JEWISH BOARD OF FAMILY AND CHILDREN'S SERVICES, INC. AND AFFILIATES CONSOLIDATED FINANCIAL STATEMENTS AND AUDITOR'S REPORT JUNE 30, 2012

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1 CONSOLIDATED FINANCIAL STATEMENTS AND AUDITOR'S REPORT

2 JEWISH BOARD OF FAMILY AND CIDLDREN'S TABLE OF CONTENTS Independent Auditor's Report Exhibit A - Consolidated Statement of Financial Position B - Consolidated Statement of Activities C - Consolidated Statement of Functional Expenses D - Consolidated Statement of Cash Flows Notes to Consolidated Financial Statements Schedule 1 - Consolidating Statement of Financial Position 2 - Consolidating Statement of Activities

3 2. TABLE OF CONTENTS Schedule (continued) 3 - Schedule of Functional Expenses- Jewish Board of Family and Children's Services, Inc. 4 - Schedule of Functional Expenses - Shield of David, Inc. d/b/a The Shield Institute

4 I1Qll LOEB & TROPER LLP Independent Auditor's Report The Board of Trustees Jewish Board of Family and Children's Services, Inc. and Affiliates We have audited the accompanying consolidated statement of financial position of Jewish Board of Family and Children's Services, Inc. and Affiliates (the Organization) as of June 30, 2012, and the related consolidated statements of activities, functional expenses and cash flows for the year then ended. These consolidated financial statements are the responsibility of Jewish Board of Family and Children's Services, Inc. and Affiliates' management. Our responsibility is to express an opinion on these financial statements based on our audit. The prior year sununarized comparative information has been derived from the Organization's June 30, 2011 financial statements and, in our report dated November 9, 2011, we expressed an unqualified opinion on those financial statements. We conducted our audit 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 includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Jewish Board of Family and Children's Services, Inc. and Affiliates' internal control over fmancial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the fmancial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Jewish Board of Family and Children's Services, Inc. and Affiliates as of June 30, 2012, and the changes in their net assets and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Auditors and Consultants 655 Third Avenue, 12th Floor, New York, NY Serving the Health Care & Not-for-Profit Sectors (212) I Fax (212) I

5 Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The information for the year ended June 30, 2012 in Schedules 1 through 4 is presented for purposes of additional analysis and is not a required part of the fmancial 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 financial statements. The information has been subjected to the auditing procedures applied in the audit of the fmancial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the fmancial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information for the year ended June 30, 2012 is fairly stated in all material respects in relation to the financial statements as a whole. The information for the year ended June 30, 2011 included in Schedules 1 through 4 have been derived from supplemental information included in the June 30, 2011 consolidated financial statements and, in our report dated November 9, 2011, we expressed an unqualified opinion on that information in relation to the fmancial statements as a whole. 2. November 30, 2012 u LOEB & TROPERLLP

6 EXIUBIT A CONSOLIDATED STATEMENT OF FINANCIAL POSITION AND ASSETS Cash and cash equivalents $ 2,058,053 Accounts receivable. net (Note 2) 26,443,724 $ Investments, including supplementary retirement plan (Notes 2 and 3) 72,133,040 Contributions receivable- net (Note 4) 3,806,426 Deferred charges and other assets (Notes 2 and 6) 3,952,760 Assets held by bond trustees (Notes 2, 3 and 7) 2,590,231 Fixed assets- net (Note 5) 103,454,091 Total assets $ 214,438,325 $ 3,014,937 28,534,871 78,457,252 3,043,333 4,319,236 2,574, ,607, ,551,637 LIABILITIES AND NET ASSETS Liabilities Bank lines of credit (Note 9) $ 12,000,000 $ Accounts and accrued expenses payable 7,434,795 Accrued salaries and related benefits 10,925,172 Accrued postretirement and other benefits (Notes 3 and 10) 21,229,427 Deferred revenues 734,473 Due to government agencies (Note 2) 24,104,388 Capital lease obligations (Note 6) 14,340,000 Bonds payable (Note 7) 8,835,000 Mortgages payable (Note 8) 12,932,116 Total liabilities 112,535,371 Net assets (Exhibit B) Unrestricted 78,825,174 Temporarily restricted (Note 11) 16,512,571 Permanently restricted (Note 12) 6,565,209 Total net assets 101,902,954 Total liabilities and net assets $ 214,438,325 $ 7,400,000 8,678,007 11,135,701 22,379,125 2,641,750 19,834,693 14,340,000 9,935,000 13,499, ,844,244 89,740,933 19,401,251 6,565, ,707, ,551,637 See independent auditor's report. The accompanying notes are an integral part of these statements.

7 SERVICES INC. AND AFFILIATES EXHIBITB CONSOLIDATED STATEMENT OF ACTIVITIES YEAR ENDED (With Summarized Financial Information for the Year Ended June 30, 2011) Unrestricted Temporarily Restricted Permanently Total Restricted Revenue aud other support Contributions Donated services aud other income (Note 2) Special events - net (Note 15) United Jewish Appeal-Federation of Jewish Philauthropies of New York, Inc. Government support aud revenue Program service fees Rentals and other fees (Note 2) Investment income (Note 3) Net assets released from restrictions (Notes 2 aud 11) Total revenue aud other support Expenses (Exhibit C) Program services Residential Outpatient Evaluation aud education Total program services Supporting services Management aud general Public relations Fund raising Total supporting services Total expenses $ 3,632,342 $ 1,611, ,479 1,798,502 6,493, ,962,477 11,315,068 2,379, , ,187 3,844,852 (3,844,852) 194,023,813 (2,046,309) 90,022,807 74,464,671 14,097, ,584,975 23,605, ,656 1,212,553 25,790, ,375,233 $ 5,243,698 $ 4,480, , ,245 1,798,502 1,448,108 6,493,126 6,754, ,962, ,565,155 11,315,068 10,083,267 2,379,322 4,825,636 1,134,832 1,252, ,977, ,353,615 90,022,807 90,937,171 74,464,671 71,435,174 14,097,497 14,480, ,584, ,852,996 23,605,049 22,390, ,656 1,376,255 1,212,553 1,054,259 25,790,258 24,821, ,375, ,674,413

8 JEWISHBOARDOFFAMILY AND CHILDREN'S EXHIBITB SERVICES INC. AND AFFILIATES -2- CONSOLIDATED STATEMENT OF ACTIVITIES YEAR ENDED (With Summarized Financial Information for the Year Ended June 30, 2011) Temporarily Permanently Total Unrestricted Restricted Restricted Change in net assets before investment gains (losses) and other changes $ (10,351,420) $ (2,046,309) $ (12,397,729) $ 679,202 Investment gains (losses) (Note 3) (907,441) (875,436) (1,782,877) 9,020,521 Change in net assets before other changes (11,258,861) (2,921,745) (14, 180,606) 9,699,723 Other changes in net assets Swap settlement (Note 6) (600,000) Increase (decrease) in pension and postretirement benefit funded statns (Note I 0) (6,909,728) (6,909,728) 784,663 Gain on curtaihnent of postretirement plan (Note 10) 7,285,895 7,285,895 Reclassifications (Note 2) (33,065) 33,065 Change in net assets (Exhibit D) (10,915,759) (2,888,680) (13,804,439) 9,884,386 Net assets- beginning ofyear 89,740,933 19,401,251 $ 6,565, ,707,393 I 05,823,007 Net assets- end of year (Exhibit A) $ 78,825,174 $ 16,512,571 $ 6,565,209 $ 101,902,954 $ 115,707,393 See independent auditor's report. The accompanying notes are an integral part of these statements.

9 EXHIBITC CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES YEAR ENDED (With Summarized Financial Information for the Year Ended June 30, 2011) Program Services Supporting Services Total Direct Evaluation Management Cost of Residential Outpatient and and Public Fund Special Education Total General Relations Raising Events Total Salaries and wages $ 45,479,544 $ 39,819,814 $ 8,199,922 $ 93,499,280 $ 10,946,059 $ 505,222 $ 789,931 $ 12,241,212 $ 105,740,492 $ 105,919,747 Payroll taxes 4,202,339 3,381, ,920 8,199, ,931 44,766 62,739 1,089,436 9,289,285 9,316,249 Employee benefits 9,758,718 9,654,383 2,758,202 22,171,303 2,652, , ,075 2,959,518 25,130,821 24,032,550 Total salaries and related expenses 59,440,601 52,855,787 ll,574, ,870,432 14,580, ,81l 1,036,745 16,290, ,160, ,268,546 Consulting and professional fees 978,079 2,779,777 1,350,015 5,107,871 1,914,306 3,310 65,904 1,983,520 7,091,391 7,879,173 Recruiting 17,354 33,255 37,662 88, , , , ,947 Other contract services 250, ,379 7, ,008 1,244, ,147 11,546 1,493,681 2,124,689 1,850,863 Consumable supplies 3,390, , ,580 4,546, ,949 2,664 9, ,731 5,008,245 5,297,012 Telephone 370, ,950 50, , ,516 1, , , ,374 Postage and shipping 27,896 34,322 12,513 74,731 29, , , ,737 Occupancy 5,455,686 6,317, ,410 11,944,242 2,285, ,286,150 14,230,392 14,149,905 Equipment rental and minor purchases 174, ,486 60, , ,853 13, , , ,157 Vehicle (lease, repairs, gas and oil, garage) 944,797 41, ,573 33,658 33,658 1,020, ,596 Outside printing and artwork 19,745 49,413 1,614 70,772 23,249 16,977 1,713 41, , ,1l8 Workers' expense 45, ,222 48, ,560 79, ll,316 91, , ,435 Conferences, conventions, meetings and major trips 66, ,468 60, ,938 85, , , , ,735 Subscriptions and reference publications 3,205 1,513 2,454 7,172 6, ,224 13,804 20,976 20,332 Specific assistance to individuals (including food and clothing) 10,099,21l 1,575, ll,675,496 2,075 2,075 11,677,571 13,538,598 Client transportation 2,138,424 3,632 2,142,056 2,142,056 2,372,077 Membership dues and support payments 71,632 40,639 3,163 ll5,434 99, , , , ,379 Repairs and maintenance 1,237, , ,721 1,741, , ,151 1,846,901 2,058,055 Interest 820,043 51,060 23, , , ,576 1,666,1l6 1,739,469 New York State assessment 1,664,294 1,664,294 1,664,294 1,277,278 Clenenalinsurance 1,210, ,688 61,226 1,880, ,786 7,718 7, ,772 2,048,520 1,961,842 Depreciation and amortization 2,230,251 1,349, ,122 3,770,170 1,177,702 26, ,204,336 4,974,506 4,665,369 Bad debt expense 1,485,761 4,123,177 5,608,938 5,608,938 1,316,139 Food, facility and entertainment (Note 15) $ 384, , , ,181 Investment fees (Note 3) 424, , , ,716 Miscellaneous 18,536 45,150 2,885 66, ,176 1,180 3, , , ,662 Total expenses 90,022,807 74,464,671 14,097, ,584,975 24,052, ,656 1,212, ,556 26,622, ,207, ,500,695 Less elimination of intercompany interest (22,826) (22,826) (22,826) (47,385) Less direct costs of special events deducted directly on the consolidated statement of activities (384,556) (384,556) (384,556) (356,181) Less investment fees (Note 3) (424,481) (424,481) (424,481) (422,716) Total expenses reported by function on the consolidated statement of activities (Exhibit B) $ 90,022,807 $ 74,464,671 $ 14,097,497 $ 178,584,975 $ 23,605,049 $ 972,656 $ 1,212,553 $ $ 25,790,258 $ 204,375,233 $ 201,674,413 See independent auditor's report. The accompanying notes are an integral part of these statements.

10 EXHIBITD JEWISH BOARD OF FAMILY AND CHILDREN'S CONSOLIDATED STATEMENT OF CASH FLOWS YEARS ENDED AND Cash flows from operating activities Change in net assets (Exhibit B) $ (13,804,439) $ 9,884,386 Adjustments to reconcile change in net assets to net cash provided (used) by operating activities Depreciation and amortization 4,843,835 4,567,512 Amortization of debt financing costs 130,671 97,857 Change in value of split-interest agreements (33,938) 14,447 Loss on disposal of fixed assets 2,674 Net realized and unrealized losses (gains) on investments 1,782,877 (9,020,521) Decrease (increase) in assets Accounts receivable 2,091,147 (1,033,671) Other receivable 2,500,000 Contributions receivable (763,093) (362,223) Deferred charges and other assets 269,743 (256,048) Increase (decrease) in liabilities Accounts and accrued expenses payable (1,243,212) 1,922,580 Accrued salaries and related benefits (210,529) 476,387 Accrued postretirement and other benefits (1,149,698) 842,375 Deferred revenues (1,907,277) (667,314) Due to government agencies 4,269,695 (2,141,115) Net cash provided (used) by operating activities Cash flows from investing activities Purchases of investments Proceeds from sales of investments Increase (decrease) in assets held by bond trustee Purchases of fixed assets Net cash provided (used) by investing activities (5,724,218) (10,403,673) 14,945,008 (15,526) (2,690,623) 1,835,186 6,827,326 (18,457,045) 9,021,596 27,946 (4,323,199) (13,730,702)

11 EXHIBITD -2- CONSOLIDATED STATEMENT OF CASH FLOWS YEARS ENDED AND Cash flows from financing activities Repayment of bank lines of credit $ ( 46,800,000) Proceeds from borrowings of bank lines of credit 51,400,000 Repayments of long-term debt (1,667,852) Proceeds from borrowings of long-term debt Repayment of capital lease obligations Net cash provided (used) by financing activities 2,932,148 Net decrease in cash and cash equivalents (956,884) Cash and cash equivalents- beginning of year 3,014,937 Cash and cash equivalents - end of year (Exhibit A) $ 2,058,053 $ $ (27,600,000) 23,200,000 (1,545,919) 3,015,481 (32,995) (2,963,433) (9,866,809) 12,881,746 3,014,937 Supplemental disclosure of cash flow information Cash paid for interest $ 1,643,290 $ =..;1;,;,, 7;,:;0,:;6,;;;,65;;,;7~ Cash paid for taxes $ 25 $ ====2;;;5;, ) See independent auditor's report. The accompanying notes are an integral part of these statements.

12 NOTE 1- NATURE OF ORGANIZATION Jewish Board of Family and Children's Services, Inc. (JBFCS) offers a diverse network of 175 community-based programs, residential facilities and day treatment centers. Our programs reach more than 65,000 people of all religions, ethnic and economic backgrounds each year at sites throughout New York City and Westchester and through extensive training and consultation. We offer the most advanced mental health care and human services to help all New Yorkers live better at every stage of life. The JBFCS Center for Child Development and Learning provides comprehensive care for special needs children and their families, including help with learning disabilities and work with autistic children and their parents. These services include a therapeutic nursery school and clinic as well as extensive consultation and training in the area of early childhood. Our residential treatment programs, on our Westchester Campus and in Manhattan and Staten Island, provide a supportive enviromnent for children and teens with behavioral disorders through comprehensive treatment, special education and supervised living. As an alternative to residential placement, JBFCS runs day treatment programs for emotionally disturbed children. Our Madeleine Borg Community Services' clinics located throughout New York City at twelve neighborhood centers across all five boroughs and in other satellite locations, serve more than 10,000 New Yorkers who receive counseling for issues ranging from relationship troubles and severe depression to assisting teens with substance abuse problems. We also provide day treatment and residential services to adults living with severe and persistent mental illness. JBFCS is the second largest residential provider of domestic violence services in the city, with four safe homes in various locations. In addition, we are a leading provider of services to children and adults with developmental disabilities. We remain committed to strengthening and supporting Jewish communities through our Jewish community service programs, which reach out to Jews in need, offering counseling and support across a range of issues along the life cycle: from divorce and bereavement to illness and addiction. All of our work is made possible by a highly committed staff and a devoted corps of volunteers who work in both leadership positions and in direct services. Our renowned Martha K. Selig Institute trains JBFCS staff and outside practitioners to meet the highest standards of care and the most challenging needs of the New York City community. Revenues are earned primarily from Medicaid, New York State and New York City for services provided, with additional support provided from philanthropy.

13 2. NOTE 1- NATURE OF ORGANIZATION (continued) The accompanying consolidated financial statements include JBFCS, Shield of David, Inc. d/b/a "The Shield Institute" (The Shield) and Pelican Health Corp. (Pelican). The Shield provides educational and other services to individuals who are developmentally disabled. Pelican is a dormant for-profit corporation which had no activity other than city and state income taxes of $25 for the years ended June 30, 2012 and Both organizations are under common control as JBFCS is the sole member. The consolidated entities are herein referred to as the "Organization." All material intercompany profits, transactions and balances have been eliminated in consolidation. As of June 30, 2011, JBFCS had loaned The Shield $2,290,000 for operating purposes. Accrued interest as of June 30, 2011 was $3,652, which was repaid in During 2012, the Board of Directors of JBFCS adopted a resolution to forgive all outstanding loan principal and accrued interest of The Shield, therefore, there is no outstanding principal or accrued interest at June 30, The loan and related interest, as well as gains and losses associated with the forgiveness, were eliminated in the financial statements. JBFCS and The Shield are Section 501(c)(3) not-for-profit agencies exempt from federal income tax under Section 501(a) of the Internal Revenue Code and have been classified as publicly supported charitable organizations under Section 509(a)(l) of the Internal Revenue Code and qualify for the maximum charitable contribution deduction by donors. Both JBFCS and The Shield are exempt from state and "local taxes. Pelican, a for-profit organization incorporated in the State of New York, is subject to federal, state, and local taxes. NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis o(accounting The consolidated financial statements are prepared on the accrual basis of accounting. As discussed in Note I, all material intercompany balances and transactions have been eliminated in the consolidation. Use o(estimates The preparation of 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 amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

14 3. NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Summarized Financial Information The consolidated financial statements include certain prior-year summarized comparative information in total but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the Organization's consolidated financial statements for the year ended June 30, 2011, from which the summarized information was derived. Cash and Cash Equivalents Cash and cash equivalents represent highly liquid assets with maturities when acquired of less than three months. Substantially all of the Organization's cash and cash equivalents are on deposit at financial institutions and, at times, may exceed federally insured limits. Accounts Receivable and Allowance (or Doubtful Accounts The Organization records receivables based on rates and/or contracts for services provided. Receivables are charged to bad debt expense when they are determined to be uncollectible based upon a periodic review of the accounts by management. Factors used to determine whether an allowance should be recorded include the age of the receivable, current economic conditions, historical information and a review of payments subsequent to year end. Interest income is not charged or accrued on outstanding accounts receivable. At June 30, 2012, approximately 70% (62% in 2011) is due from Medicaid. As of June 30, 2012 and 2011, accounts receivable have been reported net of an allowance for doubtful receivables of approximately $2,460,000 and $2,515,000, respectively. Investments Investments are stated at fair value. Investments, in general, are exposed to various risks such as interest rate, credit and overall market volatility risks. Due to the level of risk associated with investments, it is at least reasonably possible that changes in the values of investment securities will occur in the near term, based upon the markets' fluctuations, and that such changes could materially affect the amounts reported in the accompanying consolidated financial statements. Investment fees have been netted against investment income in the consolidated statement of activities.

15 4. NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Contributions Receivable and Allowance (or Doubtful Accounts Unconditional promises to give that are expected to be collected within one year are recorded at net realizable value. Unconditional promises to give that are expected to be collected in future years are recorded at the present value of their estimated future cash flows. The discounts on those amounts are computed using risk-adjusted interest rates applicable to the years in which the promises are received. Amortization of the discounts is included in contribution revenue. Conditional promises to give are not included as support until the conditions are substantially met. The Organization determines whether an allowance for uncollectibles should be provided for contributions receivable. Such estimates are based on management's assessment of the aged basis of its contributions, current economic conditions, historical information and collections subsequent to year end. Contributions receivable are written off against the allowance for doubtful accounts when all reasonable collection efforts have been exhausted. Split-Interest Agreements The Organization is the beneficiary of a number of split-interest agreements with donors. Under these agreements, the Organization controls the donated assets and distributes to the donor or the donor's designee income generated from those assets until such time as stated in the agreements (usually upon the death of the donor or donor's designee). At such time, the Organization will be able to utilize the remaining assets. At the time of the gift, the Organization records contribution revenue and a liability for amounts payable to third-interest-party beneficiaries using an actuarial calculation based on estimated mortality rates and other assumptions that could change in the near term. The liability is adjusted annually. The fair value of investments held under split-interest agreements as of June 30, 2012 and 2011 was $274,465 and $308,403 respectively, and consist of Level I investments in money market funds and bond mutual funds. The asset and corresponding liability associated with these agreements are included in deferred charges and other assets, and accounts and accrued expenses payable, respectively, on the consolidated statement of financial position.

16 JEWISH BOARD OF FAMILY AND ClllLDREN'S 5. NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Debt Financing Costs Debt financing costs represent costs to obtain financing or refinancing for various projects at the Organization. Amortization is provided on the straight-line basis, extending over the remaining term of the applicable indebtedness. Debt financing costs as of June30, 2012 and 2011, consisting of unamortized bond issuance costs and premiums of approximately $1,445,000 and $1,576,000, respectively, were reported in deferred charges and other assets. Assets Held hv Bond Trustees Pursuant to bond agreements, the bond trustees have established debt service reserve funds and escrow funds to provide funds for the payment of interest and redemption of principal on the dates due. Fixed Assets Fixed assets are stated at cost or, if donated, at the estimated fair value at the date of the receipt. The Organization follows the practice of capitalizing individual acquisitions with a cost of $5,000 or greater and an estimated useful life of more than one year. Depreciation and amortization are provided over the estimated useful lives of the assets on the straight-line basis for buildings and improvements (15-50 years) and furniture and equipment (3-10 years). Leasehold improvements are amortized over the estimated useful life of the asset or the remaining term of the lease, whichever is shorter. Deferred Revenues Advance payments from government agencies that are not yet earned are recorded as liabilities until earned. Due to Government Agencies Due to government agencies consists of payments received from government agencies in excess of qualifying contractual expenses resulting from audits and other contractual liabilities.

17 6. NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Facilities Development Corporation Nonrecourse mortgages on the Bronx community residences and Brooklyn Intermediate Care Facility to the benefit of Facilities Development Corporation ("FDC"), acting through its agents, Office of Mental Health ("OMH") and the Office for People With Developmental Disabilities ("OPWDD"), respectively, were made available from the proceeds of bonds issued by the New York State Medical Care Facilities Finance Agency and loaned to FDC. The loans are payable over 25 years from the date of issuance. Repayments, paid by OMH, and OPWDD, which are applied first to interest and then principal, are effectuated through a corresponding reduction in the standard OMH and OPWDD reimbursement rates. Net Assets Unrestricted net assets - Unrestricted net assets include funds having no restrictions as to use or purpose imposed by donors. In addition, unrestricted net assets include expendable resources over which the Organization's Board of Trustees has discretionary control and are used to carry out the Organization's operations in accordance with its bylaws. Temporarily restricted net assets - Temporarily restricted net assets include resources expendable only for those purposes or periods specified by the donor or grantor. The restrictions are satisfied either by the passage of time or by satisfaction of donor intent. Permanently restricted net assets - Permanently restricted net assets represent funds that are subject to restrictions of gift instruments requiring that the principal be invested in perpetuity, while the income is expendable to support the general operating activities of the Organization. Contributions Unconditional contributions, including promises to give cash and other assets, are reported at fair value at the date the contribution is received. The gifts are reported as temporarily or permanently restricted support if they are received with donor stipulations that limit the use of the donated assets. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified as unrestricted net assets and reported in the consolidated statement of activities as net assets released from restrictions. Temporarily restricted contributions, as well as donor-restricted income earned on permanently restricted net assets received and expended in the same period are reflected as unrestricted contributions or unrestricted investment income in the accompanying consolidated financial statements.

18 7. NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Donated Services The Organization receives certain contributed services that meet criteria under generally accepted accounting principles for recognition as contributions. Such services (primarily volunteer caseworkers) are recorded in the consolidated financial statements at fair value (approximately $433,000 and $742,000 in 2012 and 2011, respectively). Other volunteers have donated time to the Organization's programs and supporting services. No amounts have been reflected in the accompanying consolidated financial statements for such services as they do not meet the criteria for recognition as contributions. Revenue (Tom Government Agencies The Organization's Residential Treatment Center receives funding for its foster care services through foster care contracts principally entered into with New York City and various adjacent counties. The Organization's Residential Treatment Facilities and Developmental Disabilities programs receive funding for their services through direct payments from governmental entities. Certain other governmental revenues are recognized based on estimated expenditures incurred and are subject to audit and adjustment by Medicaid and other regulatory agencies. Third-party reimbursement adjustments are recorded when reasonably determinable. Revenues from evaluation and education services (early childhood programs) are principally cost-based. The revenues for such services are recorded at tuition rates established by governmental payors (principally the New York State Education Department and the New York City Department of Education) less provisions for estimated uncompensated care arising from services rendered to children whose eligibility for governmental entitlement has been denied. Revenues are recognized based on estimated allowable education costs and are subject to audit and adjustment by governmental payors. The effects of such adjustments are recorded when reasonably determinable. The Organization receives additional Medicaid funding for its clinic and other related services in the form of a Comprehensive Outpatient Services (COPS) add-on. The COPS add-on is derived from a formula calculated by the New York State Office of Mental Health (OMH). After certain revenue thresholds are achieved for some services, a COPS Medicaid liability becomes due for payments received in excess of those revenue amounts. At this time, OMH is continuing to develop new methodologies and strategies relative to its existing COPS program. The Organization is currently awaiting further action and directives from OMH relative to its COPS program, including future repayment terms.

19 JEWISH BOARD OF FAMILY AND CIDLDREN'S 8. NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Revenue from Government Agencies (continued) The Organization receives certain funding for its programs in the form of operational grants, which usually run for a period of one year or longer. This support is restricted to operations within the terms of the grants and, accordingly, recognition of grant support is deferred until qualifying expenditures are incurred. Any excess of grant support over expenses incurred is recorded as due to government agencies. The Organization is not aware of any further allegations of noncompliance or audit results that could have a material adverse effect on the Organization's consolidated change in net assets or consolidated financial position and believes that it is substantially in compliance with all applicable laws and regulations. The current third-party-payor programs, including Medicaid and Medicare, are based upon complex laws and regulations. Noncompliance with such laws and regulations could result in fines, penalties and exclusion from such programs. No such fines, penalties and exclusions were imposed on the Organization during the fiscal year ended June 30, During the fiscal year ended June 30, 2010, an audit was initiated by the New York State Office of the Medicaid Inspector General (OMIG). The Organization has not been contacted regarding this audit and, accordingly, the results are as yet not determinable. Rental Income Rental income is recorded based on operational leases and revenue is recognized as rentals become due. Included in rental and other fees in the consolidated statement of activities is approximately $1,672,000 and $1,623,000 in 2012 and 2011, respectively, from the lease on the property that the Organization acquired at West 77ili Street. In addition, the Organization earned $2,500,000 on vacating the previous headquarters facility in 2011 under the terms of the contract for the sale of the previous headquarters facility (Note 16). Expense Allocation The majority of expenses can generally be directly identified with the program or supporting service to which they relate and are charged accordingly. Other expenses have been allocated among program and supporting service classifications primarily on the bases of direct operating expenses or other bases determined by management.

20 JEWISH BOARD OF FAMILY AND CIDLDREN'S 9. NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Operating Leases Operating leases are straight-lined over the term of the lease. Deferred rent is recorded where there are material differences between the fixed payment and the rent expense. Fair Value Measurements and Disclosures Fair Value Measurements and Disclosures, ASC Section 820, establishes a framework for measuring fair value. The framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level I measurements) and the lowest priority to unobservable inputs (Level3 measurements). The three levels of the fair value hierarchy are described below. Level I inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Organization has the ability to access. Level2 inputs to the valuation methodology include: Quoted prices for similar assets or liabilities in active markets; Quoted prices for identical or similar assets or liabilities in inactive markets; Inputs other than quoted prices that are observable for the asset or liability; Inputs that are derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability. Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. The asset or liability's fair value measurement level within the fair value hierarchy is based on the lowest level of ariy input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at June 30, 2012 as compared to those used at June 30, Money market funds, common stocks and fzxed income securities - Valued at the closing price reported on the active market on which the individual securities are traded. Mutual funds - Valued at the net asset value ("NA V") of shares held at year end.

21 10. NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Fair Value Measurements and Disclosures (continued) Limited partnerships - Investments in limited partnerships are stated at fair value as determined in good faith by the General Partner in accordance with the terms of the Partnership Agreement. The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Organization believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. Uncertainty in Income Taxes The Organization has determined that there are no material uncertain tax positions that require recognition or disclosure in the financial statements. Periods ending June 30, 2009 and subsequent remain subject to examination by applicable taxing authorities. Reclassifications Certain net assets balances have been reclassified in accordance with donor's intent. Subsequent Events Subsequent events have been evaluated through November 30, 2012, which is the date the financial statements were available to be issued.

22 II. NOTE 3 -INVESTMENTS Fair Value Fair Value Money market funds $ 3,883,130 $ 5,040,566 Common stocks 11,348,836 11,655,870 Mutual funds 45,514,120 50,177,298 Limited partnerships ]1,386, ,518 Total investments $ $ (I) The Organization, through its fuvestment Committee, utilizes outside investment advisors for investment and asset allocation. Assets are in various investments held with financial management firms. (2) Supplementary pension plan investments in the amount of approximately $1,701,000 in 2012 and $2,268,000 in 2011 are included in investments. The components of investment return are as follows: futerest and dividends (net expense of $424,481 in 2012 and $422,716 in 2011) $ 1,134,832 $ 1,252,986 Net realized gains 173,088 1,644,498 Net unrealized gains (losses) (1.955,965) $ ( ) $

23 12. JUNE 30,2012 NOTE 3- INVESTMENTS (continued) The following table sets forth by level, within the fair value hierarchy, the assets at fair value as ofjune 30, 2012 and 2011: 2012 Levell Leve13 Total Money market funds $ 3,883,130 $ $ 3,883,130 Common stock Domestic 10,785,956 10,785,956 International 562, ,880 Mutual funds Domestic 17,774,413 17,774,413 International 11,308,384 11,308,384 Corporate bonds 16,431,323 16,431,323 Limited partnerships 11,386,954 11,386,954 $ $ $ Levell Level3 Total Money market funds $ 5,040,566 $ $ 5,040,566 Common stock Domestic 11,229,470 11,229,470 International 426, ,400 Mutual funds Domestic 18,046,650 18,046,650 International 13,403,297 13,403,297 Corporate bonds 18,727,351 18,727,351 Limited partnerships 11,583,518 11,583,518 $ $ $ The Organization has no Level 2 investments.

24 13.. NOTE 3 -INVESTMENTS (continued) Additionally, assets held by bond trustees are broken-out as follows: 2012 Levell Cash $ 2,589,955 Money market funds 276 U.S. Treasury Bills $ 2,520 23! 2011 Levell $ 1,355, ,402 $ A summary of changes in Level3 assets for 2012 and 2011 are as follows: Balance, beginning of year Unrealized gains (losses) Purchases, sales, issuances and settlements (net) Balance, end of year The amount of total gains or losses for the period attributable to the change in unrealized gains or losses relating to assets still held at the reporting date 2012 $ 11,583,518 (196,564) $ $ (] ) 2011 $ 6,926, , ,000 $ $

25 14. NOTE 3- INVESTMENTS (continued) Fair Unfunded Notes Value Commitments --~~~~~~~ Limited partnership (1) $ 3,227,937 $ 3,304,320 None Limited partnership (2) 4,046,250 4,142,671 None Limited partnership (3) 4, , None Total limited partnerships $ $ Redemption Frequency Semi-annual Quarterly Quarterly Redemption Notice Period 95 days 70 days 90 days (1) This limited partnership invests primarily in a collection of diversified hedge fund strategies from a variety of underlying managers. Investments consist of hedge funds focusing on long/short equity, credit and event arbitrage, and directional trading. (2) This limited partnership invests primarily in a collection of diversified hedge fund strategies from a variety of underlying managers. Investments consist of hedge funds focusing on relative value, credit, event driven opportunities, and multi-strategy approaches. (3) This limited partnership invests primarily in a collection of diversified hedge fund strategies from a variety of underlying managers. Investments consist of funds focusing on long/short equity, multi-strategy, and distressed investment approaches.

26 15. NOTE 4 -CONTRIBUTIONS RECEIVABLE Contributions receivable have been discounted over the payment period using a discount rate of 3.25%. At June 30, 2012, the Organization's contributions receivable are due as follows: Less than one year One to five years More than five years Less: Discount to present value Allowance for doubtful accounts Net $ 1,814,938 1,666, ,231,883 (210,707) ( ) $ NOTE 5- FIXED ASSETS Fixed assets consist of the following: Land Building and building improvements Leasehold improvements Furniture and equipment Construction in progress Less accumulated depreciation and amortization 2012 $ 3 8,440, ,720,838 6,003,596 28,489, ,092,394 (82.638,303) $ $ 3 8,440, ,770,166 5,977,946 27,466, ,401,771 (77, ) $

27 JEWISH BOARD OF FAMIT.,Y AND CHILDREN'S 16. NOTE 6- CAPITAL LEASE OBLIGATIONS JBFCS- New York Citv Industrial Development Agency Bonds fu August 2000, Civic Facility Revenue Bonds (the "2000 Bonds") aggregating $15,820,000 were issued by the New York City fudustrial Development Agency ("IDA" or the "Agency"). All of the Organization's rights, title and interest in the leased property were assigned to the IDA. Further, the Organization immediately leased back these facilities at a rate and term equivalent to the debt service requirements of the 2000 Bonds. The IDA is prohibited from selling the facilities without the express consent of the Organization. All the facilities will be returned to the Organization on December 15, 2025, or at such time that the bond obligations have been fully satisfied. The proceeds from the 2000 Bonds, net of issuance costs, were deposited into a project fund (the "Project Fund") for the purpose of financing or refinancing the acquisition, reconstruction, renovation and equipping of the Mishkon Facility, the futerrnediate Care Facility, the fudividualized Residential Alternative Facilities, the Flagship Building, the Geller House, the Kaplan House, the J.W. Beatman Center, the Ittleson Center and the headquarters facilities of the Organization. The Organization has guaranteed the payment of principal or redemption price and interest on the 2000 Bonds and has granted to the trustee of the Bonds a security interest in their total operating revenues. Pursuant to the 2000 Bond Agreement, the bond trustee for the Bonds entered into an inter-creditor agreement. fu the event that there are insufficient total operating revenues to meet the payment obligations with respect to the Bonds, the bond trustee will receive a pro rata portion of the total operating revenues available. The 2000 Bonds are also secured by a bank letter of credit, for which no amounts are outstanding. The Organization pays an annual fee of 1.75% (approximately $250,000) of the total outstanding bonds to maintain the letter of credit. futerest payments on the bonds are based on a variable interest rate, which was 0.15% at 0.07% as of June 30, 2012 and 201 I, respectively. The 2000 Bonds require the Organization to comply with certain terms and conditions. The Organization was in compliance with all applicable financial covenants as of June 30, 2012 and 201 I. The Organization redeemed $1,480,000 of these obligations in connection with the sale of its headquarters building in 2009 (see Note 16). The remaining balance of the 2000 Bonds is subject to redemption by the IDA prior to maturity from mandatory Sinking Fund fustallments on July 1 of the years and in the principal amounts set forth below:

28 17. NOTE 6- CAPITAL LEASE OBLIGATIONS (continued) Year Sinking Fund Installment 2014 $ 355, , ,035, ,090, ,140, ,195, ,255, ,320, ,385, ,450, ,525, , $ QQQ Obligations under capital leases related to civic facility revenue bonds payable are as follows: July 1, 2012 July I, 2013 July I, 2014 July 1, 2015 July 1, 2016 Thereafter Total minimum lease payments Less amount representing interest Present value of net minimum lease payments $ 21,511 21, ,024 1,009,675 1,053,076 12,038,879 14,520,676 ( ) $ 14 34Q QQQ

29 JEWISH BOARD OF FAMILY AND ClllLDREN'S 18. NOTE 6 - CAPITAL LEASE OBLIGATIONS (continued) Iu 2005, the Organization entered into au interest rate swap with Lehman Brothers (Lehman) on its initial $15,820,000 debt obligations to IDA. Iu October 2008, Lehman filed for bankruptcy protection triggering a default by Lehman under the swap agreement. Upon the termination of the swap, a dispute arose as to its correct valuation. This dispute was resolved in June 2011, aud in fiscal year 2012, pursuant to that settlement, the Organization paid $600,000 to the Lehman Trustee. This amount was recorded as a liability in 2011 aud was paid in the 2012 fiscal year. Iu fiscal year 2010, the Organization entered into an interest rate cap agreement with one of its banks which limits any potential increases in the variable interest rates of the 2000 Bonds to a maximum of 3%. The original agreement expired in November 2012, at which time it was extended until November 2016 with essentially the same terms. Shield of David. Inc. During 2007, Shield of David, Iuc. entered into a capital lease agreement for its telephone system. The lease expired in January of2011. Interest expense on the lease for the year ended June 30, 2011 was $6,639. NOTE7-BONDSPAYABLE During fiscal 2004, bonds (the "2003 Bonds") aggregating $17,555,000 were issued by the Dormitory Authority of the State of New York ("DASNY"), aud the remaining balance on previously issued bonds (revenue bonds 1992 issue) were defeased. The Organization earned a bond premium as part of the issuance of the bonds in the amount of $571,000. This bond premium is being amortized over the life of the bonds. As of June 30, 2012, funds are being held by the bond trustees for payment of this liability. The balance of the proceeds from the 2003 Bonds was used for the renovation, equipping, refurbishing aud purchase of facilities located in Hawthorne, New Rochelle, and the five boroughs of New York City. Iu addition, the proceeds were used for the acquisition of computer equipment.

30 19. NOTE 7- BONDS PAYABLE (continued) In connection with the sale of its headquarters building (see Note 16), the Organization redeemed $1,000,000 of these 2003 Bonds in July 20 I 0. Pursuant to the 2003 Bond Agreement, the bond trustee established debt service reserve funds and escrow funds with balances at June30, 2012 and 2011 of $2,590,231 and $2,574,706, respectively, to provide funds for the payment of interest and redemption of principal on the dates due. The amount is included in assets held by bond trustee in the accompanying consolidated statement of financial position. The 2003 Bonds mature on the dates and in the principal amounts and bear interest at the rates as set forth below: Carrying Maturity Dates Interest Rates Amounts July I, % $ 1,150,000 July 1, % 240,000 July I, % $ OOQ Interest expense on the 2003 Bonds amounted to $438,750 for the year ended June 30, The 2003 Bonds, maturing from 2012 through 2033, are subject to redemption by DASNY prior to maturity from mandatory Sinking Fund Installments on July I of the years and in the principal amounts set forth below: Series 2003 Bonds Due Yearly Sinking Fund Year Installment 2012 $ 1,150, $ 1 39Q QQQ

31 20. NOTE 7 - BONDS PAY ABLE (continued) Series 2003 Bonds Due July 1, 2023 Sinking Fund Year Installment 2017 $ 90, , , , , , $ QQQ Series 2003 Bonds Due July 1, 2033 Sinking Fund Year Installment 2024 $ 415, , , , , , , ; , $ QQQ