VALUATION/APPRAISAL OF MEDICAL EQUIPMENT AND INDUSTRIAL ASSETS INCLUDING MACHINERY & EQUIPMENT

Our Appraisal Analysis is prepared as of the fixed asset inspection date.

Description of the Assets Included in the Analysis

The personal property to be included in our analysis typically consists of the assets specified as follows:

• Furniture & Fixtures
• Software
• Medical Equipment
• Computer & Office Equipment
• Machinery & Equipment
• Tenant Improvements.

All assets and liabilities, if any, not identified above are excluded from the analysis.

VALUATION APPROACHES

Our analysis will consider all three basic approaches to value: income, sales comparison, and cost. These are described as follows:

Income Approach: The income approach recognizes that the value of an asset may be estimated by the present worth of future economic benefits to be derived from its ownership. These benefits can include earnings, cost savings, tax deductions, and proceeds from disposition.

Sales Comparison Approach: The sales comparison approach recognizes that the value of an asset may be estimated through an analysis of recent sales or offerings of comparable property. Actual sales and offering prices are adjusted for differences between the asset being appraised and the comparable assets in time of sale, location, size, condition, utility, and other relevant factors.

Cost Approach: The cost approach recognizes that the value of an asset may be represented by the cost to reconstruct or replace it with another of like utility. To the extent that the utility of the asset appraised is less than that of a new asset, the cost new may be adjusted to reflect appropriate physical depreciation and functional and economic obsolescence.

Where more than one approach is utilized to form an opinion of value, the results of each approach will be reconciled giving consideration to the type of asset, the applicability of the approach, and the nature and reliability of the data used.

VALUATION METHODOLOGY

While we will give consideration to all three approaches to value, we will rely on and correlate the results of those approaches that are appropriate and most indicative of market value. The methodologies applied and the report prepared for this service will be in conformance with the Uniform Standards of Professional Appraisal Practice (“USPAP”) of The Appraisal Foundation.

The personal property will be valued giving consideration to the cost and/or the sales comparison approaches (as appropriate) for each asset type. In applying these approaches, attention will be given to the following factors where they apply:

• Extent, character and utility of the asset;
• The cost of reproduction new of the individual items in accordance with current market prices for labor, materials, and manufactured equipment, inclusive of freight and installation less an amount for depreciation or loss in value arising from physical wear and tear, age, and lack of utility;
• Age, condition, past maintenance, and present and prospective condition in comparison with new units of a like kind,
• Current prices a dealer in used equipment might charge or an alternate user might pay for similar items of property of like condition plus a reasonable allowance for freight and installation, and
• A reasonable period of time in which to complete a sale.

In executing this aspect of our work, we will rely on property records and other information furnished by you or your representatives to provide detailed asset identification. In developing our opinion of value, we will not investigate any financial data pertaining to the present or prospective earning capacity of the operation in which designated assets are used. We will assume that prospective earnings will provide a reasonable return on the appraised value of the designated assets, plus the value of any assets not included in the appraisal, and adequate net working capital. If prospective earnings will not be adequate to justify ownership of the assets at the appraised levels, then the appraisal value must be reduced accordingly.

Standard of Value

Fair Market Value is defined as:

The price at which the property/asset would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.

Under the premise of continued use, the value reflects the intention of the buyer and the seller to retain the property as installed at its present location as part of the current operations. Consequently, it does not represent the amount that might be realized from piecemeal disposition of the property in the marketplace or from some other use of the property.

The premise of continued use is generally appropriate when:

• The assets are fulfilling an economic demand for the service they provide.
• The assets have a significant remaining useful life expectancy.
• There are responsible ownership and competent management.
• Diversion of the assets to an alternative use would not be economically feasible or legally permitted.
• Continuation of the existing use by present or similar users is practical.
• Due consideration is given to the assets’ functional utility for their present use.
• Due consideration is given to the assets’ economic utility.

Fair Market Value According to Stark II Regulations – 42 C.F.R. 411.351

The Stark regulations generally define “fair market price” or “General Market Value” as:

“the price at which bona fide sales have been consummated for assets of like type, quality, and quantity in a particular market at the time of acquisition, or the compensation that has been included in bona fide service agreements with comparable terms at the time of the agreement, where the price or compensation has not been determined in any manner that takes into account the volume or value of anticipated or actual referrals.”

Price that an asset would bring, as the result of bona fide bargaining between well-informed parties to the agreement who are not otherwise in a position to generate business for the other party on the date of the acquisition of the asset. Compensation that would be included in a service agreement as a result of bona fide bargaining between well-informed parties to the agreement who are not otherwise in a position to generate business for the other party at the time of the service agreement price of bona fide sales for assets of like type, quality and quantity in particular market; Compensation included in bona fide service agreement with comparable terms at the time; not determined in any manner that takes into account the volume or value of anticipated or actual referrals. We interpret the definition of fair market value for tax purposes defined above on page 2, and for Stark regulation purposes defined above as virtually having the same meaning.