S HealthVest BEHAVIORA.L HEALTHCARE REDEFINED Consolidated Audited Financial Statements and Supplemental Information for US HealthVest, LLC For the Years ended December 31, 2016 and 2015 15 CON 17-22 PAGE 95 TABLE OF CONTENTS Independent auditors' report ........................ ...... .......... .................. .... ................ .......... 3 Financial statements: Consolidated Balance Sheets ... ..... ..... ............... ... ............. ...... .. .............................. .... 4 Consolidated Statements of Operations ............... ........ ................. .............. ...... ......... . 5 Consolidated Statements of Members' Equity ................................ .............. .... ........... 6 Consolidated Statements of Cash Flows ................... ... ... .... ... ........ ......... .... ............... . 7 Notes to Financial Statements .............. ............... ...... .. .. ..... ........................ .............. 8-16 Independent auditors' report on supplemental material. .... ............................ .. ......... 17 Supplemental Schedules: Consolidating Balance Sheet ...................................................................................... 18 Consolidating Statement of Operations ...................................................................... 19 Consolidating Statement of Members' Equity ................... ...................... ................ .. .. 20 Consolidating Statement of Cash Flows .. ......................................... .......................... 21 16 CON 17-22 PAGE 96 T TOBIN &: COMPANY CERTIFIED PUBLI C AC COUN TA NTS, PC 'lilhin & Cumpany INDEPENDENT AUDITORS' REPORT To the members of: US HealthVest, LLC New York, N.Y. We have audited the accompanying consolidated financial statements of US HealthVest, LLC and subsidiaries, which comprise the balance sheet as of December 31, 2016 and 2015, and the related statements of operations, 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 audits to obtain reasonable assurance about whether the financial statements are free from 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 ri sk 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of US HealthVest, LLC. as of December 31, 2016 and 2015, and the results of their operations, changes in members' equity, and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Tiltir & Ot~try;a.ffj~ e~{;d Pdih r~~t.ud.r, PC' Purchase, New York February 25, 20 17 3 2500 WESTCHESTER AVENUE, SU IT E 117 • PURCHASE, NEW YORK 10577 • TEL : (914) 833-2200 • FAX: (9 14 H 33 -2278 CON 17-22 PAGE 97 US HealthVest, LLC Consolidated Balance Sheets As of December 31, ASSETS Current Assets Cash and equivalents Accounts receivable, net Inventory Prepaid expenses Total Current Assets 2016 $ Land, Property and Equipment, net 64,182,652 3,750,201 146,983 799,246 2015 $ 10,824,507 3,834,931 136,448 550,020 68,879,082 15,345,906 54,069,828 15,147,568 899,900 23,936 15,0 16,697 15,940,533 444,642 44,234 15,016,697 15,505,573 Other Assets Investment in future facilities Other receivable and other assets Goodwill Total Other Assets Total Assets $ 138,889,443 $ 45,999,047 $ $ 1,888,447 2,088,698 LIABILITIES AND MEMBERS' EQUITY Current Liabilities Accounts payable Accrued expenses Retainage on Construction Deferred Gain on Sale Leaseback, current portion Capital Lease Payable, current portion Note Payable, current portion Financed insura nce Total Current Liabilities 7,155,376 2,777,472 1,762,362 592,454 631,098 13,146,304 108,587 165,342 4,251,074 227,542 Capital Lease payable Deferred Gain on Sale Leaseback, net of current Note Payable, net of current Financing Costs, net Long term debt net of unamortized financing cost 19,043,016 7,948,752 6,169,228 (333,484) 7,048,086 (140,197) 32,827,512 6,907,889 Total Liabilities 45,973,81 6 11 ,1 58,963 MEMBERS' EQUITY 92 ,915,627 34,840,084 $ 138,889,443 Total Liabilities and Members' Equity $ 45,999,047 See accompanying notes to the financial statements 4 18 CON 17-22 PAGE 98 US HealthVest, LLC Consolidated Statements of Operations For the Years ended December 31, Revenues Net Patient Service Revenues Other Revenue Net Revenues 2016 $ Operating Expenses Salaries and benefits Professional fees Supplies 31 ,598,936 1,697,612 2015 $ 33,296,548 16,997,302 18,868,677 4,388,719 12,294,947 2,311,921 967,231 944,276 497,373 205,906 453,448 614,349 348,377 1,437,340 1,429,996 1,211,489 813,681 Licenses, permits and fees Contracted services Bad debt expense Property and business taxes Travel and entertainment 721,085 710,814 Insurance Utilities Repairs and maintenance Contracted labor Rent Recruiting costs Other operating expenses Computer and internet Security 474,228 351,755 325,967 204,598 190,440 136,317 94,565 91,254 Advertising and marketing Dues and subscrietions Total Operating Expenses Income (Loss) from Operations before other Items Depreciation and amortization expense Interest expense Interest income $ 253,618 212,848 401,309 198,426 101,515 71,059 46,734 67,285 46,146 18,518 24,869 31,582,874 19,956,814 1,713,674 (2,959,512) (985,435) (271 ,695) (135,735) 9,896 (1,56 1,582) 40,068 Net Loss 15,622,251 1,375,051 (793,275) $ 8,608 (3,357,046) See accompanying notes to the financial statements 5 19 CON 17-22 PAGE 99 US HealthVest, LLC Consolidated Statements of Members' Equity For the t::.ears ended December 31, 2016 and 2015 Beginning Balance, January 1, 2015 $ 27,697,130 Contributions from Members 10,500,000 Net loss for the year ended December 31 , 2015 (3,357,046) Balance, December 31, 2015 34,840,084 Contributions from Members 58,868,818 (793,275) Net loss for the year ended December 31, 2016 $ Balance, December 31, 2016 92,915,627 See accompanying notes to the financial statements 6 20 CON 17-22 PAGE 100 US HealthVest, LLC Consolidated Statements of Cash Flows For the y_ears ended December 31, Cash Flows From Operating Activities 2016 $ Net Loss Adjustments to Reconcile Net Loss to Net Cash Provided by Operating Activities: Depreciation and amortization Interest expense associated with financing costs Bad debt expense 2015 (793,275) $ 271 ,695 985,435 154,596 813,681 Changes in Operating Assets and Liabilities: Increase in prepaid expenses Increase in other receivable and other assets Increase in accounts receivable (3,357 ,046) 8,685 205,906 (249,226) (434,960) (728,95 1) (10,535) 5,955,703 (82 ,663) (296 ,998) (3,201 ,540) 5,692,468 (3,957,850) (39,907,595) 8,541 ,206 (31 ,366,389) (7,859,676) Contributed Capital Increase (Decrease) in financed insurance Advances from notes payable Repayment of notes payable Proceeds from capital lease Repayment of capital lease Increase in retainage 58,868,8 18 62,200 6,169,228 (7, 156,673) 20,000,000 (325,886) 1,762,362 10,500,000 (2,130) 7, 156,673 Financin9 Costs Net Cash Flows Provided by Financin9 Activities p47,983) 79,032,066 (148,881} 17,505,662 Net Increase In Cash Cash at Be9inning of Year 53,358,145 10,824,507 5,688,136 5,136,371 Increase in inventory Increase in accounts pa~able and accrued expenses N.et Cash Flows Provided by (Used in) Operating Activities Cash Flows From Investing Activities Capital expenditures Increase in deferred ~:~ain on sale leaseback Net Cash Flows Used in Investing Activities (2 ,315) 2,496,426 (7,859,676) Cash Flows From Financing Activities Cash at End of Year $ 64,182,652 $ 10,824,507 $ 1,406,986 $ 127,050 Supplemental Disclosures Cash paid during the period for: Interest Expense See accompanying notes to the financial statements 7 21 CON 17-22 PAGE 101 US HealthVest, LLC Notes to Financial Statements Note 1 - Summary of Accounting Policies Organization and Business US HealthVest, LLC (the Company) was formed under the laws of the State of Delaware on March 1, 2013. The purpose of the Company and its affiliates is to acquire and operate behavioral healthcare facilities throughout the United States. As of the balance sheet date the Company currently operated one facility located in Illinois. Basis of Accounting The financial statements have been prepared on the accru al basis of accounting in conformity with generally accepted accounting principles. Principles of Consolidation The consolidated financial statements include the activities of US Hea lthVest, LLC, and its subsidiaries, collectively referred to as "the Company". All material intercompany accounts and transactions have been eliminated. The activities of 2014 Health, LLC, 2014 Health Realty, LLC, Vest Monroe, LLC, Vest Monroe Realty, LLC, V Colorado, LLC, RV Behavioral, LLC, RV Behavioral Realty, LLC , Vest Seattle, LLC, and Vest Seattle Realty, LLC collectively referred to as "affiliates" have been consolidated with the activities of US HealthVest, LLC and are presented in the statements of supplemental information. Recent Developments On November 3, 2014 the Company acquired the assets of Maryville Behavioral Health Hospital. The acquisition included a 125 bed hospital as well as the land on which the hospital is located in Des Plaines, Illinois. This hospital provides services to those suffering from mental health illnesses and chemical dependency. The activities of this operation from the date of acquisition through the end of the fiscal year are included in the consolidated financial statements. In January 2014, US HealthVest received a Certificate of Need to develop a 75 bed hospital in Washington State. The hospital will be located in Marysville, a suburb of Seattle. In September 2014, the Company received a Certificate of Need for an additional 50 beds in Washington State, which was subsequently reduced to 40 beds (for a total of 115 beds) in February 2015. In June 2014, US HealthVest received a Certificate of Need to develop a 70 bed hospital in Georgia. In June 2015, the Compa ny acquired property including an existing hospital building and the land on which the hospital is located in Monroe, Georgia. During 2015 demolition and construction started on this property. As of May 1, 2015 Chicago Behavioral Hospital was approved as a Medicare provider. In January 2016, the renovation of the 3rd and 41h floors of Chicago Behavioral Hospital was completed, and the full 125 licensed beds became available. In November 2016 , Chicago Behavioral Hospital received approval to increase its licensed bed count to 138 total beds. 8 22 CON 17-22 PAGE 102 US HealthVest, LLC Notes to Financial Statements In June 2016, US HealthVest received a Certificate of Need to develop a 100 bed hospital in Northbrook, Illinois. In June 2016, US HealthVest received a Certificate of Need to develop a 75 bed hospital in Newnan, Georgia. In July 2016, US HealthVest received a Certificate of Need to develop a 75 bed hospital in Lacey, Washington. Cash and Equivalents The Company considers all short term investments with an original maturity of three months or less to be cash equivalents. Accounts Receivable, Net Revenue and Cost Recognition The Company recognizes revenues in the period in which services are performed. Accounts receivable consist primarily of amounts due from third-party payors. The amounts the Company receives for treatment of patients covered by governmental programs such as Medicare, Medicaid and other third-party payors such as health maintenance organizations, preferred provider organizations and other private insurers are generally less than the Company's established billing rates . Accordingly, the revenues and accounts receivable reported in the Company's consolidated financial statements are recorded at the net amount expected to be received . Inventory- Supplies Inventories consist of pharmaceutical supplies and are stated at the lower of cost or market using the first-in, first-out (FIFO) method. Property and Equipment Property and equipment are stated at cost. Maintenance and repairs are expensed in the period incurred; major renewa ls and betterments are capitalized. When items of property are sold or retired, the related costs are removed from the accounts and any gain or loss is included in income. Property and Equipment are depreciated using straight-line depreciation methods over their estimated useful lives as follows: Buildings and Improvements 39 years Furniture and Equipment 5-7 years Computer equipment and software 5 years Allowance for Doubtful Accounts The primary risk in patient receivables would be uninsured amounts owed by direct pay patients. The Company establishes an allowance for doubtful accounts for all accounts receivable over 180 days old, and continually monitors accounts receivable balances and utilizes cash collection data and historical trends to support this position. The allowance for doubtful accounts as of December 31, 2016 and 2015 was $664, 091 and $173,944, respectively. The Company has also established an allowance for denials and administrative adjustments from payors in the amount of $71,759 and $244,838, as of December 31, 2016 and 2015, respectively. 9 23 CON 17-22 PAGE 103 US HealthVest, LLC Notes to Financial Statements Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents and investments held in financial institutions. At times such balances may be in excess of Federal Deposit Insurance Company (FDIC) limits. The Company's revenues are heavily related to patients participating in Medicaid, and Medicare. Management recognizes that revenues and receivables from government agencies are significant to the Company's operations, but it does not believe that there is significant credit risk associated with these government agencies. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Advertising Costs Advertising costs are expensed as incurred. Advertising expenses amounted to $46,146 and $24,869 for the years ended December 31 , 2016 and 2015, respectively. Goodwill Goodwill represents the amount of purchase price in excess of the fair value assigned to the underlying identifiable net assets in certain acquisitions. In accordance with FASB ASC 35010, goodwill and indefinite-lived intangible assets are no longer amortized systematically, but subject to impairment annually. Management reviews the carrying value of goodwill on an annual basis in order to determine whether impairment has occurred. Impairments are based on several factors, including the Company's projection of future operating cash flows. As of December 31, 2016 the Company has not recognized impairment of goodwill. Compensated Absences The Company's employees earn paid time off hours ("PTO"), which can be used towards vacation, sick time and personal days off. Paid time off is earned depending on the length of service and job position. Employees can carryover no more than 80 PTO hours at year end. Accrued compensated absences as of December 31 , 2016 and 2015 were $331 ,846 and $179,416, respectively. Income Taxes The Company is organized as a Limited Liability Company. In lieu of corporate taxes, the members of a Limited Liability Company are taxed on their proportionate share of the Company's taxable income. Therefore, no provision or liability for federal or state income taxes has been included in the financial statements. The Company's income tax returns are subject to examination by the appropriate tax jurisdictions for a period of three years from when they are required to be filed. 10 24 CON 17-22 PAGE 104 US HealthVest, LLC Notes to Financial Statements The Company reviews and assesses its tax positions taken or expected to be taken in tax returns. Based on this assessment, the Company determines whether it is more likely than not that the positions would be sustained under examination by the tax authorities. The Company's assessment has not identified any significant positions that it believes would not be sustained under examination. Acquisitions, Business Combinations In accordance with ASC 805 , the company accounts for business combinations using the acquisition method and accordingly, the identifiable assets acquired , and the liabilities assumed are recorded at their acquisition date fair values. Goodwill represents the excess of the purchase price over the fair value of net assets, including the amount assigned to identifiable intangible assets. Note 2 - Investment in Future Facilities The Company is in the process of establishing new psychiatric facilities. Amounts invested toward the future purchase or lease of these facilities as of December 31, 2016 and 2015 were as follows: As of December 31, Phoenix Seattle Newnan, GA Smyrna, GA Lacey, WA Total 2016 - $ $ 2015 150,000 294,642 $ 444,642 249,900 250,000 400,000 $ 899,900 Note 3 - Property and Equipment The major classifications of property and equipment are as follows: As of December 31, Land Buildings and Improvements Furniture,Fixtures and Equipment Computer Equipment and Software Construction in progress Total Land , Property, and Equipment Less Accumulated Depreciation $ $ Land, Property and Equipment, net 2016 2,825,000 $ 21,974,169 1,535,698 599,556 28,256,489 55,190,912 (1,121 ,084) 54,069,828 $ 2015 2,125,000 8,965,883 413,366 428,295 3,531 ,033 15,463,577 (316,009) 15,147,568 Note 4- Retainage on Construction The Company withholds from contractors, a portion of payments due in connection with construction in progress ranging from 5% to 10%. Upon completion of work, and final inspections, retainage is released to the respective contractors. As of December 31, 2016 total retainage due to contractors was $1 ,762,362. 11 25 CON 17-22 PAGE 105 US HealthVest, LLC Notes to Financial Statements Note 5- Financed Insurance During 2015 The Company financed its auto, crime, general, malpractice, and flood insurance premiums through IPFS Corporation. Total premiums on these policies were $275,568. Of this amount, $206,676 was financed and was payable in ten equal monthly installments of $20,667, including finance charges at 4.48%. As of December 31, 2015 the remaining balance on this agreement was $165,342. During 2016 The Company financed its auto, crime, general, malpractice, and flood insurance premiums through Premium Assignment Corporation. Total premiums on these policies were $381,598. Of this amount, $286,123 was fina nced and was payable in ten equal monthly installments of $29,291, including finance charges at 5.14%. As of December 31, 2016 the remaining balance on this agreement was $227,542. Note 6 - Notes Payable On May 29, 2015, 2014 Health Realty, LLC secured financing through a note payable with City Bank. The initial twelve month term has a maximum drawdown of $7,500,000. The note carries interest at prime plus 75 basis points with a floor of 4.75%. During the drawdown period payments are interest only. After the initial twelve month period the note converts to a nine year term loan, amortized over 20 years. This loan is collateralized by the real estate owned by 2014 Health Realty, LLC. As of December 31 , 2015 the outstanding balance on this note was $7,156,673. This note was repaid in May 2016 as part of a sale leaseback transaction detailed in Note 8. On August 5, 2016, Vest Monroe, LLC and Vest Monroe Realty , LLC entered into a construction loan ag reement with City Bank, with a maximum drawdown amount of $14,860,000. The note is payable over 10 years, the first 18 months consist of interest only payments followed by 102 monthly payments based on a twenty year amortization with a balloon payment due at maturity. This note carries interest at prime plus 0.75% with a floor of 4. 75%. The note is collateralized by the real estate owned by Vest Monroe Realty, LLC. As of December 31 , 2016 the Company had drawn $6,169,228 on this note. Note 7- Financing Costs Financing costs in connection with the City Bank loans are amortized over 10 years using the straight line method. In accordance with ASC 835-30-45, the Company has presented the unamortized portion of these costs as a reduction to long term debt on the balance sheet. Net financing costs as of December 31, 2016 and 2015 were as follows: As of December 3 1, Financing Costs Less: Accumulated Amortization 2016 2015 $ 347,983 $ 148,881 (14.499) (8,684) Closing Costs, net $333,484 $140 ,197 12 26 CON 17-22 PAGE 106 US HealthVest, LLC Notes to Financial Statements Note 8 - Capital Lease and Sale Leaseback In January 2016, the Company closed on a $12,500,000 loan from a publicly-traded REIT, carrying interest at 11%. The loan had a one year term with an option to purchase the building during the term for $20,000,000. In May 2016, this option was exercised, and the proceeds from the sale paid off the $12,500,000 loan in addition to the remaining balance on the $7,500,000 City Bank Loan. The Company is leasing the premises from the purchaser and is treating the lease as a capital lease from a sale-leaseback transaction. The amount due under this capital lease as of December 31,2016 is $19,674,114. The following is a schedule of future minimum lease payments under the capital lease as of December 31, 2016: For the year For the year For the year For the year For the year Thereafter ending ending ending ending ending December 31, 2017 December 31 , 2018 December 31, 2019 December 31, 2020 · December 31, 2021 Less amounts representing interest Total $ 1,763,832 1,960,610 1,999,825 2,039,820 2,080,616 21,746,121 31 ,590,824 (11 ,916,710) $19,674,114 The book value of assets held under this lease was as follows: As of December 31, Buildings and Im provements Less Accumulated Depreciation $ 20,000,000 Net Book Value $ 19,222,222 2016 (777,778) The Sale Leaseback transaction also resulted in a deferred gain on the difference between the carrying value of the assets at the time of sale and the selling price in the amount of $8,886,804. This deferred gain is amortized on a straight line basis over 15 years as a reduction to the depreciation expense associated with the property held under the capital lease. As of December 31, 2016 the remaining deferred gain was $8,541 ,206. Note 9 - Retirement Plan The Company maintains a 401 (k) retirement plan ("the Plan") for all eligible employees over 21 years of age with at least five months of service. Participants can contribute a percentage of their compensation up to a maximum deferral of 85% (subject to limits) and receive a matching employer contribution of 100% of deferrals up to 3% of compensation , and 50% of deferrals for the next 2% of compensation. Participants may also receive a discretionary employer matching contribution at the discretion of the Company's Board of Directors. The Company incurred expenses of $124,696 and $96,920 in 2016, and 2015, respectively. 13 27 CON 17-22 PAGE 107 US HealthVest, LLC Notes to Financial Statements Note 10 - Contributions from Members During 2016, the Company received contributions from members totaling $9,000,000 for 5,767,380 Series A-3 Preferred Units. In addition, the Company received contributions from members totaling $50,000,000 for 26,929,067 Series B Preferred Units. These contributions are reflected on the balance sheet of the Company net of associated legal fees in the amount of$131 ,182. During 2015, the Company received contributions from members totaling $10,000,000 for 8,039,871 Series A-2 Preferred Units. In addition, the Company received a capital contribution of $500,000 for an additional 401,994 Series A-2 units. Note 11 -Operating Lease of Facilities The Company leases through an unrelated third party, an administrative office located in New York. The lease was assigned from a former entity of common ownership with an initial lease term of ten years, expiring October 31, 2019. Rent expense for the years ended December 31, 2016 and 2015 was $160,651 and $183,501, respectively. Future minimum rental payments under this lease commitment are as follows: 199,21 7 205,193 175,248 December 31, 20 17 December 31, 2018 December 31, 2019 Total $ 579,658 In addition, the Company was under an Option Agreement with an unrelated third party to purchase land in Marysville, Washington. Under this agreement, the Company paid the land owner $5,600 per month through June 2015. During the year ended December 31 , 2015, these payments had been classified as rent in the amount of $33,600. Note 12 -Acquisitions During 2015, the Company acquired property including an existing hospital building, and the land on which it is located, in Monroe, Georgia. The purchase price of the property was allocated to assets based on their estimated fair values as follows: Building Land Acquisition Costs $ 1,925,000 825,000 90,087 Total Purchase Price and Acquisition Costs $ 2,840,087 14 28 CON 17-22 PAGE 108 US HealthVest, LLC Notes to Financial Statements Note 13- Related Party Transactions As of December 31, 2016, 2014 Health Realty, LLC was due $7,152,339 from Chicago Behavioral Hospital (its related entity) for rent and miscellaneous operating expenses. This intercompany receivable is eliminated upon consolidation of the financial statements. As of December 31, 2016, US HealthVest, LLC was due $159,650 from 2014 Health Realty (its related entity) for fees paid in connection with the closing of the City Bank loan. This intercompany receivable is eliminated upon consolidation of the financial statements. As of December 31 , 2016, Chicago Behavioral Hospital was due $3,556,079 from US HealthVest, LLC (its related entity) for miscellaneous operating expenses. This intercompany receivable is eliminated upon consolidation of the financial statements. As of December 31, 2016, Chicago Behavioral Hospital was due $11 ,020 from Vest Monroe Realty (its related entity) for miscellaneous operating expenses. This intercompany receivable is eliminated upon consolidation of the financial statements. As of December 31, 2016, US HealthVest, LLC was due $427,635 from Vest Monroe (its related entity) for miscellaneous operating expenses and capital spending. This intercompany receivable is eliminated upon consolidation of the financial statements. As of December 31 , 2016, US HealthVest, LLC was due $8,215,744 from Vest Monroe Realty (its related entity) for miscellaneous operating expenses and capital spending. This intercompany receivable is eliminated upon consolidation of the financial statements. As of December 31, 2016, Vest Monroe Realty, LLC was due $1,042,815 from Vest Monroe (its related entity) for miscellaneous operating expenses and capital spending. This intercompany receivable is eliminated upon consolidation of the financial statements. As of December 31, 2016, RV Behavioral, LLC was due $1,000 from RV Behavioral Realty (its related entity) for the funding of its bank account. This intercompany receivable is eliminated upon consolidation of the financial statements. As of December 31, 2016, Vest Seattle, LLC was due $1,000 from Vest Seattle Realty (its related entity) for the funding of its bank account. This intercompany receivable is eliminated upon consolidation of the financial statements. Note 14- Subsequent Events Subsequent events were eval uated through February 25, 2016, the date that the financial statements were available to be issued. In January 2017, RV Behavioral, LLC acq uired the assets of Ridgeview Institute, Inc., a 148 bed hospital in Smyrna, Georgia. Ridgeview has certificate of need approval for 216 total beds. In January 2017, construction was completed on the hospital in Monroe, Georgia, and it was opened as Ridgeview Institute- Monroe. 15 29 CON 17-22 PAGE 109 US HealthVest, LLC Notes to Financial Statements Note 15 - Reclassifications As stated in note 7, in accordance with ASC 835-30-45, the Company has presented the unamortized portion of financing costs as a reduction to long term debt on the balance sheet. As such, we have reclassified the unamortized portion of these costs in the prior year in order to conform to the current presentation. In addition, amortization expense associated with financing costs has been reclassified to interest expense on the statement of operations for the year ended December 31 , 2015 in order to conform to current presentation. 16 30 CON 17-22 PAGE 110 T TOBIN & COMPANY CERTIFIED PUBLIC ACCOU NTANT S, PC Jn hin N: ( .nm pany Independent Auditors' Report on Supplemental Material To the members of: US HealthVest, LLC New York, N.Y. We have audited the consolidated financial statements of US HealthVest, LLC and subsidiaries as of and for the years ended December 31, 2016, and 2015, and our report thereon dated February 25, 2017, which expressed an unmodified opinion on those financial statements, appears on page 3. Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The consolidating information included in the following section is presented for purposes of additional analysis of the consolidated financial statements rather than to present the financial position, results of operations, and cash flows of the individual companies, and it is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The consolidating information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the consolidating information is fairly stated in all material respects in relation to the consolidated financial statements as a whole. 7iltir & Cotrpafl? t:Jft~fil PJfifl ,1e~«~rtwrt~, PC Purchase, New York February 25, 2017 17 2500 WESTC HES TER AVEN UE, SU ITE 11 7 • I' UitC: I-IASil , NEW VO Rl< 10577 • iEL: (9 14) 833· 2200 • FAX: (~ll 4)J ~ D · l2i8 CON 17-22 PAGE 111 US HealthVest, LLC Consolidating Balance Sheet As of December 31,2016 ASSETS Current assets Cash and equivalents Accounts receivable, net Inventory Prepaid expenses Due from ~arenUsubsidiaries Total current assets US HealthVest LLC VColorado LLC Vest Monroe, LLC s $ $ Land, Property and equipment, net Other Assets Investment in 2014 Health, LLC (CBH) Investment in 2014 Health Realty, LLC Investment in V Colorado, LLC Investment in V Monroe, LLC Investment in V Monroe Realty, LLC Investment in RV Behavioral Investment in RV Behavioral Realty Investment in Vest Seattle Investment in Vest Seattle Realty Investment in future facilities Other receivable and other assets Goodwill Total Other Assets Total Assets LIABILITIES AND MEMBERS' EQUITY Liabilities Accounts payable Accrued expenses Financed Insurance Retainage Due to ~arenUsubsidiaries Total current liabilities 25,337 5,246,950 33,052,213 38,941 702,712 $ 2,644,317 2014 Health LLC s 21 ,532,706 710,846 1,042,815 3,667,132 26,147,491 681,894 15,531,621 20,165,595 $ RV Behavioral RV Behavioral Vest LLC Seattle. LLC Realt~ LLC Vest Seattle Realt~. LLC $ 11,512,288 $ $ 940 $ 8,823 940 Eliminations $ Consolidated - 1.000 11,513,286 940 1,000 9,823 49,114 162,474 17,489,303 !13.444,104) (13,444,104) 54,069,828 (26,766,372) (6,992,688) (89,663) 325,260 (2,858, 714) (11 ,763,288) 60 (172,297) (16,881,165) 23,000 936 15,016,697 15,017,633 $ 1,392,740 $ 19,241,753 s 61,330,719 $ $ $ 106,105 2,430,141 227,542 $ 89,663 $ 98,850,258 $ $ $ 89,663 217,105 19,425 1,481,470 1,718,000 5,934,632 1,166,622 25,900 1,119,028 8.215.745 10.547,295 $ 3,585,239 6,349,027 250,000 7,152,339 s 11,763,288 $ s $ 159,650 159,650 940 $ 172,297 $ - $17,538,417 $ (78,642,971) $ 138,889,443 $ $ $ 12,918 643,334 1,000 657,252 1,000 1,000 1,718,000 92,915,626 s 98,850 258 89,663 s 89,663 (325.260) $ 1,392,740 6,169,228 (333,484) 16,383,039 34,564,347 159,650 2,858,714 26,766,372 6,992,689 11.763.288 s 19,241,753 $ 61,330,719 $ 7,152,339 $ 11,763,288 899,900 23,936 15.016.697 15,940,533 (65.196.867) 11,922,752 657,252 (13,444, 104) 19,674,114 8,541,206 6,169,228 (333.484) 45,973,816 172.297 16,881,165 (65.196,667) 92,915,627 172.297 $17,538.417 1,000 (60) $ 940 s 7,155,376 2,777,472 227,542 1,762,362 (13,444,104) (13,444, 104) 19,674, 114 6,541,206 5,934,632 64, 182,652 3,750,201 146,983 799,246 68,879,062 250,000 65,759,104 Members' Egui!}: $ 48,174 7,152,339 7, 152,339 89,663 23,000 5,645,544 289,068 2014 Health Real t~. LLC 3,750,201 146,983 717,601 8,134 26,676,709 6,992,688 69,663 (325,260) 2,658,7 14 11,763,288 (60) 172,297 16,881,165 649,900 Capital Lease Unearned Profit on Sale Leaseback Note Payable Financing Costs. net Total Liabilities Total Liabilities and Members' Equit 27,779,926 VMonroe LLC Reali~. $ 138,889,443 w N See Independent Auditors' Report on Supplementary Information 18 CON 17-22 PAGE 112 US HealthVest, LLC Consolidating Statement of Operations For the t_ear ended December 31. 2016 Revenues: Net patient service revenue Other revenue Net Revenues US HealthVest V Colorado LLC LLC $ Operating expenses Salaries and benefits Medical Professional fees Other Professional Fees Supplies Licenses. permits and fees Contracted Services Bad debt expense Property and business taxes Travel and entertainment Insurance Telephone and Ulilities Repairs and maintenance Contracted labor Rent Recruiting Other operating expenses Computer and internet Security Advertising and marketing Dues and Subscri!_!tions Total O!_!erating ex!_!enses 245,049 3,500 43,785 1,213 4,550 2014 Health LLC $ 31,598.936 1,697,612 33,296,548 5,67 1 429 1,794 32,925 201 4 Health RV Behavioral RV Behavioral LLC Real!l LLC Real!l. LLC $ - 14,597,453 1,963,797 161,224 1,395,592 1,292,006 1,210,714 813,681 664, 107 88.472 310,752 228,326 212,183 204,598 485,277 125,990 60,375 55 13,681 7.413,866 1,173 3 ,912 325.260 315 178,427 23.857,089 213,499 (7,413,866) (325 ,260) (178,427) 9,439.459 246,918 36,546 6.620.590 (793,276) $ $ - $ 31,598,936 1,697.612 33,296,548 712 3,250 9,592 1,979 33,845 40,957 65.525 90,977 (460,417) 60 1,034 178 234 60 280 1.492 2,376 330 53,364 (234) (60) (1,492) (53,364) 234 42,542 60 1,650 (460.417) 18,868,677 1,967,297 2,421.422 1.437,340 1,429,996 1,211 ,489 813,681 72 1,085 710,814 474,228 35 1,755 325,967 204,598 190.440 136,317 94,565 91 ,254 67,285 46,146 18.518 31,582,874 1,71 3,674 (6,671,973) (75,540) (140,097) (119,055) (334.692) (895,115) 73,149 $ (460.417) (460,417) 73,149 73,149 - Consolidated 2,820 711 4,216 1,060 9,829 2,130 2,277 67,285 - Eliminations 775 163,069 5,077 30,468 77,498 1,800 $ $ Vest Seattle Real!l. LLC 250 11 ,765 1,928 2,663 1,271 400 26,366 21 ,404 16,031 $ Vest Seattle, LLC 460.417 460,417 11,211 6 18,435 59.645 35,229 6,376 6.598,824 (14,780) $ V Monroe Real!l. LLC $ 2,209,780 28,341 128,826 Other income (expenses): Equity in net income of subsidiaries Depreciation and amortization Interest expense from financing costs Interest income. net of ex!_!ense Total other ex~enses Net Income (Loss) $ 4,026,175 Operating Profit (Loss) V Monroe· LLC (14.499) (58.520) (73,019) $(325.260) $ (251,446) $ (1.229.411) (2 ,124 ,526) 7,314.933 $ (87.774) $ 3.522 3,522 3,288 (6,671,973) $ (60) $ (1.492) $ (53,364) $ (6.671,973) $ (985,435) (154,596) (1 .366.918) (2,506,949) (793,275) See Independent Auditors' Report on Supplementary Information w w 19 CON 17-22 PAGE 113 US HealthVest, LLC Consolidating Statement of Members' Equity For the y_ear ended December 31, 2016 US HealthVest VColorado LLC LLC VMonroe LLC Beginning Balance, January 1, 2016 $ $ Contributions from Members Net Income $ 16,514 2014 Health LLC - $3,110,160 $ 19,451 ,439 2014 Health RV Behavioral RV Behavioral Reali~ LLC LLC Real!}:. LLC $7,080,463 s 58,868,818 ~Loss) Balance, December 31. 2016 34 ,840,084 V Monroe Reali~. LLC 92,915,626 $ 11,760,000 ~793,276) $ $ Vest Seattle. LLC 73.149 s 89,663 !325,260) ~251,446) $ (325,260) $ 2,858,714 7,314,933 $ 26,766,372 $ 6,992,689 173,789 ~60) 3,288 ~87,774 ) $ 11,763,288 - $ ~60) $ !1 ,492) 172,297 Vest Seattle Real!}:. LLC $ 16,934,529 ~53,364) $ 16,881,165 Eliminations Consolidated $ (29,658,576) $ 34,840,084 (28,868,318) ~6 .671 , 973) 58,868,818 Q93,275) $ ~65,198,867) $ 92,915,627 See Independent Auditors' Report on Supplementary Information 20 CON 17-22 PAGE 114 US HealthVest, LLC Consolidating Statement of Cash Flows For the ~ear ended December 31, 2016 Cash Flows From Operating Activities Net Income (Loss) US HealthVest V Colorado LLC LLC $ Adjustments to Reconcile Net Loss to Net Cash Provided by Operating Activities: Depreciation and amortization Interest in connection with financing costs Bad debt expense Changes in Operating Assets and Liabilities: Increase in prepaid expenses Increase in other receivable and other assets Decrease in accounts receivable Increase in inven tory Increase in ea~ables and accrued exeenses Net Cash Flows Used in Operating Activities 73,149 V Monroe LLC Real~. $ (325,260) $ 2014 Health LLC (251,446) $ 14,780 7,314,933 2014 Health Real~. LLC $ 895,115 RV Behavioral RV Behavioral LLC Reai~LLC (87,774) $ 3,288 $ Vest Seattle, LLC (60) $ Vest Seattle Real~ . LLC (1,492) $ Eliminations Consolidated (53,364) $ (6,671 ,973) $ 75,540 140,097 14,499 (8,134) 66,628 (175,838) (23,000) 4,778,656 3,890,950 73,149 (6,989) (35,467,142) (35.474,131) Cash Flows From Financing Activities Contributed Capital Advances from notes payable Repayment of notes payable Proceeds from Capital Lease Repayment of Capital Lease Increase in Retainage Due to/From Subsi diaries Financing Costs incurred Increase in financed insurance Net Cash Flows Provided b~ Financing Activities (73.1 49) (73,149) 236,530 (96,864) 1,212,522 952,575 (48,174) (259,546) 13,878 (728,951) (10,535) 112,482 8,151,057 (250,000) (397,405) (269,542) (60) (246,712) (1.492) 12,918 (88,620) (6,671 ,973) (681,894) (11 ,816,118) (21,060,710) 8,541,206 11 ,309,893 (162,474) (17,489,303) (681,894) (11 ,816,118) (12,519,504) 11,309,893 (162,474) (17,489,303) 35,540,291 35,540,291 173,789 16,934,529 (28,868,318) 11 ,760,000 58,868,818 (7,156,673) 20,000,000 (325,666) Net Increase (Decrease) In Cash Cash at Beginning of Period $ 1,119,028 6,158,452 (347,983) 1,481,470 (385,332) 56,146,568 1,481 ,470 13,098,725 62.200 19,350,982 24,563,407 3,216.519 702,712 2,235,182 409,135 14,982,535 6,550,171 2,644,317 s 21 ,532.706 27,779,926 $ - $ 702,712 s (4,532,360) $ (1,000) 643,334 1,000 (1,000) 1,000 (11 .689,033) 11 .759,000 1,000 172.769 17,578,863 (648,682) 648,682 11 ,512,288 940 8,823 940 $ 11 ,512,268 $ 940 s 8,823 s 940 (249,226) (434,960) (728,951) (10,535) 5,955,703 5,692,468 (39,907,595) 8,541,206 6, 169,228 (2,722,230) (793,275) 985,435 154,596 813,681 813,681 Cash Flows From Investing Activities Capital expenditures Increase in Deferred Gain on Sale Leaseback Investment in Subsidiaries Net Cash Flows Used in Investing Activities Cash at End of Period (793,276) $ VMonroe LLC (28.868,316) (31,366,389) 58,868,818 6,169,228 (7,156,673) 20,000,000 (325,666) 1,762,362 (347,983) 62,200 79,032,066 53,358,1 45 10,824,507 $ - $ 64,162,652 See Independent Auditors' Report on Supplementary Information w Vl 21 CON 17-22 PAGE 115