PAUL J. COOPER CENTER FOR HUMAN SERVICES, INC. FINANCIAL STATEMENTS JUNE 30, 2016 AND 2015

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1 FINANCIAL STATEMENTS

2 TABLE OF CONTENTS Page # Independent auditors report 1-2 Statements of financial position 3 Statements of activities 4 Statements of functional expenses 5-6 Statements of cash flows 7 Notes to financial statements 8-14

3 SATTY, LEVINE & CIACCO, CPAS, P.C. Certified Public Accountants & Business Advisors Since People...Relationships...Results. INDEPENDENT AUDITORS REPORT To the Board of Directors of Paul J. Cooper Center for Human Services, Inc. We have audited the accompanying financial statements of Paul J. Cooper Center for Human Services, Inc. (a nonprofit organization), which comprise the statements of financial position as of June 30, 2016 and 2015, and the related statements of activities, functional expenses 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. Auditors 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 audit 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 auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk 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. 125 Jericho Turnpike, Suite 200 Jericho, New York fax South Lake Avenue, Suite 507 Pasadena, California fax

4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Paul J. Cooper Center for Human Services, Inc. as of June 30, 2016 and 2015, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis-of-Matter Regarding Going Concern The accompanying financial statements have been prepared assuming that the Organization will continue as a going concern. As discussed in Note 12 to the financial statements, the Organization has suffered recurring significant operating losses and has a net deficiency in net assets that raise substantial doubt about its ability to continue as a going concern. Management s plans regarding those matters also are described in Note 12. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter. Satty, Levine & Ciacco, CPAs, P.C. Jericho, New York December 1, 2016

5 STATEMENTS OF FINANCIAL POSITION ASSETS: Cash and cash equivalents $ 129,453 $ 736,501 Restricted cash and cash equivalents 212, ,838 Accounts receivable, net 990,580 1,175,921 Property and equipment, net 7,085,777 7,230,918 Security deposits and other assets 33,950 36,450 Bond issue costs, net 76,683 87,638 TOTAL ASSETS $ 8,528,802 $ 9,475,266 LIABILITIES: Accounts payable and accrued expenses $ 1,308,109 1,131,887 Accrued vacation 182, ,669 Accrued salaries and taxes 60, ,285 Payroll tax liabilities 835, ,697 Security deposit payable 300,000 - Due to government agencies 335,843 1,453,002 Mortgage payable 6,053,384 6,257,738 TOTAL LIABILITIES 9,075,793 9,790,278 NET DEFICIT: Unrestricted net deficit (546,991) (315,012) TOTAL NET DEFICIT (546,991) (315,012) TOTAL LIABILITIES AND NET DEFICIT $ 8,528,802 $ 9,475,266 See independent auditors' report and notes to financial statements

6 STATEMENTS OF ACTIVITIES FOR THE YEARS ENDED REVENUE AND OTHER SUPPORT: Net patient and residential fees $ 7,793,369 $ 8,563,801 Grants and contribution income 30, ,760 Interest income Other revenue 334, ,326 TOTAL REVENUE AND OTHER SUPPORT 8,158,431 9,281,941 EXPENSES: PROGRAM SERVICES Individual residential alternatives 3,207,498 3,189,565 Intermediate care facilities 2,588,989 2,636,872 Alcohol clinic 790, ,565 Mental health clinic - 487,941 Other 346, ,670 TOTAL PROGRAM SERVICES 6,933,381 7,524,613 SUPPORTING SERVICES Management and general 1,414,815 1,677,560 Fundraising 42,214 49,129 TOTAL SUPPORTING SERVICES 1,457,029 1,726,689 TOTAL EXPENSES 8,390,410 9,251,302 CHANGE IN NET ASSETS (231,979) 30,639 UNRESTRICTED NET (DEFICIT): Beginning of year (315,012) (345,651) End of year $ (546,991) $ (315,012) See independent auditors' report and notes to financial statements

7 STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED JUNE 30, 2016 PROGRAM SERVICES SUPPORTING SERVICES IRA ICF ALCOHOL CLINICS OTHER TOTAL PROGRAM SERVICES MANAGEMENT AND GENERAL FUNDRAISING TOTAL SUPPORTING SERVICES TOTAL EXPENSES EXPENSES: Salaries and wages $ 1,776,488 $ 1,078,118 $ 277,508 $ 196,340 $ 3,328,454 $ 498,645 $ - $ 498,645 $ 3,827,099 Payroll taxes and employee benefits 562, ,909 79,946 61,701 1,043, , ,618 1,197,529 Food 89,326 85,446 21, ,109 2,860-2, ,969 Maintenance 18,284 23,536 13, ,473 36,063-36,063 91,536 Rent and utilities 131, ,939 13, ,537 34,215-34, ,752 Client travel , , ,074 Staff travel 12,539 6,621 4, ,852 7,961-7,961 31,813 Client incidentals 36,290 19,401 3,180-58, ,054 Facility service assessment - 600, , ,096 Day hab services Staff development 9,737 6, , ,967 Contracted services 148, , ,451 72, , , , ,378 Supplies 45,870 47,093 8, ,664 22,147-22, ,811 Telephone 23,863 14,570 6,071 1,145 45,649 15,435-15,435 61,084 Insurance 88,726 51,861 12,391 8, ,837 13,698-13, ,535 Equipment rental/lease Professional fees ,780 2, , , ,081 Other expenses ,292 42,031 48,323 48,339 Client personal allowance 61,815 9, , ,859 Interest 58,483 1,043 94, , , , ,726 Dues, permits and registration 35,689 19,212 2,229 1,850 58,980 25,702-25,702 84,682 Payroll and data processing 1,943 1, ,067 6,987-6,987 11,054 Bad debts ,094-28, ,094 Depreciation and amortization 105,688 27,738 40, , , , ,878 TOTAL EXPENSES $ 3,207,498 $ 2,588,989 $ 790,465 $ 346,429 $ 6,933,381 $ 1,414,815 $ 42,214 $ 1,457,029 $ 8,390,410 See independent auditors' report and notes to financial statements

8 STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED JUNE 30, 2015 PROGRAM SERVICES SUPPORTING SERVICES IRA ICF ALCOHOL CLINICS MENTAL HEALTH OTHER TOTAL PROGRAM SERVICES MANAGEMENT AND GENERAL FUNDRAISING TOTAL SUPPORTING SERVICES TOTAL EXPENSES EXPENSES: Salaries and wages $ 1,801,723 $ 1,040,102 $ 401,275 $ 183,587 $ 144,442 $ 3,571,129 $ 525,972 $ - $ 525,972 $ 4,097,101 Payroll taxes and employee benefits 583, , ,659 28,290 45,916 1,114, , ,452 1,277,999 Food 99,498 73,208 35, ,922 6,761-6, ,683 Maintenance 29,606 24,680 15, ,945 72,258 49,176-49, ,434 Rent and utilities 122, , ,845 35, ,414 32,872-32, ,286 Client travel ,620 29, , ,230 Staff travel 19,589 11,801 2, ,997 7,848-7,848 41,845 Client incidentals 16,580 11,850 9, , ,292 Facility service assessment - 359, , ,502 Day hab services - 337, , ,432 Staff development 3,365 3,851 1, , ,727 Contracted services 125, ,153 74, ,043 45, , , , ,121 Supplies 55,465 44,475 24,868 10,678 3, ,693 30,878-30, ,571 Telephone 28,132 14,931 9,549 3,812 2,745 59,169 14,917-14,917 74,086 Insurance 56,869 90,494 11,537 2,734 7, ,095 13,372-13, ,467 Equipment rental/lease ,810-11,810 11,810 Professional fees ,105-76,105 76,105 Other expenses ,961 49,129 58,090 58,585 Client personal allowance 56,797 7, , ,377 Interest 62,039 1, , , , ,840 Dues, permits and registration 29,542 16,987 2,385-2,280 51,194 15,245-15,245 66,439 Payroll and data processing ,830-10,830 11,379 Bad debts ,522-21, ,522 Depreciation and amortization 97,920 22, , , , , ,469 TOTAL EXPENSES $ 3,189,565 $ 2,636,872 $ 955,565 $ 487,941 $ 254,670 $ 7,524,613 $ 1,677,560 $ 49,129 $ 1,726,689 $ 9,251,302 See independent auditors' report and notes to financial statements

9 STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED CASH FLOWS FROM OPERATING ACTIVITIES: Change in net assets $ (231,979) $ 30,639 Adjustments to reconcile change in net assets to net cash from operating activities: Depreciation and amortization 281, ,469 Provision for uncollectible receivable 28,094 21,522 (Increase) decrease in: Accounts receivables 157,247 (133,314) Security deposits 2,500 4,445 Increase (decrease) in: Accounts payable and accrued expenses 176,222 (323,909) Accrued vacation (5,074) (23,215) Accrued salaries, taxes and interest payable (117,487) 12,977 Payroll tax liabilities 253, ,105 Security deposit payable 300,000 - Due to government agencies (1,117,159) 697,513 TOTAL ADJUSTMENTS (40,412) 628,593 NET CASH FROM OPERATING ACTIVITIES (272,391) 659,232 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (125,782) (192,910) NET CASH FROM INVESTING ACTIVITIES (125,782) (192,910) CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on mortgage payable (204,354) (198,418) Loan proceeds from New York City - 228,520 Change in restricted cash and cash equivalents (4,521) 10,726 NET CASH FROM INVESTING ACTIVITIES (208,875) 40,828 CHANGE IN CASH AND CASH EQUIVALENTS (607,048) 507,150 CASH AND CASH EQUIVALENTS: Beginning of year 736, ,351 End of year $ 129,453 $ 736,501 SUPPLEMENTAL DISCLOSURE: Cash paid during the year for interest $ 391,761 $ 399,760 See independent auditors' report and notes to financial statements

10 NOTES TO FINANCIAL STATEMENTS NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION A. ORGANIZATION Paul J. Cooper Center for Human Services, Inc., (the Organization ), is a not-for-profit organization incorporated under Section 501(c)(3) of the Internal Revenue Code. The Organization s purpose is to develop and operate various programs that provide intermediate care facilities, community residences, individual residential alternatives, Medicaid service coordination, alcoholism clinics, mental health clinics and other programs. Major programs operated by the Organization are as follows: Individual Residential Alternatives (IRA) is licensed by the Office of Mental Retardation and Developmental Disabilities (OMRDD). The program provides staff onsite and available at all times when consumers are present. Intermediate Care Facility (ICF) is licensed by the Office of Mental Retardation and Developmental Disabilities (OMRDD). The facility is providing active programming, room and board, and continuous 24 hour per day supervision. Alcohol Clinics is licensed by the New York State Office of Alcoholism and Substance Abuse Services (OASAS). The program provides individualized treatment plans to guide each patient in the recovery process and improve their quality of life. Medicaid Services Coordination (MSC) is licensed by the Office of Mental Retardation and Developmental Disabilities (OMRDD). The program assists persons with developmental disabilities and mental retardation in gaining access to necessary services and support appropriate to the needs of the individuals. Community Habilitation Program - Residential Habilitation services are those that enhance skills necessary to perform activities that continuously occur in an individual s home. Habilitation services are directed toward acquiring, and improving the self-help, socialization and adaptive skills necessary to reside successfully at home and in community-based settings B. BASIS OF ACCOUNTING The financial statements of the Organization have been prepared on the accrual basis of accounting and, accordingly, reflect all significant receivables, payables and other liabilities. C. BASIS OF PRESENTATION The accompanying financial statements reflect the accounts and activities of Paul J. Cooper Center for Human Services, Inc. Financial statement presentation follows the recommendations of the Financial Accounting Standards Board authoritative guidance on Financial Statements of Not-for-Profit Organizations. Under this guidance, Paul J. Cooper Center for Human Services, Inc. is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets and permanently restricted net assets. See independent auditors report

11 NOTES TO FINANCIAL STATEMENTS NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. CASH AND CASH EQUIVALENTS The Organization considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. B. ACCOUNTS RECEIVABLE Accounts receivable are stated at the amount the Organization expects to collect from New York State. C. PROPERTY AND EQUIPMENT Building and equipment are stated at cost. Costs in excess of $5,000 and the value of donated property and equipment are capitalized at fair market value. Depreciation is provided on the straight-line method over the estimated useful life of the asset. The estimated useful lives of assets are as follows: Building and improvements Autos and trucks Furniture, fixtures and equipment years 5-10 years 5-7 years D. CONTRIBUTIONS The Organization accounts for contributions in accordance with the recommendations of the Financial Accounting Standards Board authoritative guidance on Accounting for Contributions Received and Contributions Made. In accordance with this guidance, contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence or nature of any donor restrictions. All donor-restricted support is reported as an increase in temporarily or permanently restricted net assets depending on the nature of the restriction. When a restriction expires (that is, when a stipulated time restriction ends or purpose restriction is accomplished), temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restriction. All restricted contributions where the restrictions are met in the same period as received are reported as unrestricted contributions. E. REVENUE The majority of the Organization s total revenue and other support was derived from several governmental agencies within New York State and the City of New York. As of June 30, 2016 and 2015 substantially all the Organization s receivables were derived from the same state and city agencies. F. FUNCTIONAL EXPENSE ALLOCATION Costs incurred in providing the various programs and supporting services are summarized on a functional basis in the statement of activities and in the statement of functional expenses. Accordingly, these costs have been allocated among the programs and supporting services benefited. See independent auditors report

12 NOTES TO FINANCIAL STATEMENTS NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) G. USE OF ESTIMATES Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. On an ongoing basis, management evaluates the estimates and assumptions based on new information. Management believes that the estimates and assumptions are reasonable in the circumstances; however, actual results could differ from those estimates. H. INCOME TAXES Paul J. Cooper Center for Human Services, Inc. is exempt from federal income taxes under section 501(c)(3) of the Internal Revenue Code and comparable New York State law. Contributions to it are tax deductible within the limitations prescribed by the code. The Organization's Forms 990, Return of Organization Exempt from Income Tax, for the years ending June 30, 2016, 2015, 2014 and 2013 are subject to examination by the IRS, generally for 3 years after they were filed. The Organization has concluded that there are no material uncertain tax liabilities to be recognized at this time. I. RECLASSIFICATIONS Certain amounts in the prior year s financial statements have been reclassified to conform to the current year s presentation. NOTE 3. PROPERTY AND EQUIPMENT Property and equipment at June 30, 2016 and 2015 consisted of the following: Building and improvements $ 8,641,050 $ 8,609,374 Furniture, fixtures and equipment 265, ,258 Autos and trucks 163,744 75,328 Property and equipment 9,070,741 8,944,960 Less: accumulated depreciation (1,984,964) (1,714,042) Property and equipment (net) $ 7,085,777 $ 7,230,918 Depreciation expense for the years ended June 30, 2016 and 2015 was $270,922 and $257,515, respectively. See independent auditors report

13 NOTES TO FINANCIAL STATEMENTS NOTE 4. BOND ISSUE COSTS Costs associated with obtaining financing are capitalized and expensed over the life of the financing Bond issue costs $ 131,455 $ 131,455 Less: accumulated amortization (54,772) (43,817) Bond issue costs (net) $ 76,683 $ 87,638 Amortization expense for each of the years ended June 30, 2016 and 2015 was $10,955 and the future estimated amortization expense on the bond issue costs is $10,955 for each of the next five succeeding fiscal years. NOTE 5. LONG-TERM DEBT Gates Avenue Building: Seller financed mortgage dated October 18, 2010, secured by the building, payable in monthly installments of principle and interest of $33,134. The mortgage bears interest at a rate of 6.96% and matures in October $ 4,721,942 $ 4,788,329 Ashford Building: Bond payable through the New York City Industrial Development Agency, payable in monthly installments of principle and interest of $11,170. The bond bears interest at 3.20% and matures in 2023 (See IDA bond payable). The 2016 principle payment was paid on July 1, ,000 1,080,000 Vernon Building: Mortgage payable to a bank dated October 3, 2006, secured by the building, payable in monthly installments of principle and interest of $4,061. The mortgage bears interest at a rate of 7.5% and matures in October , ,409 96th Street Building: Construction loan payable to a bank dated June 17, The loan bears interest at the bank's prime rate plus 2 percentage points. The loan is due and payable in full on the last day of the construction period. In addition, the Organization has an option to make monthly amortized payments. 18,333 20,000 TOTAL LONG-TERM DEBT $ 6,053,384 $ 6,257,738 See independent auditors report

14 NOTES TO FINANCIAL STATEMENTS NOTE 5. LONG-TERM DEBT (continued) Maturities of the mortgages payable at June 30, 2016 are as follows: June 30, 2017 $ 213, , , , ,548 Thereafter $ 4,910,092 6,053,384 INDUSTRIAL DEVELOPMENT AGENCY BOND PAYABLE: The Organization financed loans to pay off Bank of America s three mortgages for the purchase of the Ashford buildings (the Facilities ), and improvements made, by means of long-term financing through the issuance of Series 2011A-1 (tax exempt) and Series 2011A-2 (federally taxable) Civic Facility Revenue Bonds (the Bonds ) issued by the New York City Industrial Development Agency (NYCIDA) as part of the Interagency Council Pooled Loan Program. The Series 2011A-2 Bond matured in July The Series 2011A-1 Bond bears a coupon rate of interest in a range from 1.20% to 4.125% and matures in The outstanding balance on the Series 2011A-1 and 2011A-2 Bonds, at June 30, 2016 and 2015 was $965,000 and $1,080,000, respectively. In accordance with its agreements, the Organization is required to make monthly principal and interest payments to a debt service reserve fund, to be used by the trustee to pay annual principal and semi-annual interest payments to bondholders as they become due. The Organization has funds on deposit in a debt service reserve fund ( DSRF ) held by the Trustee in accordance with NYCIDA bond indentures. The deposits in the fund are to be used by the Trustee to make principal and interest payments to bondholders should the Organization default on the required principal and interest payments. Any funds remaining at the conclusion of the bond term shall be returned to the Organization or credited by the trustee as part of the final bond payment. At June 30, 2016 and 2015, the total market value of the debt service reserve funds presented in the financial statements as restricted cash and cash equivalents was $212,359 and $207,838, respectively. NOTE 6. PAYROLL TAX LIABILITIES At June 30, 2016 and 2015, the Organization had a liability of approximately $835,064 and $581,697, respectively, payable to the Internal Revenue Service ( IRS ) for non-remittance of payroll tax between the fiscal year 2014 and The Organization submitted an Offer in Compromise to the Internal Revenue Service. Currently, the Organization is awaiting a final response from the Internal Revenue Service in order to settle the payroll tax liability. See independent auditors report

15 NOTES TO FINANCIAL STATEMENTS NOTE 7. DUE TO GOVERNMENT AGENCIES The Organization has agreed to a final audit determination with the New York State Office of Mental Health for the years 1999 through The full amount of the determination was $1,155,756. The liability is being repaid by recoupments from Medicaid payments. The Organization anticipates that it will pay approximately $50,000 in the fiscal year The balance at June 30, 2016 and 2015 was $155,499 and $200,843, respectively. The Organization also agreed to a final audit determination with the New York State Office of the Medicaid Inspector General for $134,824 in The liability is being repaid by recoupments from Medicaid payments. The Organization anticipates that recoupments will start when the settlement amount for the years 1999 to 2004 is fully recouped. The balance at June 30, 2016 and 2015 was $134,824 each year. In 2015, the Organization received $904,193 from the Office for People with Developmental Disabilities related to prior years services. The balance at June 30, 2016 and 2015 was $0 and $888,815, respectively. The Organization received a cash flow loan from the City of New York to cover the purchases of vehicles and equipment in April The loan will be repaid by a vehicle grant. The balance at June 30, 2016 and 2015 was $45,520 and $228,520, respectively. NOTE 8. EMPLOYEE BENEFIT PLANS The Organization offers a 403 (b) pension plan. Employees become eligible when they attain both age twenty-one and complete one year of service. The Organization matches up to 3% of the eligible employees salaries annually. Pension expense for the years ended June 30, 2016 and 2015 was $29,403 and $31,280, respectively. NOTE 9. OPERATING LEASES The Organization is obligated under several operating leases for various facilities. These leases expired at various dates through Currently, leases are on a month-to-month basis. NOTE 10. CONTINGENCIES Cost reimbursements from governmental funding sources are based on a prescribed reimbursement methodology that is subject to audit by those funding sources. Management has estimated that any costs disallowed or adjusted by governmental agencies would not have a material effect on the accompanying financial statements. Property and equipment purchased under certain grant agreements, in which the resource provider retains legal title, have been capitalized as it is probable that the Organization will be permitted to keep the assets at the conclusion of the grant agreement. In the ordinary course of operations, claims have been filed or are pending against the Organization. In the opinion of management, all such matters are without merit or are of such kind, or involve such amounts, as would not have a significant effect on the financial position or results of activities of the Organization if disposed of unfavorably. See independent auditors report

16 NOTES TO FINANCIAL STATEMENTS NOTE 11. CONCENTRATION OF CREDIT RISK The Organization maintains all of its cash and cash equivalents in high quality financial intuitions. Accounts at the institutions are insured by the Federal Depository Insurance Corporation ( FDIC ). The FDIC insured limits for the years ended June 30, 2016 and 2015 was $250,000. At June 2016, the Organization had no assets that were in excess of the insured limits. At June 30, 2015, the Organization had assets that were in excess of the insured limits. The Organization s revenues are primarily from the New York State Department of Mental Health. Most patients are primarily from the metropolitan area. NOTE 12. GOING CONCERN As indicated in the accompanying financial statements, the Organization showed a decrease in net assets of $231,979 during the year ended June 30, 2016; as of that date, the Organization's total liabilities exceeded its total assets by $546,991, which creates an uncertainty about the Organization's ability to continue as a going concern. Management of the Organization has developed a plan to reduce its liabilities and expenses by closed its Mental Health program. The ability of the Organization to continue as a going concern is dependent on the success of the management plan. The financial statements do not include any adjustments that might be necessary if the Organization is unable to continue as a going concern. NOTE 13. SUBSEQUENT EVENTS The Organization has evaluated events and transactions that occurred through December 1, 2016, which is the date the financial statements were available to be issued, for possible disclosure and recognition in the financial statements. See independent auditors report