ITEM 9.01(a) - Interim Financial Statements of Business Acquired
Healthcare Staffing, Inc.
Balance Sheets
(In Thousands, Except Share and Per Share Amounts)
|
| | | | | | | |
| | July 2, 2017 | | January 1, 2017 |
| | (Unaudited) | | |
| ASSETS | | | |
| Current assets: | | | |
| Cash | $ | 281 |
| | $ | 649 |
|
| Accounts receivable | 5,535 |
| | 7,740 |
|
| Prepaid expenses and other current assets | 153 |
| | 129 |
|
| Due from Parent | — |
| | 2,500 |
|
| Total current assets | 5,969 |
| | 11,018 |
|
| Fixed assets, net | 600 |
| | 804 |
|
| Total Assets | $ | 6,569 |
| | $ | 11,822 |
|
LIABILITIES AND STOCKHOLDER'S EQUITY (NET CAPITAL DEFICIENCY)
|
| | | | | | | |
| Current liabilities: | | | |
| Accounts payable and accrued expenses | $ | 4,767 |
| | $ | 7,782 |
|
| Parent revolver borrowings allocated | — |
| | 6,263 |
|
| Current portion of long-term debt | 423 |
| | 422 |
|
| Total current liabilities | 5,190 |
| | 14,467 |
|
| | | | |
| Long-term debt | 305 |
| | 516 |
|
| Total liabilities | 5,495 |
| | 14,983 |
|
| | | | |
| Stockholder's equity (net capital deficiency): | | | |
| Common stock, $1.00 par value, 10,000 shares authorized, issued and outstanding | 10 |
| | 10 |
|
| Accumulated deficit | 1,064 |
| | (3,171 | ) |
| Stockholder's equity (net capital deficiency) | 1,074 |
| | (3,161 | ) |
| Total Liabilities and Stockholder's Equity (Net Capital Deficiency) | $ | 6,569 |
| | $ | 11,822 |
|
See notes to condensed financial statements.
Healthcare Staffing, Inc.
Statements of Operations
(Unaudited, In Thousands)
|
| | | | | | | |
| | For the Six Months Ended |
| | July 2, 2017 | | June 26, 2016 |
| Revenue | $ | 30,498 |
| | $ | 25,812 |
|
| Cost of revenue | 26,795 |
| | 22,634 |
|
Gross profit | 3,703 |
| | 3,178 |
|
| | | | |
| Operating expenses: | | | |
| Selling, general and administrative | 1,933 |
| | 1,882 |
|
| Depreciation and amortization | 223 |
| | 224 |
|
| Management fee | 918 |
| | 786 |
|
| Total operating expenses | 3,074 |
| | 2,892 |
|
| | | | |
| Operating income | 629 |
| | 286 |
|
| | | | |
| Interest expense | 12 |
| | 199 |
|
| Net income | $ | 617 |
| | $ | 87 |
|
See notes to condensed financial statements.
Healthcare Staffing, Inc.
Statements of Stockholder’s Equity
(Unaudited, In Thousands, Except Share Amounts)
|
| | | | | | | | | | | | | | |
| | Common Stock | | Retained Earnings (Accumulated Deficit) | | Stockholder's Equity (Net Capital Deficiency) |
| | Shares | | Amount | |
| Balance, January 1, 2017 | 10,000 |
| | $ | 10 |
| | $ | (3,171 | ) | | $ | (3,161 | ) |
| Net income | — |
| | — |
| | 617 |
| | 617 |
|
| Conversion of allocated Parent revolving line of credit upon Parent's repayment | — |
| | — |
| | 6,263 |
| | 6,263 |
|
| Distributions | — |
| | — |
| | (2,645 | ) | | (2,645 | ) |
| | | | | | | | |
| Balance, July 2, 2017 | 10,000 |
| | $ | 10 |
| | $ | 1,064 |
| | $ | 1,074 |
|
| | | | | | | | |
| Balance, December 27, 2015 | 10,000 |
| | $ | 10 |
| | $ | (1,043 | ) | | $ | (1,033 | ) |
| Net income | — |
| | — |
| | 87 |
| | 87 |
|
| | | | | | | | |
| Balance, June 26, 2016 | 10,000 |
| | $ | 10 |
| | $ | (956 | ) | | $ | (946 | ) |
See notes to condensed financial statements.
Healthcare Staffing, Inc.
Statements of Cash Flows
(Unaudited, In Thousands)
|
| | | | | | | |
| | For the Six Months Ended |
| | July 2, 2017 | | June 26, 2016 |
| Cash flows from operating activities: | | | |
| Net income | $ | 617 |
| | $ | 87 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Depreciation and amortization | 223 |
| | 224 |
|
| Changes in assets and liabilities: | | | |
| Accounts receivable | 2,205 |
| | (712 | ) |
| Prepaid expenses and other current assets | (24 | ) | | 61 |
|
| Accounts payable and accrued expenses | (3,015 | ) | | 1,451 |
|
| Net cash provided by operating activities | 6 |
| | 1,111 |
|
| | | | |
| Cash flows from investing activities: | | | |
| Repayment of advances to Parent | 2,500 |
| | (1,027 | ) |
| Purchases of property and equipment | (19 | ) | | — |
|
| Net cash provided by (used in) investing activities | 2,481 |
| | (1,027 | ) |
| | | | |
| Cash flows from financing activities: | | | |
| Distributions to Parent | (2,645 | ) | | — |
|
| Principal payments on long-term debt | (210 | ) | | (123 | ) |
| Net cash used in financing activities | (2,855 | ) | | (123 | ) |
| Net decrease in cash | (368 | ) | | (39 | ) |
| Cash, beginning of year | 649 |
| | 41 |
|
| Cash, end of period | $ | 281 |
| | $ | 2 |
|
| Supplemental Disclosure of Cash Flow Information: | | | |
| Cash paid for interest | $ | 12 |
| | $ | 24 |
|
| Conversion of allocated Parent revolving line of credit upon Parent's repayment | $ | 6,263 |
| | $ | — |
|
See notes to condensed financial statements.
Healthcare Staffing, Inc.
Notes to Condensed Financial Statements
Note 1 - Description of business and summary of significant accounting policies:
Fiscal year
The Company operates on a 52 or 53 week fiscal year ending on the Sunday closest to December 31. There were 53 weeks in the year ended January 1, 2017. The first six months of 2017 and 2016 ended on July 2 and June 26, respectively.
Basis of presentation
The balance sheet as of January 1, 2017 has been derived from the Company’s audited financial statements. In the opinion of management, the unaudited interim condensed financial statements include all adjustments (consisting only of normal, recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented. The results of operations for the six months ended July 2, 2017 are not necessarily indicative of the operating results to be expected for the full year or any future period.
Receivables and credit policies
Unbilled receivables included in accounts receivable totaled $1,668,000 and $1,359,000 as of July 2, 2017 and January 1, 2017, respectively. As of July 2, 2017 and January 1, 2017, management has determined no allowance for doubtful accounts is necessary.
Payroll taxes
As of July 2, 2017, the Company accrued approximately $3,494,000 for payroll taxes that had not been remitted to the state and federal governments, including estimated penalties and interest. This amount has been recorded in accounts payable and accrued expenses on the condensed balance sheet. Subsequent to July 2, 2017, the Company paid all employee portions of payroll taxes due totaling $2 million and requested an abatement of the remaining amounts, which represent employer portions, penalties and interest.
Note 2 - Fixed assets:
|
| | | | | | | |
| | July 2, 2017 (unaudited) | | January 1, 2017 |
| Computer software | $ | 1,319,800 |
| | $ | 1,319,800 |
|
| Computer and office equipment | 186,176 |
| | 168,061 |
|
| Furniture and fixtures | 35,615 |
| | 33,956 |
|
| Leasehold improvements | 21,945 |
| | 21,945 |
|
| Automobiles | 24,500 |
| | 24,500 |
|
| | 1,588,036 |
| | 1,568,262 |
|
| Accumulated depreciation and amortization | (987,690 | ) | | (763,998 | ) |
| Fixed assets, net | $ | 600,346 |
| | $ | 804,264 |
|
Note 3 - Parent revolver borrowings allocated and long term debt:
Parent revolver borrowings allocated
The Parent had a credit facility with lenders that provided for borrowings under a revolving commitment (the "Revolving Loan"). The Company's accounts receivable collateralized the Revolving Loan and comprised a portion of the borrowing base described below. The credit facility was paid in full in January 2017 by the Parent and therefore HCS converted its allocated portion to equity.
Long-term debt
In 2015, the Company entered into a financing arrangement with Hewlett-Packard related to a software license with Workday, Inc. and related implementation services. The total amount financed was $1,263,000, with a nominal interest rate of 4.305%. The agreement requires monthly principal and interest payments of $37,865 for 36 months beginning March 2016.
The total amount outstanding under this loan was $728,000 as of July 2, 2017. The following is a schedule by year of future maturities of long-term debt:
|
| | | |
| Fiscal year: |
| 2017 | $ | 212,000 |
|
| 2018 | 441,000 |
|
| 2019 | 75,000 |
|
| | $ | 728,000 |
|
Note 4 - Transactions with related parties:
The Company had entered into a management services agreement with an affiliate. The agreement called for the servicer to perform certain information technology, accounting and financial reporting services. In consideration of these services, the Company incurred a fee equal to 3.0% of revenues. The fee was $918,000 and $787,000 for the six months ended July 2, 2017 and June 26, 2016, respectively. The agreement was terminated in connection with the sale of the Company to Novation.
As of January 1, 2017, the Company had a receivable of $2,500,000 from the Parent, which was paid in full during January of 2017.
Note 5 - Subsequent events:
On February 1, 2017, the Parent entered into an agreement to sell 100% of the stock of the Company to Novation. The sale was completed on July 27, 2017, as described in Novation's Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on August 2, 2017. Net cash paid to Sellers of $23.7 million, consisting of the $24 million purchase price, $1.1 million for the working capital adjustment and a $100,000 extension fee, offset by obligations of the Seller retained by HCS of $1.6 million and by the Seller’s portion of the cost of representations and warranties insurance ($164,000).
