

(486,603

)

 

(800,000

)

Principal payments on redemption notes payable

 

 

(82,167

)

 

(797,847

)

 

 

 

 

 

 

 

 

Net cash used in financing activities

 

 

(3,642,704

)

 

(1,597,847

)

 

 

 

 

 

 

 

 

Net (decrease) increase in cash

 

 

(3,552,400

)

 

3,518,937

 

 

 

 

 

 

 

 

 

Cash at beginning of year

 

 

10,411,543

 

 

3,210,550

 

 

 

 

 

 

 

 

 

Cash at end of year

 

$

6,859,143

 

$

6,729,487

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosures:

 

 

 

 

 

 

 

Interest paid in cash

 

$

1,654,565

 

$

1,801,100

 

Income taxes paid in cash

 

$

144,197

 

$

69,217

 





See accompanying notes to the consolidated financial statements.


6






MDA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2008 and 2007

 

 



1)

Summary of Significant Accounting Policies:


Organization and Purpose

MDA Holdings, Inc. and Subsidiaries (the “Company”) is primarily engaged in providing staffing solutions to the healthcare community throughout the United States. The Company is also engaged in credentialing and licensing services and provides medical professional liability insurance to the Company through Jamestown Indemnity, LTD, (the “Captive”).

Principles of Consolidation

The accompanying financial statements include the accounts of all wholly-owned subsidiaries after elimination of all significant intercompany items and transactions. The affiliated companies included within the consolidated financial statements and their related business activities are as follows:

Medical Doctors Associates, Inc.

Medical Doctors Associates, Inc. provides locum tenens and permanent physician staffing solutions to the healthcare community throughout the United States.

Allied Health Group, Inc.

Allied Health Group, Inc. (“AHG”) services health care clients with staffing needs in the mid-level or allied health care provider role (Physician Assistants, Nurse Practitioners, Physical Therapist, and Occupational Therapist) on a temporary and permanent basis.

Credent Verification and Licensing, Inc.

Credent is a national, full-service Credentials Verification Organization (CVO) specializing in credentialing and licensing services. The Company discontinued the credentialing and licensing activities to external customers of Credent during 2007. See Note 13.

Jamestown Indemnity, LTD

In April 2005, the Company incorporated Caduceus Ltd. (the “Captive”) under the Companies Law of the Cayman Islands. Subsequently, in August 2005, the Captive was renamed Jamestown Indemnity, LTD and in September 2005 obtained an unrestricted Class “B” Insurer’s License, subject to the provisions of the Cayman Islands Insurance Law. The Captive provides medical professional liability reinsurance, which follows the fortunes of an underlying insurance policy of the Company and its subsidiaries for medical professional liability insurance reinsurance. In most States, the underlying policy has a deductible of the first $500,000 of each occurrence, inclusive of defense costs, and the Company reinsures that risk with the



7



MDA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2008 and 2007

 

 




1)

Significant Accounting Policies (Continued):

Captive. The Captive’s reinsurance policy is a deductible buy-back reinsurance policy covering the deductible element of the Company’s insurance. The reinsurance policy covers the period from April 1, 2006 to April 1, 2007, the period from April 1, 2007 to April 1, 2008, and the period April 1, 2008 to April 1, 2009.

Basis of Accounting

Assets and liabilities are recorded and revenues and expenses are recognized on the accrual basis of accounting.

Use of 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.

Cash