Attached files
Exhibit 99.10
ELITE CENTER FOR MINIMALLY INVASIVE SURGERY LLC
FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017
(UNAUDITED)
ELITE CENTER FOR MINIMALLY INVASIVE SURGERY LLC
BALANCE SHEET
SEPTEMBER 30, 2017
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $ 663,595
Accounts Receivable 1,274,354
Prepaid Expenses and Other Current Assets 871
Total Current Assets 1,938,820
PROPERTY AND EQUIPMENT, NET 1,183,242
TOTAL ASSETS $ 3,122,062
LIABILITIES AND MEMBERS’ EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 18,919
Accrued Expenses 195,721
Due to Affiliates 77,031
Current Portion of Deferred Lease Incentive Revenue 30,000
Current Portion of Capital Lease Obligation 77,887
Current Portion of Notes Payable 170,769
Total Current Liabilities 570,327
LONG-TERM LIABILITIES:
Deferred Lease Incentive Revenue, Net of Current Portion 227,863
TOTAL LIABILITIES 798,190
COMMITMENTS AND CONTINGENCIES
MEMBERS’ EQUITY 2,323,872
TOTAL LIABILITIES AND MEMBERS’ EQUITY $ 3,122,062
The accompanying notes are an integral part of these financial statements
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ELITE CENTER FOR MINIMALLY INVASIVE SURGERY LLC
STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017
(UNAUDITED)
REVENUES, NET:
Net Patient Revenue $ 5,735
Net Management Fee Revenue 5,843,659
Total Revenues, Net 5,849,394
OPERATING EXPENSES:
Insurance 24,396
Salaries and Wages 214,429
Professional Fees 324,688
Professional Services 40,772
Repairs and Maintenance 356,647
Leases and Rent 459,193
Equipment and Instruments 19,330
Property Taxes 37,891
Office Expense 203,714
Depreciation 331,697
Total Operating Expenses 2,012,757
INCOME FROM OPERATIONS 3,836,637
OTHER INCOME (EXPENSE):
Sublease Rental Income 358,433
Interest Expense (11,005)
Other Income 37,966
Total Other Income 385,394
INCOME BEFORE PROVISION FOR STATE INCOME TAX BENEFIT 4,222,031
PROVISION FOR STATE INCOME TAX BENEFIT 16,814
NET INCOME $ 4,238,845
The accompanying notes are an integral part of these financial statements
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ELITE CENTER FOR MINIMALLY INVASIVE SURGERY LLC
STATEMENT OF CHANGES IN MEMBERS’ EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017
(UNAUDITED)
BALANCE, DECEMBER 31, 2016 $ 3,233,380
Net Income 4,238,845
Contributions 63,800
Redemption of Member Interests (57,400)
Distributions (5,154,753)
BALANCE, SEPTEMBER 30, 2017 $ 2,323,872
The accompanying notes are an integral part of these financial statements
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ELITE CENTER FOR MINIMALLY INVASIVE SURGERY LLC
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017
(UNAUDITED)
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 4,238,845
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 331,697
Deferred Lease Incentive Revenue (52,917)
Change in Operating Assets and Liabilities:
Accounts Receivable 1,709,293
Prepaid Expenses and Other Current Assets 85,757
Accounts Payable (1,762)
Accrued Expenses (25,448)
Due to Affiliates (17,740)
Net Cash Provided by Operating Activities 6,267,725
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of Property and Equipment (224,371)
CASH FLOW FROM FINANCING ACTIVITIES:
Principal Payments on Note Payable (330,210)
Principal Payments on Capital Lease Obligation (34,212)
Contributions by Members 63,800
Redemption of Member Interests (57,400)
Distributions to Members (5,154,753)
Net Cash Used in Financing Activities (5,512,775)
NET CHANGE IN CASH AND CASH EQUIVALENTS 530,579
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 133,016
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 663,595
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid for Interest $ 11,313
Cash Paid for State Income Tax $ 33,916
The accompanying notes are an integral part of these financial statements
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ELITE CENTER FOR MINIMALLY INVASIVE SURGERY LLC
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 – ORGANIZATION
Elite Center for Minimally Invasive Surgery LLC (the “Company”) was formed on February 2, 2010 and amended October 21, 2010 in the State of Texas as a limited liability company. Under the terms of the Hospital Department Management Agreement dated May 1, 2015 (the “Management Agreement”), the Company provides management services to a surgical facility in Houston, Texas.
The Company has an indefinite life unless terminated at an earlier date as provided for in the Company Agreement.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s financial statements. The financial statements and notes to the financial statements are the representation of the Company’s management, who is responsible for their integrity and objectivity.
Cash and Cash Equivalents
The Company defines cash and cash equivalents as cash on hand, cash in banks, and all highly liquid investments that are readily convertible to cash with original maturities of three months or less.
Accounts Receivable
Accounts receivables represent amounts owed to the Company that are expected to be collected within twelve months. Management evaluates receivables on an ongoing basis by analyzing current economic conditions, customer relationships, and previous payment histories. An allowance for doubtful accounts is established for specific accounts the Company considers uncollectible. At September 30, 2017, management determined no allowance was necessary as it considered all accounts receivable collectible.
Revenues
Revenues are based on the Management Agreement when they perform managerial services for the surgical facility. Revenues are reported at estimated net realizable value for services rendered. For the nine months ended September 30, 2017, there was no adjustment deemed necessary for bad debt expense.
Property and Equipment
Property and equipment are stated at cost. Expenditures for additions, major renewals and betterments are capitalized, and expenditures for maintenance and repairs are charged against income as incurred. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income. The Company provides for depreciation or property and equipment using the straight-line method over the lesser of the lease term of improved leasehold property, or the estimated useful lives of the respective assets.
Deferred Lease Incentive Revenue
Deferred lease incentive revenue represents tenant improvement allowances received as consideration in connection with operating leases disclosed further in Note 6. The liability is amortized on a straight-line basis over the life of the lease and recorded as a reduction to rent expense in the accompanying statement of income.
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ELITE CENTER FOR MINIMALLY INVASIVE SURGERY LLC
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED
Income Tax
The Company is a limited liability company and, as such, is not subject to income tax. Taxable income or loss of the Company is included in the respective Members’ tax returns.
The Company is subject to Texas franchise tax, commonly referred to as the Texas margin tax, for the nine months ended September 30, 2017. Accordingly, a provision and liability for state income tax has been included in accrued expenses on the accompanying financial statements.
The Company applies a more-likely-than-not recognition threshold for all tax uncertainties. Accordingly, only those tax benefits that have a greater than fifty percent likelihood of being sustained upon examination by the taxing authorities are recognized. As applied to the Company, any tax uncertainties would principally relate to state income taxes, or uncertainties in its U.S. Federal income tax return that is used to determine state income tax liability. The Company’s management has reviewed the Company’s tax positions and determined there were no significant outstanding or retroactive tax positions exist with less than a 50% likelihood of being sustained upon examination by the taxing authorities.
Based on its evaluation, the Company has concluded that there are no significant uncertain tax positions requiring recognition in its financial statements. The Company’s evaluation was performed for the tax periods ended December 31, 2014 through September 30, 2017 for U.S. Federal and applicable states, the tax years that principally remain subject to examination by major tax jurisdictions as of September 30, 2017.
Fair Value Considerations
The Company uses fair value to measure financial and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The fair value hierarchy established and prioritized fair value measurements into three levels based on the nature of the inputs. The hierarchy gives the highest priority to inputs based on market data from independent sources (observable inputs- Level 1) and the lowest priority to a reporting entity's internal assumptions based upon the best information available when external market data is limited or unavailable (unobservable inputs- Level 3).
The Company's financial instruments (primarily cash and cash equivalents, receivables, payables, and debt) are carried in the accompanying balance sheet at amounts which reasonably approximate fair value.
Estimates
The preparation of the 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. Actual results could differ from those estimates. Estimates that have the most impact on financial position and results of operations primarily relate to the collectability of and contractual adjustments to accounts receivable, the useful lives of property and equipment, and certain accrued liabilities. Management believes these estimates and assumptions provide a reasonable basis for the fair presentation of the financial statements.
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ELITE CENTER FOR MINIMALLY INVASIVE SURGERY LLC
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 – COMPANY AGREEMENT
The following are some of the significant terms of the Company Agreement:
Membership Interests
As specified in the Company Agreement, the Company has two classes of membership (Class A and Class B) and there is no limit on the number of authorized shares to be issued for each class of membership. The Company was initially capitalized by contributions aggregating $1,569,000 for 82.12 Class A units and $75,000 for 15 Class B units. Class B Members have special voting rights as specified in the Company Agreement.
Restrictions on Membership Interests
As defined in the agreement, no Class A Member, including spouse or ex-spouse, shall transfer any right, title or interest in their respective units without the approval of the Board of Directors.
As defined in the agreement, the Class B Member may transfer any or all interest in Class B units to any person subject to the right of first refusal granted to the Class A Members. Accordingly, the Class A Members shall have the right, but not the obligation, to purchase the Class B Member units for a period of 10 days for an agreed upon price as defined in the Company Agreement. Additionally, the Class A Members shall have the right and option, but not the obligation, to sell the Class A Members’ units in connection with the transfer of Class B Member units to said purchaser. The Class A Members must notify the Class B Member at least 30 days prior to said transfer.
If, at any time, the Class B Member desires to affect a Company sale to any person that is not an affiliate of the Class B Member, then the Class B Member shall have the option to require the Class A Members to transfer some or all of the units held by Class A Members to the respective purchaser at an agreed upon price as defined in the Company Agreement.
In the occurrence of a Terminating Event, as defined in the Company Agreement, the Company has a three-year period from the date of termination to purchase the Terminating Member’s units for an agreed upon price as defined in the Company Agreement.
Management and Liability of Members
The Operating Manager of the Company, except as otherwise expressly stated or provided in the Company Agreement, shall have full power and authority to take all action in connection with the Company’s affairs and to exercise exclusive management, supervision and control of the Company’s properties and business and shall have full power to do all things necessary or incident thereto, without the necessity of any further approval of a Member.
The Members of the Company shall not be personally liable for all or any part of the debts or other obligations of the Company, except for certain personal guaranties obtained in connection with said debts or other obligations.
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ELITE CENTER FOR MINIMALLY INVASIVE SURGERY LLC
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 – COMPANY AGREEMENT – CONTINUED
Profits and Losses
The Company’s profits and losses shall be allocated to the Members in accordance with their outstanding units of membership interests (“sharing ratios”).
Distributions
The Operating Manager determines the cash available for distributions and distributions shall be issued at the Operating Manager’s discretion, but not less than once each year. Distributions made to the Members shall be allocated in accordance with their respective sharing ratios.
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment consist of the following at September 30, 2017:
Life
(Years)
Computers and Software 3 to 5 $ 81,304
Furniture and Equipment 7 131,265
Leasehold Improvements Up to 10 1,605,014
Medical Equipment 5 2,393,634
4,211,217
Less Accumulated Depreciation (3,027,975)
Total $ 1,183,242
For the nine months ended September 30, 2017, depreciation expense totaled $331,697
NOTE 5 – NOTE PAYABLE
Note Payable at September 30, 2017 consists of the following:
Note payable to a former member in monthly
installments of $43,000 and a final payment of
approximately $161,000 including interest at 1%;
maturing December 2017; on an unsecured basis. $ 170,769
Less: Current Portion (170,769)
Note Payable, net of Current Portion $ -
NOTE 6 – CAPITAL AND OPERATING LEASES
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ELITE CENTER FOR MINIMALLY INVASIVE SURGERY LLC
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
The Company leases office space under a noncancellable lease, the terms of which require escalating annual rent payments with an annual adjustment, if necessary, to reflect increases in building operating expenses. Per the terms of the Management Agreement (see Note 1), the office space is sub-leased to its sole customer. Accordingly, all future commitments are reduced by future sub-rental revenues which approximate $400,000 per year through April 2020. The Company also leases office equipment on a month to month basis. Rent expense, including month to month rentals, totaled $459,193 for the nine months ended September 30, 2017. Sublease rental income totaled $358,433 for the nine months ended September 30, 2017.
The Company leases medical equipment under a capital lease arrangement. The cost and related accumulated depreciation of the asset under capital lease as of September 30, 2017 totaled $134,054 and $37,982, respectively. As of September 30, 2017, future minimum rental payments under capital lease totaled $88,942 for 2018 which consist of principal and interest of $77,887 and $11,055, respectively.
NOTE 7 – SERVICE CONTRACTS
At times, in order to ensure medical equipment continues to function properly, the Company will enter into noncancelable service contracts with manufacturers to provide ongoing maintenance and support. The cost of these services is recognized ratably over the period during which the related services are to be performed, which is typically one to three years. Service contract expenses totaled $39,015 for the nine months ended September 30, 2017, which is included in repairs and maintenance on the accompanying statement of income. Future minimum payments under non-cancellable service contracts as of September 30, 2017 totaled $39,420 for 2018, and $16,425 for 2019.
NOTE 8 – RELATED PARTY TRANSACTIONS
At various times during the ordinary course of business, the Company and its affiliates will pay expenses on behalf of one another. These transactions resulted in a net payable of $77,031 at September 30, 2017 which is included in due to affiliates on the accompanying balance sheet.
NOTE 9 – CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable. At various times during the year, the Company may have bank deposits in excess of Federal Deposit Insurance Corporation insurance limits. Management believes any credit risk is low due to the overall financial strength of the financial institution.
As of and for the nine months ended September 30, 2017, one customer accounted for 100% revenues and accounts receivable.
As of and for the nine months ended September 30, 2017, there were no material vendor concentrations.
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ELITE CENTER FOR MINIMALLY INVASIVE SURGERY LLC
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 10 – LITIGATION
At times, the Company is a defendant in various legal proceedings arising in the ordinary course of business. While management believes the outcome of pending litigation and claims will not have a material adverse effect on the Company’s financial condition, operations, or cash flows, litigation is subject to inherent uncertainties.
NOTE 11 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the date the financial statements were available for issuance on January 22, 2018. There were no matters materially affecting the Company’s financial statements or related notes to the financial statements except for the following matters.
In November 2017, the Class B Member sold its membership interest in the Company to Nobilis Health Corp. In connection with this sale, the outstanding note payable and capital lease obligation, as previously disclosed in Notes 5 and 6, were paid off.
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