Blueprint
 

UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C.  20549
 

FORM 8-K/A
Amendment No. 1
 

CURRENT REPORT
 
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported)   July 5, 2017
 
 

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.)
 
 
5201 Congress Avenue, Suite 100B, Boca Raton, FL 33487
(Address of Principal Executive Office) (Zip Code)
 
(561) 998-2232
(Registrant’s telephone number, including area code)
 
 (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))
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2). Emerging growth company ☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 

 
 
 
Introductory Note
 
This Amendment 1 is being filed to furnish financial statements and pro forma financial information as required by Article 3-05 and Article 11 of Regulation S-X in connection with the transaction described in Item 2 of this Current Report on Form 8-K, originally filed on July 6, 2017.
 
Item 9.01    Financial Statements and Exhibits.
 
(a) Financial statements of businesses acquired.
 
The unaudited condensed consolidated balance sheet of Advantage RN, LLC and subsidiaries as of June 30, 2017, and the related condensed consolidated statements of operations and cash flows for the six months ended June 30, 2017 and the six months ended June 30, 2016, and the notes to the condensed consolidated financial statements are filed as Exhibit 99.1 to this Amendment and are incorporated herein by reference.
 
The audited consolidated balance sheets of Advantage RN, LLC and subsidiaries as of December 31, 2016 and December 31, 2015 and the related consolidated statements of operations, changes in members' equity and cash flows for the years ended December 31, 2016 and December 31, 2015, and the notes to the consolidated financial statements are filed as Exhibit 99.2 to this Amendment and are incorporated herein by reference.
 
The audited consolidated balance sheets of Advantage RN, LLC and subsidiaries as of December 31, 2015 and December 31, 2014 and the related consolidated statements of operations, changes in members' equity and cash flows for the years ended December 31, 2015 and December 31, 2014, and the notes to the consolidated financial statements are filed as Exhibit 99.3 to this Amendment and are incorporated herein by reference.
 
(b) Pro forma financial information.
 
The unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2017 and for the year ended December 31, 2016, and the notes to the unaudited pro forma condensed combined financial statements are filed as Exhibit 99.4 to this Amendment and are incorporated herein by reference.
 
(d) Exhibits
 
Exhibit
 
Description
 
Consent of Hammerman, Graf, Hughes & Company, Inc., Independent Auditors
 
Unaudited condensed consolidated balance sheet of Advantage RN, LLC and subsidiaries as of June 30, 2017, and the related condensed consolidated statements of operations and cash flows for the six months ended June 30, 2017 and the six months ended June 30, 2016, and the notes to the condensed consolidated financial statements 
 
Audited consolidated balance sheets of Advantage RN, LLC and subsidiaries as of December 31, 2016 and December 31, 2015 and the related consolidated statements of operations, changes in members' equity and cash flows for the years ended December 31, 2016 and December 31, 2015, and the notes to the consolidated financial statements
 
Audited consolidated balance sheets of Advantage RN, LLC and subsidiaries as of December 31, 2015 and December 31, 2014 and the related consolidated statements of operations, changes in members' equity and cash flows for the years ended December 31, 2015 and December 31, 2014, and the notes to the consolidated financial statements
 
The unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2017 and for the year ended December 31, 2016, and the notes to the unaudited pro forma condensed combined financial statements
 
 
 
 
 
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.
 
 
 
Date: September 15, 2017
By:
/s/ William J. Burns
 
Name: William J. Burns
 
 
Title: Chief Financial Officer
 
 
 
 
 
 
 
 
 
Blueprint
  Exhibit 23.1
 
CONSENT OF HAMMERMAN, GRAF, HUGHES & COMPANY, INC.
 
We consent to the incorporation by reference in the following Registration Statements:
 
1.
Registration Statement (Form S-8 No. 333-74862) pertaining to Cross Country Healthcare, Inc. and subsidiaries Amended and Restated 1999 Stock Option Plan and Cross Country Healthcare, Inc. and subsidiaries Amended and Restated Equity Participation Plan;
 
2.
Registration Statement (Form S-8 No. 333-145484) pertaining to Cross Country Healthcare, Inc. and subsidiaries 2014 Omnibus Incentive Plan (f/k/a 2007 Stock Incentive Plan);
 
3.
Registration Statement (Form S-8 No. 333-188519) pertaining to Cross Country Healthcare, Inc. and subsidiaries registration of additional shares of common stock under the 2014 Omnibus Incentive Plan (f/k/a 2007 Stock Incentive Plan);

4.
Registration Statement (Form S-8 No. 333-196639) pertaining to Cross Country Healthcare, Inc. and subsidiaries registration of additional shares of common stock under the 2014 Omnibus Incentive Plan (f/k/a 2007 Stock Incentive Plan);
 
5.
Registration Statement (Form S-8 No. 333-218557) pertaining to Cross Country Healthcare, Inc. and subsidiaries registration of additional shares of common stock under the 2014 Omnibus Incentive Plan (f/k/a 2007 Stock Incentive Plan);
 
of our reports dated April 19, 2017 and March 31, 2016, with respect to the accompanying consolidated financial statements of Advantage RN and subsidiaries included in this Current Report on Form 8-K of Cross Country Healthcare, Inc. and subsidiaries.    
 
 
 
/S/  HAMMERMAN, GRAF, HUGHES & COMPANY, INC.
Certified Public Accountants
Dayton, Ohio
 
 
September 8, 2017
 
 
 
Blueprint
 
Exhibit 99.1
 
 
 
Advantage RN, LLC
and Subsidiaries
 
Consolidated Financial Statements
 
 
For the Periods Ended
June 30, 2017 and 2016
(unaudited)
 
 
 
 
 
Advantage RN, LLC and Subsidiaries
Consolidated Balance Sheets
June 30, 2017 and December 31, 2016
(unaudited)
 
 
 
6/30/2017
 
 
12/31/2016
 
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
Cash
 $3,845,461 
 $652,217 
Accounts receivable, trade
  12,720,746 
  15,199,402 
Unbilled accounts receivable
  1,912,230 
  1,946,892 
Employee advances
  188,900 
  156,000 
Prepaid expenses
  265,926 
  658,706 
Total current assets
  18,933,263 
  18,613,217 
 
    
    
PROPERTY AND EQUIPMENT, at cost
    
    
Furniture, fixtures and equipment
  863,098 
  801,836 
Vehicles
  19,216 
  19,216 
Leasehold improvements
  197,779 
  192,682 
 
  1,080,093 
  1,013,734 
Less accumulated depreciation
  749,499 
  691,333 
 
  330,594 
  322,401 
 
    
    
 
 $19,263,857 
 $18,935,618 
 
    
    
LIABILITIES AND MEMBERS' EQUITY
    
    
 
    
    
CURRENT LIABILITIES
    
    
Line of credit
 $4,643,508 
 $1,878,940 
Current portion, long-term debt
  1,430,362
  1,651,421 
Accounts payable, trade
  314,288 
  18,266 
Accrued payroll, commissions and
    
    
 related expenses and withholdings
  148,783 
  1,936,885 
Accrued other expenses and
    
    
 other current liabilities
  1,902,521 
  430,013 
Total current liabilities
  8,439,462
  5,915,525 
 
    
    
LONG-TERM DEBT
    
    
Notes payable
  3,247,028 
  4,168,087 
Less current portion
  1,430,362
  1,651,421
 
  1,816,666
  2,516,666 
 
    
    
MEMBERS' EQUITY
  9,007,729 
  10,503,427 
 
    
    
 
 $19,263,857 
 $18,935,618 
 
 
 
1
 
 
Advantage RN, LLC and Subsidiaries
Consolidated Statements of Income
Six Months Ended June 30, 2017 and 2016
(unaudited)
 
 
 
2017
 
 % 
 
2016
 
 % 
 
 
 
 
 
 
 
 
 
 
 
 
 
REVENUE FROM SERVICES
 $52,526,334 
  100.0 
 $49,719,482 
  100.0 
 
    
    
    
    
DIRECT COSTS OF SERVICES
  41,101,819 
  78.2 
  38,406,437 
  77.2 
 
    
    
    
    
Gross profit
  11,424,515 
  21.8 
  11,313,045 
  22.8 
 
    
    
    
    
SELLING, GENERAL AND
    
    
    
    
 ADMINISTRATIVE EXPENSES
  6,854,884 
  13.1 
  6,201,207 
  12.5 
 
    
    
    
    
Income from operations
  4,569,631 
  8.7 
  5,111,838 
  10.3 
 
    
    
    
    
OTHER INCOME (EXPENSE)
    
    
    
    
Interest income
  1,074 
  -
 
  3 
 -
Loss on sale of
    
    
    
    
 property and equipment
  - 
  - 
  (11,117)
  - 
Other income
  113 
  -
 
  780 
  -
Interest expense
  (89,587)
  (0.2)
  (90,786)
  (0.2)
Other expenses
  (59,064)
  (0.1)
  (33,785)
  (0.1)
Legal expenses-nonoperational
  (382,716)
  (0.7)
  (242,464)
  (0.5)
Organizational costs
  - 
  - 
  -
 
  - 
Settlements and prior years
    
    
    
    
 expenses-nonoperational
  (550,876)
  (1.1)
  (223,123)
  (0.4)
 
    
    
    
    
Total other income (expense)
  (1,081,056)
  (2.1)
  (600,492)
  (1.2)
 
    
    
    
    
Net income
 $3,488,575 
  6.6 
 $4,511,346
 
  9.1 
 
 
 
2
 
 
Advantage RN, LLC and Subsidiaries
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2017 and 2016
(unaudited)
 
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
OPERATING ACTIVITIES
 
 
 
 
 
 
Net income
 $3,488,575 
 $4,511,346 
Adjustments to reconcile net income to net
    
    
cash provided by operating activities:
    
    
 Depreciation
  58,165 
  57,786 
 Loss on sale of property and equipment
  - 
  11,117 
 Bad debt expense
  42,000 
  10,000 
Changes in operating assets and liabilities:
    
    
Accounts receivable, trade and unbilled
  2,471,319 
  115,936 
Prepaid expenses and other assets
  389,780 
  551,878 
Accounts payable and accrued expenses
  (19,572)
  1,380,464 
Net cash provided by operating activities
  6,430,267 
  6,638,527 
 
    
    
INVESTING ACTIVITIES
    
    
Employee and other advances
  (29,900)
  17,600 
Purchase of property and equipment
  (66,359)
  (5,056)
Net cash (used in) provided by investing activities
  (96,259)
  12,544 
 
    
    
FINANCING ACTIVITIES
    
    
Net borrowings (repayments) on line of credit
  2,764,568 
  (3,681,339)
Principal payments on notes payable
  (921,059)
  (632,111)
Capital withdrawals
  (4,984,273)
  (1,153,029)
Net cash used in financing activities
  (3,140,764)
  (5,466,479)
 
    
    
Increase in cash during the six months
  3,193,244 
  1,184,592 
 
    
    
Cash, beginning of year
  652,217 
  983,160 
 
    
    
Cash, end of period
 $3,845,461 
 $2,167,752 
 
 
 
3
Advantage RN, LLC and Subsidiaries
Notes to Consolidated Financial Statements
For the Periods Ended June 30, 2017 and 2016
(unaudited)
 
 
 
Note 1. Organization
 
Advantage RN, LLC (the Company) is a specialty staffing company employing healthcare professionals for travel assignments at hospitals and other medical facilities across the country. The Company was established in 2003 and is headquartered in West Chester, Ohio, with satellite offices in: Clearwater and Delray Beach, Florida; and Charlotte, North Carolina.
 
In 2013 the Company established Advantage RN Local Staffing, LLC, a subsidiary wholly owned by Advantage RN, LLC. Advantage RN Local Staffing, LLC is a specialty staffing company employing healthcare professionals for local assignments at hospitals and other medical facilities across the country.
 
In 2011 the Company established Advantage On Call, LLC, a subsidiary wholly owned by Advantage RN, LLC. Advantage On Call, LLC is a specialty staffing company employing healthcare professionals for per diem nurses, therapy and government assignments at hospitals and other medical facilities across the country and operates out of various satellite offices in: San Diego, California; Las Vegas, Nevada; Centerville, Ohio; Tustin, California; and Sacramento, California. Advantage On Call, LLC is an expansion of the Company’s nurse staffing business line.
 
In 2009 the Company established Advantage Locums, LLC, a subsidiary wholly owned by Advantage RN, LLC. Advantage Locums, LLC operates out of Salt Lake City, Utah and provides locum tenens (temporary physician substitute) for hospitals, clinics and medical practices.
 
The accompanying consolidated financial statements include the accounts of Advantage RN, LLC, Advantage Locums, LLC, Advantage On Call, LLC and Advantage RN Local Staffing, LLC. Intercompany transactions and balances have been eliminated in the consolidation.
 
The Company is organized under the limited liability company laws of the State of Ohio. The rights and obligations of the equity holders of the Company (the Members) are governed by an Operating Agreement (the Agreement) as amended and restated on September 30, 2008. The Company does not have a termination date. Profits of the Company are allocated among all of the Members, in accordance with their percentage interests, based upon the number of total units (Class A and B) of the Company each Member owns. Losses are allocated to the Class A Member. The management of the Company and all decisions concerning the business affairs of the Company are specified to be made by the Class A Member (the Manager). Cash, when available, is distributed to the Members, as determined by the Manager, at his sole discretion. The Agreement provides for mandatory annual distributions to each Member equal to the state and federal income tax owed by each Member, as a result of the Member’s ownership interest in the Company, to the extent the Company has cash available.
 
The Agreement also provides that no Member shall be bound by, or be personally liable for the expenses, liabilities or obligations of the Company. The liability of each Member shall be limited solely to the Member’s investment in the Company. No Member shall be obligated to restore any negative capital account balance.
 
Note 2. Summary of Significant Accounting Policies
 
Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
 
Cash
 
For the purposes of the consolidated statements of cash flows, cash consists of cash on deposit that can be redeemed on demand. The Company maintains its cash balances, which at times may exceed federally insured limits, with a high credit quality financial institution.

 
4
Advantage RN, LLC and Subsidiaries
Notes to Consolidated Financial Statements
For the Periods Ended June 30, 2017 and 2016
(unaudited) 
 
  
Note 2. Summary of Significant Accounting Policies (Continued)
 
Accounts Receivable and Concentration of Risk
 
Accounts receivable potentially subject the Company to concentrations of credit risk. The Company’s customers are primarily hospitals and medical centers throughout the United States. Accounts receivable represent amounts due from these institutions. The Company performs ongoing credit evaluations of customers’ financial condition and generally does not require collateral. The Company has elected to record bad debts using the direct write-off method. GAAP require that the allowance method be used to recognize bad debts; however, the effect of using the direct write-off method is not materially different from the results that would have been obtained under the allowance method. The Company writes off specific accounts based on an on-going review of collectibility as well as management’s past experience with the customer. If amounts become uncollectible they will be charged to operations when that determination is made. The Company had bad debt expense of $42,000 and $10,000 for the six months ended June 30, 2017 and 2016, respectively. The Company’s contract terms generally specify payment in seven to forty-five days. Receivables are considered past due based on the particular negotiated contract terms. Overall, based on the large number of customers in differing geographic areas throughout the United States, the Company believes the concentration of credit risk is limited.
 
The Company’s accounts receivable have been pledged as collateral under terms of the Company’s various credit agreements.
 
Unbilled Receivables
 
Unbilled receivables represent revenues earned in the current period but not yet billed to the customer.
 
Property and Equipment and Depreciation
 
Property and equipment are recorded at cost. Expenditures for major additions and improvements which substantially increase the life of property and equipment are capitalized. Routine maintenance and repairs are charged to expense as incurred. At retirement or sale, the costs of the assets and the related accumulated depreciation are removed from the accounts and resulting gains and losses are included in income. Depreciation is provided over the estimated useful lives of the related assets using accelerated and straight-line methods for financial statement purposes. The estimated useful lives are: five years for vehicles; three to seven years for furniture, fixtures and equipment; and three to ten years for leasehold improvements. Depreciation expense was $58,165 and $57,786 for the six months ended June 30, 2017 and 2016, respectively.
 
Revenue Recognition
 
Revenue consists of temporary staffing revenue. Revenue is recognized when services are rendered.
 
Advertising
 
Advertising costs are expensed as incurred. Advertising expense totaled $123,467 and $135,866 for the six months ended June 30, 2017 and 2016, respectively.
 
Subsequent Events
 
Management has evaluated subsequent events through September 15, 2017, the date which the financial statements were available to be issued.
 
 
 
5
Advantage RN, LLC and Subsidiaries
Notes to Consolidated Financial Statements
For the Periods Ended June 30, 2017 and 2016
(unaudited) 
 
 
Note 2. Summary of Significant Accounting Policies (Continued)
 
Income Taxes
 
As a limited liability company, the Company’s federal taxable income or loss is allocated to Members in accordance with their respective ownership interests. Therefore, the financial statements do not include a provision for federal income taxes.
 
Management is not aware of any tax positions taken by the Company on its tax returns that they consider to be uncertain. Tax returns for the years ended 2014, 2015 and 2016 are still open and subject to examination by the Internal Revenue Service.
 
The company records penalties and interest related to uncertain tax positions, if any, in operating expenses. No such penalties or interest were recognized at June 30, 2017 or 2016.
 
Note 3. Lease Agreements
 
The Company leases operating and office facilities for various terms under non-cancellable operating lease agreements that expire at various dates. Rent expense totaled $212,954 and $186,746 for the six months ended June 30, 2017 and 2016, respectively. Future minimum lease payments are: 2017 - $159,405; 2018 - $190,251; 2019 - $145,171; 2020 - $148,097; and 2021 - $49,691.
 
In February 2016, the Financial Accounting Standards Board issued new guidance on accounting for leases, which generally requires all leases to be recognized by the Company in the statement of financial position by recording an asset representing its right to use the underlying asset and recording a liability, which represents the Company’s obligation to make lease payments. The provisions of this guidance are effective for reporting periods beginning after December 15, 2019; early adoption is permitted. These provisions are to be applied using a modified retrospective approach. The Company is currently evaluating the effect that this new guidance will have on the Company’s financial statements.
 
Note 4. Employee Benefit Plans
 
The Company offers a 401(k) plan that covers substantially all employees and allows for discretionary matching contributions from the Company. Employer contributions totaled $161,577 and $120,761 for the six months ended June 30, 2017 and 2016, respectively.
 
The Company is partially self-insured for medical benefits provided to employees. The Company uses a third-party administrator to process claims and handle other duties of the plan. The Company maintains stop-loss insurance policies that generally limit total medical claims to $150,000 per individual and $1,000,000 maximum aggregate payments for the Company. The Company has established a liability for outstanding claims as well as incurred but unreported claims. While management uses what it believes are pertinent factors in estimating the plan liability, the actual liability is subject to change based upon unexpected claims experience and fluctuations in enrollment during the plan year. At June 30, 2017, and December 31, 2016, the Company recognized a liability for self-insured medical expenses of approximately $140,000 and $240,000, respectively.
 
Note 5. Line of Credit
 
The Company has a line of credit agreement with a bank that allows borrowings up to $10,000,000, bears interest at the Daily LIBOR Rate plus 2.125% (3.35% and 2.90% at June 30, 2017 and December 31, 2016, respectively), is collateralized by substantially all of the Company’s assets, and is guaranteed by the managing member of the Company. The balances due on the note were $4,643,508 and $1,878,940 at June 30, 2017 and December 31, 2016, respectively. The line matures in July 2018.
 
 
6
Advantage RN, LLC and Subsidiaries
Notes to Consolidated Financial Statements
For the Periods Ended June 30, 2017 and 2016
(unaudited) 
 
 
Note 6. Long-Term Debt
 
Long-term debt consists of the following:
 
 
 
June 30,
2017
 
 
December 31,
2016
 
Term note to a bank; payable in monthly principal
 
 
 
 
 
 
payments of $83,333 plus interest at LIBOR plus
 
 
 
 
 
 
3.00% (4.04% at June 30, 2017 and 3.60% at
December 31, 2016, respectively) through
 
 
 
 
 
 
July 2019, and is collateralized by all business
 
 
 
 
 
 
assets and guaranteed by the managing member.
 $2,083,333 
 $2,583,333
 
    
    
Promissory note to a bank; payable in monthly
    
    
principal payments of $33,333 plus interest at LIBOR
    
    
plus 3.00% (4.04% at June 30, 2017 and 3.59% at
    
    
December 31, 2016, respectively) through April 2020,
    
    
and is collateralized by substantially all assets and
    
    
guaranteed by the managing member.
  1,133,333 
  1,333,333 
 
    
    
Promissory note to a bank; payable in monthly
    
    
principal payments of $38,889 plus interest at
    
    
LIBOR plus 2.50% (3.15% at June 30, 2017 and
    
    
December 31, 2016),
    
    
through January 2017.
 -
  38,889
 
    
    
Installment loan agreements with finance companies;
    
    
payable in monthly principal and interest payments of
    
    
$30,312 with interest at 4.45% to 5.06%, matures
    
    
July 2017, and are uncollateralized.
 30,362
 212,532
  Total long-term debt
  3,247,028
 4,168,087
  Less current portion
  1,430,362
  1,651,421
 
 $1,816,666
 $2,516,666
 
The aggregate maturities of long-term debt are as follows: for the years ending 2017 - $730,362; 2018 - $1,400,000; 2019 - $983,333; and 2020 - $133,333.
 
Note 7. Standby Letter of Credit
 
The Company has a standby letter of credit of $810,000 outstanding at June 30, 2017. The letter is maintained to back the Company’s self-insured workers’ compensation program and matures in October 2017.
 
Note 8. Organizational Costs
 
Organizational costs are costs associated with establishing new office locations, and closing old offices.
 
Note 9. Legal Expenses-Nonoperational
 
The Company has various legal costs that have arisen outside the ordinary course of business. Legal expenses are included in other income (expense) on the consolidated statements of income and totaled $382,716 and $242,464 for the six months ended June 30, 2017 and 2016, respectively.
 
 
 
7
Advantage RN, LLC and Subsidiaries
Notes to Consolidated Financial Statements
For the Periods Ended June 30, 2017 and 2016
(unaudited) 
 
 
Note 10. Settlements and Prior Years Expenses-Nonoperational
 
Settlements and prior years expenses represent nonrecurring and prior years expenses to resolve various customer billing and payroll issues and differences with certain members and employees of the Company, insurance claims, and audits in certain states. Settlements totaled $550,876 and $223,123 for the six months ended June 30, 2017 and 2016, respectively.
 
Note 11. Contingencies
 
The Company is self-insured for its workers’ compensation claims in certain states. The Company carries excess workers’ compensation and employers’ liability insurance that requires a $250,000 Company retention per incident. The policy also provided excess employer liability insurance of $1,000,000 per incident or in aggregate per policy year. The Company has established a liability for outstanding claims as well as incurred but unreported claims. While management uses what it believes are pertinent factors in estimating the liability, the actual liability is subject to change based upon unexpected claims experience and fluctuations in enrollment during the plan year. At June 30, 2017, and December 31, 2016, the Company recognized a liability for self-insured workers’ compensation expenses of approximately $115,000 and $117,000, respectively.
 
Periodically the Company is a party to various claims and legal proceedings that have arisen in the ordinary course of business, the aggregate effects of which, in management’s and legal counsel’s opinion, would not be material to the financial condition or results of operations of the Company.
 
The Internal Revenue Service (IRS) has examined the Company’s treatment of travel expenses paid to nurses in the form of per diem reimbursements. As part of this examination, the IRS has proposed a recharacterization of these reimbursements to gross wages for certain tax periods in 2009 and 2010. The Company disagrees with this proposal and intends to vigorously defend its original characterization. If the Company is unsuccessful in defending its position it could be liable for certain payroll taxes and federal income tax withholding on the amount recharacterized. The Company believes that it will be able to prevail and that an unfavorable outcome is not likely. However, if an unfavorable outcome were to occur, the Company could potentially experience a loss that could have an adverse effect on the Company’s financial position, cash flows, and results of operations. The Company is unable to estimate a potential loss or range of potential losses in the unlikely event of an unfavorable outcome.
 
 
8
Blueprint
 
Exhibit 99.2
 
 
 
 
 
 
 
Advantage RN, LLC
and Subsidiaries
 
Consolidated Financial Statements
 
 
For the Years Ended
December 31, 2016 and 2015
 
 
 

 
 
 
 
 
 
 
 
INDEPENDENT AUDITOR’S REPORT
 
To The Members
Advantage RN, LLC and Subsidiaries
 
We have audited the accompanying consolidated balance sheets of Advantage RN, LLC and Subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of income, members’ equity and cash flows for the years then ended and the related notes to the financial statements.
 
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
 
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
 
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
 
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
 
Opinion
In our opinion the financial statements referred to above present fairly, in all material respects, the financial position of Advantage RN, LLC and Subsidiaries as of December 31, 2016 and 2015, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
 
Dayton, Ohio
April 19, 2017
 
 
1
 
Advantage RN, LLC and Subsidiaries
Consolidated Balance Sheets
December 31, 2016 and 2015
 
 
 
2016
 
 
2015
 
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
Cash
 $652,217 
 $983,160 
Accounts receivable, trade
  15,199,402 
  14,477,624 
Unbilled accounts receivable
  1,946,892 
  1,325,565 
Employee advances
  156,000 
  189,200 
Prepaid expenses
  658,706 
  786,335 
Total current assets
  18,613,217 
  17,761,884 
 
    
    
PROPERTY AND EQUIPMENT, at cost
    
    
Furniture, fixtures and equipment
  801,836 
  1,038,267 
Vehicles
  19,216 
  111,087 
Leasehold improvements
  192,682 
  296,921 
 
  1,013,734 
  1,446,275 
Less accumulated depreciation
  691,333 
  1,021,342 
 
  322,401 
  424,933 
 
    
    
 
 $18,935,618 
 $18,186,817 
 
    
    
LIABILITIES AND MEMBERS' EQUITY
    
    
 
    
    
CURRENT LIABILITIES
    
    
Line of credit
 $1,878,940 
 $5,567,117 
Current portion, long-term debt
  1,651,421 
  1,098,575 
Accounts payable, trade
  18,266 
  473,931 
Accrued payroll, commissions and
    
    
  related expenses and withholdings
  1,936,885 
  1,437,307 
Accrued other expenses and
    
    
  other current liabilities
  430,013 
  110,675 
Total current liabilities
  5,915,525 
  8,687,605 
 
    
    
LONG-TERM DEBT
    
    
Notes payable
  4,168,087 
  2,470,797 
Less current portion
  1,651,421 
  1,098,575 
 
  2,516,666 
  1,372,222 
 
    
    
MEMBERS' EQUITY
  10,503,427 
  8,126,990 
 
 $18,935,618
 
 $18,186,817
 
 
See accompanying notes.
 
 
2
 
 
Advantage RN, LLC and Subsidiaries
 
 
Consolidated Statements of Income
 
 
Years Ended December 31, 2016 and 2015
 
 
 
 
2016
 
 
%
 
 
2015
 
 
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
REVENUE FROM SERVICES
 $103,692,486 
  100.0 
 $83,440,209 
  100.0 
 
    
    
    
    
DIRECT COSTS OF SERVICES
  80,238,741 
  77.4 
  64,738,365 
  77.6 
 
    
    
    
    
Gross profit
  23,453,745 
  22.6 
  18,701,844 
  22.4 
 
    
    
    
    
SELLING, GENERAL AND
    
    
    
    
 ADMINISTRATIVE EXPENSES
  13,313,143 
  12.8 
  11,699,605 
  14.0 
 
    
    
    
    
Income from operations
  10,140,602 
  9.8 
  7,002,239 
  8.4 
 
    
    
    
    
OTHER INCOME (EXPENSE)
    
    
    
    
Interest income
  431 
  - 
  108 
  - 
Loss on sale of
    
    
    
    
  property and equipment
  (11,229)
  - 
  - 
  - 
Other income
  2,666 
  - 
  6,490 
  - 
Interest expense
  (191,580)
  (0.2)
  (217,111)
  (0.3)
Other expenses
  (392,453)
  (0.4)
  (105,101)
  (0.1)
Legal expenses-nonoperational
  (461,731)
  (0.4)
  (54,870)
  (0.1)
Organizational costs
  (79,398)
  (0.1)
  (116,036)
  (0.1)
Settlements and prior years
    
    
    
    
  expenses-nonoperational
  (472,555)
  (0.5)
  (488,659)
  (0.6)
 
    
    
    
    
Total other income (expense)
  (1,605,849)
  (1.5)
  (975,179)
  (1.2)
 
    
    
    
    
Net income
 $8,534,753 
  8.3 
 $6,027,060 
  7.2 
 
See accompanying notes. 
 
 
3
 
Advantage RN, LLC and Subsidiaries
Consolidated Statements of Members' Equity
Years Ended December 31, 2016 and 2015
 
 
 
2016
 
 
2015
 
 
 
 
 
 
 
 
BEGINNING BALANCE
 $8,126,990 
 $5,080,694 
 
    
    
Net income
  8,534,753 
  6,027,060 
 
    
    
Capital withdrawals
  (6,158,316)
  (2,980,764)
 
    
    
ENDING BALANCE
 $10,503,427 
 $8,126,990 
 
See accompanying notes.
 
 
4
 
Advantage RN, LLC and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 2016 and 2015
 
 
 
2016
 
 
2015
 
 
 
 
 
 
 
 
OPERATING ACTIVITIES
 
 
 
 
 
 
Net income
 $8,534,753 
 $6,027,060 
Adjustments to reconcile net income to net
    
    
 cash provided by (used in) operating activities:
    
    
 Depreciation
  122,149 
  117,881 
 Loss on sale of property and equipment
  11,229 
  - 
 Bad debt expense
  52,548 
  25,387 
Changes in operating assets and liabilities:
    
    
Accounts receivable, trade and unbilled
  (1,395,653)
  (5,322,015)
Prepaid expenses and other assets
  127,629 
  70,609 
Accounts payable and accrued expenses
  363,251 
  (1,491,014)
Net cash provided by (used in) operating activities
  7,815,906 
  (572,092)
 
    
    
INVESTING ACTIVITIES
    
    
Employee and other advances
  33,200 
  - 
Proceeds from sale of property and equipment
  56,500 
  - 
Purchase of property and equipment
  (87,346)
  (256,653)
Net cash provided by (used in) investing activities
  2,354 
  (256,653)
 
    
    
FINANCING ACTIVITIES
    
    
Net (repayments) borrowings on line of credit
  (3,688,177)
  2,295,774 
Borrowings on note payable
  3,413,275 
  2,000,000 
Principal payments on notes payable
  (1,715,985)
  (862,058)
Capital withdrawals
  (6,158,316)
  (2,980,764)
Net cash (used in) provided by financing activities
  (8,149,203)
  452,952 
 
    
    
Decrease in cash during the year
  (330,943)
  (375,793)
 
    
    
Cash, beginning of year
  983,160 
  1,358,953 
 
    
    
Cash, end of year
 $652,217 
 $983,160 
 
    
    
SUPPLEMENTAL CASH FLOW INFORMATION:
    
    
Cash paid during the year for interest
 $205,996 
 $218,163 
Cash paid during the year for state income taxes
 $84,228 
 $185,333
 
See accompanying notes. 
 
 
5
Advantage RN, LLC and Subsidiaries
Notes to Consolidated Financial Statements
For Years Ended December 31, 2016 and 2015
 
 
Note 1. Organization
 
Advantage RN, LLC (the Company) is a specialty staffing company employing healthcare professionals for travel assignments at hospitals and other medical facilities across the country. The Company was established in 2003 and is headquartered in West Chester, Ohio, with satellite offices in: Clearwater and Delray Beach, Florida; and Charlotte, North Carolina.
 
In 2013 the Company established Advantage RN Local Staffing, LLC, a subsidiary wholly owned by Advantage RN, LLC. Advantage RN Local Staffing, LLC is a specialty staffing company employing healthcare professionals for local assignments at hospitals and other medical facilities across the country.
 
In 2011 the Company established Advantage On Call, LLC, a subsidiary wholly owned by Advantage RN, LLC. Advantage On Call, LLC is a specialty staffing company employing healthcare professionals for per diem nurses, therapy and government assignments at hospitals and other medical facilities across the country and operates out of various satellite offices in: San Diego, California; Las Vegas, Nevada; Centerville, Ohio; Tustin, California; and Sacramento, California. Advantage On Call, LLC is an expansion of the Company’s nurse staffing business line.
 
In 2009 the Company established Advantage Locums, LLC, a subsidiary wholly owned by Advantage RN, LLC. Advantage Locums, LLC operates out of Salt Lake City, Utah and provides locum tenens (temporary physician substitute) for hospitals, clinics and medical practices.
 
The accompanying consolidated financial statements include the accounts of Advantage RN, LLC, Advantage Locums, LLC, Advantage On Call, LLC and Advantage RN Local Staffing, LLC. Intercompany transactions and balances have been eliminated in the consolidation.
 
The Company is organized under the limited liability company laws of the State of Ohio. The rights and obligations of the equity holders of the Company (the Members) are governed by an Operating Agreement (the Agreement) as amended and restated on September 30, 2008. The Company does not have a termination date. Profits of the Company are allocated among all of the Members, in accordance with their percentage interests, based upon the number of total units (Class A and B) of the Company each Member owns. Losses are allocated to the Class A Member. The management of the Company and all decisions concerning the business affairs of the Company are specified to be made by the Class A Member (the Manager). Cash, when available, is distributed to the Members, as determined by the Manager, at his sole discretion. The Agreement provides for mandatory annual distributions to each Member equal to the state and federal income tax owed by each Member, as a result of the Member’s ownership interest in the Company, to the extent the Company has cash available.
 
The Agreement also provides that no Member shall be bound by, or be personally liable for the expenses, liabilities or obligations of the Company. The liability of each Member shall be limited solely to the Member’s investment in the Company. No Member shall be obligated to restore any negative capital account balance.
 
Note 2. Summary of Significant Accounting Policies
 
Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
 
Cash
 
For the purposes of the consolidated statements of cash flows, cash consists of cash on deposit that can be redeemed on demand. The Company maintains its cash balances, which at times may exceed federally insured limits, with a high credit quality financial institution.
 
 
6
Advantage RN, LLC and Subsidiaries
Notes to Consolidated Financial Statements
For Years Ended December 31, 2016 and 2015
 
 
Note 2. Summary of Significant Accounting Policies (Continued)
 
Accounts Receivable and Concentration of Risk
 
Accounts receivable potentially subject the Company to concentrations of credit risk. The Company’s customers are primarily hospitals and medical centers throughout the United States. Accounts receivable represent amounts due from these institutions. The Company performs ongoing credit evaluations of customers’ financial condition and generally does not require collateral. The Company has elected to record bad debts using the direct write-off method. GAAP require that the allowance method be used to recognize bad debts; however, the effect of using the direct write-off method is not materially different from the results that would have been obtained under the allowance method. The Company writes off specific accounts based on an on-going review of collectibility as well as management’s past experience with the customer. If amounts become uncollectible they will be charged to operations when that determination is made. The Company had bad debt expense of $52,548 and $25,387 in 2016 and 2015, respectively. The Company’s contract terms generally specify payment in seven to forty-five days. Receivables are considered past due based on the particular negotiated contract terms. Overall, based on the large number of customers in differing geographic areas throughout the United States, the Company believes the concentration of credit risk is limited.
 
The Company’s accounts receivable have been pledged as collateral under terms of the Company’s various credit agreements.
 
Unbilled Receivables
 
Unbilled receivables represent revenues earned in the current period but not yet billed to the customer.
 
Property and Equipment and Depreciation
 
Property and equipment are recorded at cost. Expenditures for major additions and improvements which substantially increase the life of property and equipment are capitalized. Routine maintenance and repairs are charged to expense as incurred. At retirement or sale, the costs of the assets and the related accumulated depreciation are removed from the accounts and resulting gains and losses are included in income. Depreciation is provided over the estimated useful lives of the related assets using accelerated and straight-line methods for financial statement purposes. The estimated useful lives are: five years for vehicles; three to seven years for furniture, fixtures and equipment; and three to ten years for leasehold improvements. Depreciation expense was $122,149 and $117,881 for 2016 and 2015, respectively.
 
Revenue Recognition
 
Revenue consists of temporary staffing revenue. Revenue is recognized when services are rendered.
 
Advertising
 
Advertising costs are expensed as incurred. Advertising expense totaled $253,877 and $244,439 for 2016 and 2015, respectively.
 
Subsequent Events
 
Management has evaluated subsequent events through April 19, 2017, the date which the financial statements were available to be issued.
 
 
7
Advantage RN, LLC and Subsidiaries
Notes to Consolidated Financial Statements
For Years Ended December 31, 2016 and 2015
 
 
Note 2. Summary of Significant Accounting Policies (Continued)
 
Income Taxes
 
As a limited liability company, the Company’s federal taxable income or loss is allocated to Members in accordance with their respective ownership interests. Therefore, the financial statements do not include a provision for federal income taxes.
 
Management is not aware of any tax positions taken by the Company on its tax returns that they consider to be uncertain. Tax returns for the years ended 2013, 2014 and 2015 are still open and subject to examination by the Internal Revenue Service.
 
The company records penalties and interest related to uncertain tax positions, if any, in operating expenses. No such penalties or interest were recognized in 2016 or 2015.
 
Note 3. Lease Agreements
 
The Company leases operating and office facilities for various terms under non-cancellable operating lease agreements that expire at various dates. Rent expense totaled $406,522 and $398,907 during 2016 and 2015, respectively. Future minimum lease payments are: 2017 - $295,219; 2018 - $190,251; 2019 - $145,171; 2020 - $148,097; and 2021 - $49,691.
 
In February 2016, the Financial Accounting Standards Board issued new guidance on accounting for leases, which generally requires all leases to be recognized by the Company in the statement of financial position by recording an asset representing its right to use the underlying asset and recording a liability, which represents the Company’s obligation to make lease payments. The provisions of this guidance are effective for reporting periods beginning after December 15, 2019; early adoption is permitted. These provisions are to be applied using a modified retrospective approach. The Company is currently evaluating the effect that this new guidance will have on the Company’s financial statements.
 
Note 4. Employee Benefit Plans
 
The Company offers a 401(k) plan that covers substantially all employees and allows for discretionary matching contributions from the Company. Employer contributions totaled $273,540 and $197,789 for 2016 and 2015, respectively.
 
The Company is partially self-insured for medical benefits provided to employees. The Company uses a third-party administrator to process claims and handle other duties of the plan. The Company maintains stop-loss insurance policies that generally limit total medical claims to $150,000 per individual and $1,000,000 maximum aggregate payments for the Company. The Company has established a liability for outstanding claims as well as incurred but unreported claims. While management uses what it believes are pertinent factors in estimating the plan liability, the actual liability is subject to change based upon unexpected claims experience and fluctuations in enrollment during the plan year. At December 31, 2016, and December 31, 2015, the Company recognized a liability for self-insured medical expenses of approximately $240,000 and $0, respectively.
 
Note 5. Line of Credit
 
The Company has a line of credit agreement with a bank that allows borrowings up to $10,000,000, bears interest at the Daily LIBOR Rate plus 2.125% (2.90% and 2.55% at December 31, 2016 and 2015, respectively), is collateralized by substantially all of the Company’s assets, and is guaranteed by the managing member of the Company. The balances due on the note were $1,878,940 and $5,567,117 at December 31, 2016 and 2015, respectively. The line matures in July 2017.
 
 
8
Advantage RN, LLC and Subsidiaries
Notes to Consolidated Financial Statements
For Years Ended December 31, 2016 and 2015
 
 
Note 6. Long-Term Debt
 
Long-term debt consists of the following at December 31:
 
 
 
2016
 
 
2015
 
Term note to a bank; payable in monthly principal
 
 
 
 
 
 
payments of $83,333 plus interest at LIBOR plus
 
 
 
 
 
 
3.00%, (3.60% at December 31, 2016) through
 
 
 
 
 
 
July 2019, and is collateralized by all business
 
 
 
 
 
 
assets and guaranteed by the managing member.
 $2,583,333 
 $- 
 
    
    
Promissory note to a bank; payable in monthly
    
    
principal payments of $33,333 plus interest at LIBOR
    
    
plus 3.00% (3.59% and 3.42% a December 31,
    
    
2016 and 2015, respectively) through April 2020,
    
    
and is collateralized by substantially all assets and
    
    
guaranteed by the managing member.
  1,333,333 
  1,733,333 
 
    
    
Promissory note to a bank; payable in monthly
    
    
principal payments of $38,889 plus interest at
    
    
LIBOR plus 2.50% (3.15% and 2.92% at
    
    
December 31, 2016 and 2015, respectively),
    
    
through January 2017.
  38,889 
  505,556 
 
    
    
Installment loan agreements with finance companies;
    
    
payable in monthly principal and interest payments of
    
    
$30,312 with interest at 4.45% to 5.06%, matures
    
    
July 2017, and are uncollateralized.
  212,532 
  231,908 
  Total long-term debt
  4,168,087 
  2,470,797 
  Less current portion
  1,651,421 
  1,098,575 
 
 $2,516,666 
 $1,372,222 
 
The aggregate maturities of long-term debt are as follows: for the years ending 2017 - $1,651,421; 2018 - $1,400,000; 2019 - $983,333; and 2020 - $133,333.
 
Note 7. Standby Letter of Credit
 
The Company has a standby letter of credit of $810,000 outstanding at December 31, 2016. The letter is maintained to back the Company’s self-insured workers’ compensation program and matures in October 2017.
 
Note 8. Organizational Costs
 
Organizational costs are costs associated with establishing new office locations, and closing old offices.
 
Note 9. Legal Expenses-Nonoperational
 
The Company has various legal costs that have arisen outside the ordinary course of business. Legal expenses are included in other income (expense) on the consolidated statements of income and totaled $461,731 and $54,870 in 2016 and 2015, respectively.
 
 
9
Advantage RN, LLC and Subsidiaries
Notes to Consolidated Financial Statements
For Years Ended December 31, 2016 and 2015
 
 
Note 10. Settlements and Prior Years Expenses-Nonoperational
 
Settlements and prior years expenses represent nonrecurring and prior years expenses to resolve various customer billing and payroll issues and differences with certain members and employees of the Company, insurance claims, and audits in certain states. Settlements totaled $472,555 and $488,659 in 2016 and 2015, respectively.
 
Note 11. Contingencies
 
The Company is self-insured for its workers’ compensation claims in certain states. The Company carries excess workers’ compensation and employers’ liability insurance that requires a $250,000 Company retention per incident. The policy also provided excess employer liability insurance of $1,000,000 per incident or in aggregate per policy year. The Company has established a liability for outstanding claims as well as incurred but unreported claims. While management uses what it believes are pertinent factors in estimating the liability, the actual liability is subject to change based upon unexpected claims experience and fluctuations in enrollment during the plan year. At December 31, 2016, and December 31, 2015, the Company recognized a liability for self-insured workers’ compensation expenses of approximately $117,000 and $69,000, respectively.
 
Periodically the Company is a party to various claims and legal proceedings that have arisen in the ordinary course of business, the aggregate effects of which, in management’s and legal counsel’s opinion, would not be material to the financial condition or results of operations of the Company.
 
The Internal Revenue Service (IRS) has examined the Company’s treatment of travel expenses paid to nurses in the form of per diem reimbursements. As part of this examination, the IRS has proposed a recharacterization of these reimbursements to gross wages for certain tax periods in 2009 and 2010. The Company disagrees with this proposal and intends to vigorously defend its original characterization. If the Company is unsuccessful in defending its position it could be liable for certain payroll taxes and federal income tax withholding on the amount recharacterized. The Company believes that it will be able to prevail and that an unfavorable outcome is not likely. However, if an unfavorable outcome were to occur, the Company could potentially experience a loss that could have an adverse effect on the Company’s financial position, cash flows, and results of operations. The Company is unable to estimate a potential loss or range of potential losses in the unlikely event of an unfavorable outcome.
 
 
 
 
 
 
10
Blueprint
 
Exhibit 99.3
 
 
 
 
 
 
 
 
ADVANTAGE RN, LLC
AND SUBSIDIARIES
 
CONSOLIDATED FINANCIAL STATEMENTS
 
 
For the Years Ended
December 31, 2015 and 2014
 
 
 
 
 
 
 
 
 
 
 
INDEPENDENT AUDITOR’S REPORT
 
To The Members
Advantage RN, LLC and Subsidiaries
 
We have audited the accompanying consolidated balance sheets of Advantage RN, LLC and Subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of income, members’ equity and cash flows for the years then ended and the related notes to the financial statements.
 
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
 
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
 
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
 
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
 
Opinion
In our opinion the financial statements referred to above present fairly, in all material respects, the financial position of Advantage RN, LLC and Subsidiaries as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Dayton, Ohio
March 31, 2016
 
 
1
 
 
Advantage RN, LLC and Subsidiaries
Consolidated Balance Sheets
December 31, 2015 and 2014
 
 
 
2015
 
 
2014
 
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
Cash
 $983,160 
 $1,358,953 
Accounts receivable, trade
  14,477,624 
  8,429,242 
Unbilled accounts receivable
  1,325,565 
  2,077,319 
Employee advances
  189,200 
  167,000 
Prepaid expenses
  786,335 
  873,572 
Total current assets
  17,761,884 
  12,906,086 
 
    
    
PROPERTY AND EQUIPMENT, at cost
    
    
Furniture, fixtures and equipment
  1,038,267 
  995,933 
Vehicles
  111,087 
  72,499 
Leasehold improvements
  296,921 
  121,191 
 
  1,446,275 
  1,189,623 
Less accumulated depreciation
  1,021,342 
  903,462 
 
  424,933 
  286,161 
 
    
    
Employee advances
  - 
  5,572 
 
    
    
 
 $18,186,817 
 $13,197,819 
 
    
    
LIABILITIES AND MEMBERS' EQUITY
    
    
 
    
    
CURRENT LIABILITIES
    
    
Line of credit
 $5,567,117 
 $3,271,343 
Current portion, long-term debt
  1,098,575 
  827,300 
Accounts payable, trade
  473,931 
  658,528 
Accrued payroll, commissions and
    
    
  related expenses and withholdings
  1,437,307 
  2,438,671 
Accrued other expenses and
    
    
  other current liabilities
  110,675 
  415,728 
Total current liabilities
  8,687,605 
  7,611,570 
 
    
    
LONG-TERM DEBT
    
    
Notes payable
  2,470,797 
  1,332,855 
Less current portion
  1,098,575 
  827,300 
 
  1,372,222 
  505,555 
 
    
    
MEMBERS' EQUITY
  8,126,990 
  5,080,694 
 
    
    
 
 $18,186,817 
 $13,197,819 
 
See accompanying notes. 
 
 
2
 
 
Advantage RN, LLC and Subsidiaries
Consolidated Statements of Income
Years Ended December 31, 2015 and 2014
 
 
 
2015
 
 
%
 
 
2014
 
 
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
REVENUE FROM SERVICES
 $83,440,209 
  100.0 
 $63,720,986 
  100.0 
 
    
    
    
    
DIRECT COSTS OF SERVICES
  64,738,365 
  77.6 
  49,602,003 
  77.8 
 
    
    
    
    
Gross profit
  18,701,844 
  22.4 
  14,118,983 
  22.2 
 
    
    
    
    
SELLING, GENERAL AND
    
    
    
    
 ADMINISTRATIVE EXPENSES
  11,699,605 
  14.0 
  10,147,932 
  15.9 
 
    
    
    
    
Income from operations
  7,002,239 
  8.4 
  3,971,051 
  6.2 
 
    
    
    
    
OTHER INCOME (EXPENSE)
    
    
    
    
Interest income
  108 
  - 
  7,607 
  - 
Loss on sale of
    
    
    
    
  property and equipment
  - 
  - 
  (1,027)
  - 
Other income
  6,490 
  - 
  204,401 
  0.3 
Interest expense
  (217,111)
  (0.3)
  (133,716)
  (0.2)
Other expenses
  (105,101)
  (0.1)
  (91,276)
  (0.1)
Legal expenses
  (54,870)
  (0.1)
  (621,195)
  (1.0)
Organizational costs
  (116,036)
  (0.1)
  (75,208)
  (0.1)
Settlements
  (488,659)
  (0.6)
  (820,637)
  (1.3)
 
    
    
    
    
Total other income (expense)
  (975,179)
  (1.2)
  (1,531,051)
  (2.4)
 
    
    
    
    
Net income
 $6,027,060 
  7.2 
 $2,440,000 
  3.8 
 
See accompanying notes. 
 
 
3
 
 
Advantage RN, LLC and Subsidiaries
Consolidated Statements of Members' Equity
Years Ended December 31, 2015 and 2014
 
 
 
2015
 
 
2014
 
 
 
 
 
 
 
 
BEGINNING BALANCE
 $5,080,694 
 $5,777,250 
 
    
    
Net income
  6,027,060 
  2,440,000 
 
    
    
Distributions
  (2,980,764)
  (3,136,556)
 
    
    
ENDING BALANCE
 $8,126,990 
 $5,080,694 
 
See accompanying notes. 
 
 
4
 
 
Advantage RN, LLC and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 2015 and 2014
 
 
 
2015
 
 
2014
 
 
 
 
 
 
 
 
OPERATING ACTIVITIES
 
 
 
 
 
 
Net income
 $6,027,060 
 $2,440,000 
Adjustments to reconcile net income to net
    
    
  cash (used in) provided by operating activities:
    
    
Depreciation
  117,881 
  123,142 
Loss on sale of property and equipment
  - 
  1,027 
Bad debt expense
  25,387 
  151,641 
Changes in operating assets and liabilities:
    
    
Accounts receivable, trade and unbilled
  (5,322,015)
  (1,617,338)
Prepaid expenses and other assets
  70,609 
  (115,475)
Accounts payable and accrued expenses
  (1,491,014)
  1,020,175 
Net cash (used in) provided by operating activities
  (572,092)
  2,003,172 
 
    
    
INVESTING ACTIVITIES
    
    
Employee and other advances
  - 
  18,902 
Proceeds from sale of property and equipment
  - 
  13,500 
Purchase of property and equipment
  (256,653)
  (91,056)
Net cash used in investing activities
  (256,653)
  (58,654)
 
    
    
FINANCING ACTIVITIES
    
    
Net borrowings on line of credit
  2,295,774 
  2,348,434 
Proceeds from note payable
  2,000,000 
  - 
Principal payments on notes payable
  (862,058)
  (790,379)
Distributions
  (2,980,764)
  (3,136,556)
Net cash provided by (used in) financing activities
  452,952 
  (1,578,501)
 
    
    
(Decrease) increase in cash during the year
  (375,793)
  366,017 
 
    
    
Cash, beginning of year
  1,358,953 
  992,936 
 
    
    
Cash, end of year
 $983,160 
 $1,358,953 
 
    
    
SUPPLEMENTAL CASH FLOW INFORMATION:
    
    
Cash paid during the year for interest
 $218,163 
 $130,164 
Cash paid during the year for state income taxes
 $100,846 
 $310,262 
 
See accompanying notes. 
 
 
5
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Note 1. Organization
 
Advantage RN, LLC (the Company) is a specialty staffing company employing healthcare professionals for travel assignments at hospitals and other medical facilities across the country. The Company was established in 2003 and is headquartered in West Chester, Ohio, with satellite offices in: Clearwater and Delray Beach, Florida; and Charlotte, North Carolina.
 
In 2013 the Company established Advantage RN Local Staffing, LLC, a new subsidiary wholly owned by Advantage RN, LLC. Advantage RN Local Staffing, LLC is a specialty staffing company employing healthcare professionals for local assignments at hospitals and other medical facilities across the country.
 
In 2011 the Company established Advantage On Call, LLC, a subsidiary wholly owned by Advantage RN, LLC. Advantage On Call, LLC is a specialty staffing company employing healthcare professionals for travel assignments at hospitals and other medical facilities across the country and operates out of various satellite offices in: San Diego, California; Las Vegas, Nevada; Centerville, Ohio; Los Angeles, California; Tustin, California; and Sacramento, California. Advantage On Call, LLC is an expansion of the Company’s current nurse staffing business line.
 
In 2009 the Company established Advantage Locums, LLC, a subsidiary wholly owned by Advantage RN, LLC. Advantage Locums, LLC operates out of Salt Lake City, Utah and provides locum tenens (temporary physician substitute) for hospitals, clinics and medical practices.
 
The accompanying consolidated financial statements include the accounts of Advantage RN, LLC, Advantage Locums, LLC, Advantage On Call, LLC and Advantage RN Local Staffing, LLC. Intercompany transactions and balances have been eliminated in the consolidation.
 
The Company is organized under the limited liability company laws of the State of Ohio. The rights and obligations of the equity holders of the Company (the Members) are governed by an Operating Agreement (the Agreement) as amended and restated on September 30, 2008. The Company does not have a termination date. Profits of the Company are allocated among all of the Members, in accordance with their percentage interests, based upon the number of total units (Class A and B) of the Company each Member owns. Losses are allocated to the Class A Member. The management of the Company and all decisions concerning the business affairs of the Company are specified to be made by the Class A Member (the Manager). Cash, when available, is distributed to the Members, as determined by the Manager, at his sole discretion. The Agreement provides for mandatory annual distributions to each Member equal to the state and federal income tax owed by each Member, as a result of the Member’s ownership interest in the Company, to the extent the Company has cash available.
 
The Agreement also provides that no Member shall be bound by, or be personally liable for the expenses, liabilities or obligations of the Company. The liability of each Member shall be limited solely to the Member’s investment in the Company. No Member shall be obligated to restore any negative capital account balance.
 
 
6
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Note 2. Summary of Significant Accounting Policies
 
Use of Estimates
 
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
 
Cash
 
For the purposes of the consolidated statements of cash flows, cash consists of cash on deposit that can be redeemed on demand. The Company maintains its cash balances, which at times may exceed federally insured limits, with a high quality financial institution.
 
Accounts Receivable and Concentration of Risk
 
Accounts receivable potentially subject the Company to concentrations of credit risk. The Company’s customers are primarily hospitals and medical centers throughout the United States. Accounts receivable represent amounts due from these institutions. The Company performs ongoing credit evaluations of customers’ financial condition and generally does not require collateral. The Company has elected to record bad debts using the direct write-off method. Generally accepted accounting principles require that the allowance method be used to recognize bad debts; however, the effect of using the direct write-off method is not materially different from the results that would have been obtained under the allowance method. The Company writes off specific accounts based on an on-going review of collectibility as well as management’s past experience with the customer. If amounts become uncollectible they will be charged to operations when that determination is made. The Company had bad debt expense of $25,387 and $151,641 in 2015 and 2014, respectively. The Company’s contract terms generally specify payment in seven to forty-five days. Receivables are considered past due based on the particular negotiated contract terms. Overall, based on the large number of customers in differing geographic areas throughout the United States, the Company believes the concentration of credit risk is limited.
 
Unbilled Receivables
 
Unbilled receivables represent revenues earned in the current period but not yet billed to the customer.
 
Property and Equipment and Depreciation
 
Property and equipment are recorded at cost. Expenditures for major additions and improvements which substantially increase the life of property and equipment are capitalized. Routine maintenance and repairs are charged to expense as incurred. At retirement or sale, the costs of the assets and the related accumulated depreciation are removed from the accounts and resulting gains and losses are included in income. Depreciation is provided over the estimated useful lives of the related assets using accelerated and straight-line methods for financial statement purposes. The estimated useful lives are: five years for vehicles; three to seven years for furniture, fixtures and equipment; and three to ten years for leasehold improvements. Depreciation expense was $117,881 and $90,316 for 2015 and 2014, respectively.
 
 
7
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Note 2. Summary of Significant Accounting Policies (Continued)
 
Revenue Recognition
 
Revenue consists of temporary staffing revenue. Revenue is recognized when services are rendered.
 
Advertising
 
Advertising costs are expensed as incurred. Advertising expense totaled $244,439 and $207,137 for 2015 and 2014, respectively.
 
Income Taxes
 
As a limited liability company, the Company’s federal taxable income or loss is allocated to Members in accordance with their respective ownership interests. Therefore, the financial statements do not include a provision for federal income taxes. Although the Company’s federal income tax returns for the years 2012 - 2014 are subject to examination by the Internal Revenue Service, it has not indicated any intent to do so. The Company’s 2009 and 2010 payroll taxes are under examination by the Internal Revenue Service.
 
Subsequent Events
 
Management has evaluated subsequent events through March 31, 2016, the date which the financial statements were available to be issued, and concluded no events have occurred which should be disclosed.
 
Note 3. Lease Agreements
 
The Company leases operating and office facilities for various terms under non-cancellable operating lease agreements that expire at various dates. Rent expense totaled $398,907 and $364,481 during 2015 and 2014, respectively. Future minimum lease payments are: 2016 - $242,470; 2017 - $188,512; 2018 - $141,834; 2019 - $144,683; and 2020 - $147,609.
 
Note 4. Retirement Plan
 
The Company offers a 401(k) plan with a discretionary matching contribution from the Company. Employer contributions totaled $197,789 and $149,371 for 2015 and 2014, respectively.
 
Note 5. Line of Credit
 
The Company has a Promissory Note with a bank. The note allows borrowings up to $8,000,000, bears interest at the daily LIBOR rate plus 2.12% (2.55% and 2.30% at December 31, 2015 and 2014, respectively), is collateralized by all of the Company’s assets, and is guaranteed by a Member of the Company for $1,250,000, and is payable on demand. The balance due on the note was $5,567,117 and $3,271,343 at December 31, 2015 and 2014, respectively.
 
 
8
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Note 6. Long Term Debt
 
Long term debt consists of the following at December 31:
 
 
 
2015
 
 
2014
 
 
 
 
 
 
 
 
Promissory note to a bank;
 
 
 
 
 
 
payable in monthly principal
 
 
 
 
 
 
payments of $33,333 with
 
 
 
 
 
 
interest at LIBOR plus 3.00%,
 
 
 
 
 
 
(3.422% at December 31, 2015) ,
 
 
 
 
 
 
matures April 2020, and is
 
 
 
 
 
 
collateralized by all business assets
 
 
 
 
 
 
and guaranteed by the managing
 
 
 
 
 
 
member.
 $1,733,333 
 $- 
 
    
    
Promissory note to a bank;
    
    
payable in monthly principal
    
    
payments of $38,889 with
    
    
interest at LIBOR plus 2.50%,
    
    
(2.922% at December 31, 2015 and
    
    
2.669% at December 31, 2014),
    
    
matures January 2017, and is
    
    
collateralized by all business assets.
  505,556 
  972,222 
 
    
    
Promissory note to a bank;
    
    
payable in monthly principal
    
    
and interest payments of
    
    
$15,430 matured August 2015.
  - 
  102,059 
 
    
    
Installment loan agreements with
    
    
finance companies; payable
    
    
in monthly principal and
    
    
interest payments of $33,130,
    
    
with interest at 3.95% to
    
    
4.99%, matures July 2016,
    
    
and are uncollateralized.
  231,908 
  258,574 
 
 $2,470,797 
 $1,332,855 
 
The aggregate maturities of long term debt are as follows: for the years ending 2016 - $1,098,575; 2017 - $438,889; 2018 - $400,000; 2019 - $400,000; and 2020 - $133,333.
 
Interest expense was $217,111 and $133,716 for 2015 and 2014, respectively.
 
 
9
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Note 7. Standby Letter of Credit
 
The Company has a standby letter of credit of $810,000 outstanding at December 31, 2015. The letter is maintained to back the Company’s self-insured workers’ compensation program and matures in October 2016.
 
Note 8. Reclassifications
 
Certain reclassifications in other income (expense) have been made to the prior year’s financial statements to conform to the current year presentation. These reclassifications had no effect on previously reported results of operations or members’ equity.
 
Note 9. Legal Expenses
 
The Company has various legal costs that have arisen in the ordinary course of business. Legal expenses are included in other income (expense) on the statements of income and totaled $54,870 and $621,195 in 2015 and 2014, respectively.
 
Note 10. Organizational Costs
 
Organizational costs are costs associated with establishing new office locations, closing old offices, and the purchase of nurse and hospital contracts from other travel nursing companies. Organizational costs charged to operations totaled $116,036 and $75,208 for 2015 and 2014, respectively.
 
Note 11. Settlements
 
Settlements represent nonrecurring expenses to resolve various issues and differences with certain members and employees of the Company, insurance claims, and audits in certain states. Settlements totaled $488,659 and $820,637 in 2015 and 2014, respectively.
 
Note 12. Assessments, Claims and Litigation
 
The Company is currently a party to various claims and legal proceedings that have arisen in the ordinary course of business. If management believes that a loss arising from such claims and legal proceedings is probable and can reasonably be estimated, the Company records the amount of the loss (including estimated legal costs). As management becomes aware of additional information concerning such contingencies, any potential liability related to those matters is assessed and the estimates are revised, if necessary. Based upon currently available information and with the advice of counsel, management believes that the ultimate outcome of its current claims and legal proceedings, individually and in the aggregate, will not have a material adverse effect on the Company’s financial position, cash flows or results of operations. However, claims and legal proceedings are subject to inherent uncertainties and rulings unfavorable to the Company could occur. If an unfavorable ruling were to occur, there exists the possibility of a material adverse effect on the Company’s financial position, cash flows or results of operations.
 
 
10
Blueprint
 
Exhibit 99.4
 
Cross Country Healthcare, Inc.
Unaudited Pro Forma Condensed Combined Financial Information
 
On July 5, 2017, Cross Country Healthcare, Inc. (the “Company” or “CCH”) completed the acquisition of substantially all of the assets and business of Advantage RN, LLC and its subsidiaries (collectively, “Advantage”), effective July 1, 2017, pursuant to the terms of an Asset Purchase Agreement, dated as of June 13, 2017, among the Company, Advantage and certain of the members of Advantage (the “Acquisition”). The Company acquired Advantage for a purchase price of $88 million, subject to a final net working capital adjustment. At closing, the Company paid $86.8 million, net of cash acquired, using $19.9 million in available cash and $66.9 million in borrowings under its Credit Facility, including a $40 million incremental term loan. The amount paid at closing was subject to an initial net working capital adjustment of $0.6 million, and an additional $0.6 million was deferred and is due to the sellers within 20 months, less any COBRA and health care expenses incurred by the Company on behalf of the sellers. The Company expects to receive $0.8 million as a purchase price adjustment on its final net working capital settlement.
 
The acquisition has been accounted for in accordance with FASB ASC 805, Business Combinations, using the acquisition method. The results of Advantage’s operations will be included in the consolidated statements of operations from its date of acquisition.
 
The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2016 and for the six months ended June 30, 2017, gives effect to the acquisition as if the transaction had occurred at January 1, 2016. The unaudited pro forma condensed combined balance sheet as of June 30, 2017 gives effect to the acquisition as if it had occurred on June 30, 2017. The historical information has been adjusted in the unaudited pro forma condensed combined financial statements to give effect to pro forma events that are (1) directly attributable to the acquisition, (2) factually supportable, and (3) with respect to the statement of operations, expected to have a continuing impact on the combined results.
 
The unaudited pro forma combined financial information is based on the historical financial statements of Advantage and the Company, giving effect to the transaction using the acquisition method of accounting and the assumptions and adjustments described in the accompanying notes to the pro forma condensed combined financial information. A preliminary purchase price allocation has been used to prepare the pro forma balance sheet and income statements. Other identifiable intangible assets such as trade names, databases, customer relationships, and noncompete agreements were assigned useful lives ranging between 5-12 years for the purpose of estimating amortization expense used in the pro forma adjustments. The final purchase price allocation will be determined when the Company has completed its valuation analysis and may differ materially from the preliminary allocations used in the pro forma adjustments reflected herein. The final allocations may include (1) changes in the net realizable value of accounts receivable and the fair value of property and equipment, (2) changes in the allocations to intangible assets such as trade names, databases, customer relationships, and noncompete agreements, as well as goodwill, and (3) changes in the fair values of other assets and liabilities.
 
The unaudited pro forma information does not purport to be indicative of the combined results of operations that actually would have taken place if transactions had occurred on such dates. The unaudited pro forma information does not reflect any cost savings or operating synergies that the combined company may achieve as a result of the acquisition or the costs to integrate the operations of Advantage with the Company.
 
 
 
 
 
1
 

Cross Country Healthcare, Inc.
Pro Forma Condensed Statement of Operations
(unaudited, amounts in thousands)

 
 
Year Ended December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CCH
 
 
Advantage
 
 
Pro Forma
 
 
 
Pro Forma
 
 
 
As reported
 
 
(a)
 
 
Adjustments
 
 
 
Combined
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue from services
 $833,537 
 $103,692 
 $(2,325)
(b)
 $934,904 
Operating expenses:
    
    
    
 
    
Direct operating expenses
  611,802 
  80,239 
  (2,378)
(b)
  689,663 
Selling, general and administrative expenses
  179,820