Charles B. Wang Community Health Center, Inc. Financial Statements (With Supplementary Information)

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1 Financial Statements (With Supplementary Information) Schedule of Expenditures of Federal Awards, Internal Control and Compliance and Independent Auditor's Reports

2 Index Page Independent Auditor's Report 2 Financial Statements Statement of Financial Position 4 Statement of Activities and Change in Net Assets 5 Statement of Functional Expenses 6 Statement of Cash Flows 7 Notes to Financial Statements 8 Supplementary Information Schedule of Expenditures of Federal Awards 24 Notes to Schedule of Expenditures of Federal Awards 25 Independent Auditor's Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 26 Independent Auditor's Report on Compliance for Each Major Federal Program and Report on Internal Control over Compliance Required by the Uniform Guidance 28 Schedule of Findings and Questioned Costs 30 1

3 Independent Auditor's Report To the Board of Directors Charles B. Wang Community Health Center, Inc. Report on the Financial Statements We have audited the accompanying financial statements of Charles B. Wang Community Health Center, Inc. (the "Center"), which comprise the statement of financial position as of December 31, 2016, and the related statements of activities and change in net assets, functional expenses and cash flows for the year 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 audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. 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 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 risk assessments, the auditor considers internal control relevant to the Center'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 Center'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 financial statements referred to above present fairly, in all material respects, the financial position of Charles B. Wang Community Health Center, Inc. as of, and the changes in its net assets and its cash flows for the year then ended, in accordance with accounting principles generally accepted in the United States of America. 2

4 Other Matters Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedule of expenditures of federal awards, as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, is presented for purposes of additional analysis and is not a required part of the 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 financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial 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 is fairly stated, in all material respects, in relation to the financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated May 3, 2017, on our consideration of the Center's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Center's internal control over financial reporting and compliance. C New York, New York May 3,

5 Statement of Financial Position Assets Current assets Cash and cash equivalents $ 10,524,291 Certificates of deposit 1,371,456 Investments, at fair value (Notes 6 and 7) 5,987,156 Patient services receivable, net (Note 3) 7,566,476 DHHS grants receivable 429,893 Health plan quality distribution receivable 1,371,570 Contracts and other grants receivable (Note 4) 163,547 Foundation pledges and contributions receivable (Note 5) 15,000 Prepaid expenses and other current assets 617,373 Total current assets 28,046,762 Property and equipment, net (Note 8) 29,178,618 Deferred compensation (Note 17) 4,000,917 Security deposits (Note 18) 621,293 Total $ 61,847,590 Current liabilities Accounts payable and accrued expenses (Note 19) $ 2,376,465 Accrued compensation and related benefits 5,349,232 Total current liabilities 7,725,697 Long-term liabilities Deferred rent (Note 15) 552,855 Deferred compensation payable (Note 17) 4,000,917 Total long-term liabilities 4,553,772 Total liabilities 12,279,469 Commitments and contingencies Liabilities and Net Assets Net assets Unrestricted 49,439,980 Temporarily restricted (Note 9) 128,141 Total net assets 49,568,121 Total $ 61,847,590 See Notes to Financial Statements. 4

6 Statement of Activities and Change in Net Assets Year Ended Unrestricted revenue Patient services revenue (net of contractual allowances and discounts (Note 10) $ 43,471,500 DHHS grants (Note 11) 4,352,970 Contract services and other grants (Note 12) 2,125,721 Donated vaccines and services 2,057,565 Foundation grants, pledges and contributions (Note 13) 701,160 Interest and dividends 190,132 Net realized and unrealized gain on investments (Note 6) 388,397 Other (Notes 14 and 18) 4,177,522 Net assets released from restrictions 370,708 Total unrestricted revenue 57,835,675 Expenses Salaries and related benefits (Note 16) 42,179,926 Other than personnel services 13,473,138 Total expenses 55,653,064 Operating income prior to depreciation and amortization 2,182,611 Depreciation and amortization (Note 8) 1,296,116 Increase in unrestricted net assets 886,495 Changes in temporarily restricted net assets Contributions (Note 13) 61,474 Net assets released for programs (370,708) Decrease in temporarily restricted net assets (309,234) Increase in net assets 577,261 Net assets, beginning 48,990,860 Net assets, end $ 49,568,121 See Notes to Financial Statements. 5

7 Statement of Functional Expenses Year Ended Program General and services administrative Total Salaries and wages (Note 16) $ 29,203,243 $ 4,384,744 $ 33,587,987 Employee benefits 7,470,304 1,121,635 8,591,939 Consultants and contractual services 492, , ,101 Consumable supplies 935, ,335 1,108,458 Laboratory and radiology 634, ,877 Pharmaceuticals 3,749,593-3,749,593 Occupancy (Notes 15 and 18) 3,321, ,950 3,899,795 Insurance 62,780 95, ,541 Equipment rental and maintenance 719, , ,883 Telecommunication 405,853 60, ,790 Printing, publications and postage 138,445 20, ,232 Travel, conference and meeting 389, , ,646 Dues and subscriptions 272,781 53, ,238 Staff training and recruitment 205,515 33, ,225 Other 377,994 65, ,759 Subtotal 48,379,471 7,273,593 55,653,064 Depreciation and amortization (Note 8) 1,104, ,084 1,296,116 Total functional expenses $ 49,483,503 $ 7,465,677 $ 56,949,180 See Notes to Financial Statements. 6

8 Statement of Cash Flows Year Ended Cash flows from operating activities Cash received from patient services $ 41,536,264 Cash received from contract services and other grants 2,090,391 Cash received from DHHS grants 4,411,001 Cash received from fundraising and contributions 1,180,134 Cash received from other 2,589,545 Cash paid to employees (41,585,419) Cash paid to vendors (10,587,917) Net cash used in operating activities (366,001) Cash flows from investing activities Purchases of property and equipment (16,766,978) Proceeds from sale of investments 5,006,672 Purchases of investments (138,869) Net cash used in investing activities (11,899,175) Net decrease in cash and cash equivalents (12,265,176) Cash and cash equivalents, beginning 22,789,467 Cash and cash equivalents, end $ 10,524,291 Reconciliation of increase in net assets to net cash used in operating activities Increase in net assets $ 577,261 Adjustments to reconcile increase in net assets to net cash used in operating activities Depreciation and amortization 1,296,116 Deferred rent 26,853 Interest income on certificates of deposit (406,539) Unrealized gain on investments (388,397) Changes in Patient services receivable (1,935,236) DHHS grants receivable 58,031 Contracts and other grants receivable (35,330) Health plan quality distribution receivable (1,371,570) Foundation pledges and contributions receivable 417,500 Security deposits 709,320 Prepaid expenses and other current assets (116,721) Accounts payable and accrued expenses 208,204 Accrued compensation and related benefits 594,507 Net cash used in operating activities $ (366,001) See Notes to Financial Statements. 7

9 Notes to Financial Statements Note 1 - Organization Charles B. Wang Community Health Center, Inc. (the "Center") operates freestanding diagnostic and treatment centers, licensed under Article 28 of the New York Public Health law, located in Manhattan and Flushing in New York City. The Center provides a broad range of health services to Asian Americans and other patients in the New York metropolitan area. The U.S. Department of Health and Human Services (the "DHHS") provides substantial support to the Center. The Center is obligated under the terms of the DHHS grants to comply with specified conditions and program requirements set forth by the grantor. Note 2 - Significant accounting policies Basis of presentation The accompanying financial statements have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America. Use of 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 certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Classification of net assets The Center classifies its net assets into three categories, which are described as follows: Unrestricted net assets are reflective of revenues and expenses associated with the principal operating activities of the Center and are not subject to donor-imposed stipulations. Temporarily restricted net assets are subject to donor-imposed stipulations that may or will be met either by actions of the Center and/or the passage of time. When a donor restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and are reported in the statements of activities and change in net assets as net assets released from restrictions. Permanently restricted net assets are subject to donor-imposed stipulations that must be maintained permanently by the Center. There were no permanently restricted net assets at. Cash and cash equivalents The Center maintains its cash and cash equivalents in bank deposit accounts which, at times, may exceed federally insured limits. The Center has not experienced any losses in such accounts. At, the Center's cash and cash equivalents balance exceeds federally insured limits by $8,929,016. All highly liquid investments with maturities of three months or less when purchased are considered to be cash equivalents. Certificates of deposit The carrying amount of certificates of deposit represents cost plus accrued interest. 8

10 Notes to Financial Statements DHHS grants receivable DHHS grants receivable consists of costs under the DHHS grants which were incurred prior to yearend for which payment has not been received. DHHS grants receivable credit risk is limited due to the nature of the grants. The Center regularly monitors its DHHS grants receivable by investigating any delayed payments and differences when payments received do not conform to the amount billed. The Center considers all DHHS grants receivable as collectible. Patient services receivable The collection of receivables from third-party payors and patients is the Center's primary source of cash for operations and is critical to its operating performance. The primary collection risks relate to uninsured patient accounts and patient accounts for which the primary insurance payor has paid, but patient responsibility amounts (deductibles and copayments) remain outstanding. Patient receivables from third-party payors are carried at a net amount determined by the original charge for the service provided, less an estimate made for contractual adjustments or discounts provided to third-party payors. Receivables due directly from patients are carried at the original charge for the service provided less discounts provided under the Center's charity care policy, less amounts covered by third-party payors and less an estimated allowance for doubtful receivables. In evaluating the collectability of accounts receivable, the Center analyzes past history and identifies trends for each of its major payor sources of revenue to estimate the appropriate allowance for doubtful accounts and provision for bad debts. Management regularly reviews data about these major payor sources of revenue in evaluating the sufficiency of the allowance for doubtful accounts. For receivables associated with services provided to patients who have third-party coverage, the Center analyzes contractually due amounts and provides an allowance for doubtful accounts and a provision for bad debts, if necessary (for example, for expected uncollectible deductibles and copayments on accounts for which the third-party payor has not yet paid or for payors who are known to be having financial difficulties that make the realization of amounts due unlikely). For receivables associated with selfpay patients (which includes both patients without insurance and patients with deductible and copayment balances due for which third-party payor coverage exists for part of the bill), the Center records a provision for bad debts in the period of service on the basis of past experience, which indicates that many patients are unable or unwilling to pay the portion of their bill for which they are financially responsible. The difference between the standard rates (or the discounted rates if negotiated) and the amounts actually collected after all reasonable collection efforts have been exhausted is charged off against the allowance for doubtful accounts. Patient receivables are written off to the allowance account when deemed uncollectible. Recoveries of receivables previously written off are recorded as a reduction of bad debts expense when received. Accounts receivable are reduced by an allowance for doubtful accounts. During the year ended, there were no bad debts for the Center. Health plan quality distribution receivable Health plan quality distribution receivable represents quality incentives that have been earned but not yet collected. The Center considers the health plan quality distribution receivable to be collectible. Concentration of credit risk Financial instruments that potentially subject the Center to concentrations of credit risk consist principally of cash, cash equivalents, certificates of deposit, patient services receivable and investments at fair value. The Center places its cash, cash equivalents, certificates of deposit and 9

11 Notes to Financial Statements investments with high-quality financial institutions. The Center monitors its financial institutions and the concentration of credit risk on a regular basis and does not anticipate nonperformance by the financial institutions. An allowance for doubtful accounts for patient services receivable is provided based upon management's assessment of individual accounts, past history of write-offs and collections and current credit conditions. Contracts and other grants receivable Contracts and other grants receivable reflects amounts earned but not yet collected. The Center considers all contracts and other grants receivable as collectible. Foundation pledges and contributions receivable Foundation pledges and contributions receivable, which includes multi-year grants received from foundations, consists of unconditional promises to give and are measured at realizable value, using a borrowing rate applicable to the years in which the foundation grants are received to discount the amounts. Investments Investments are reported at their fair values based on quoted prices in active markets in the statement of financial position. Unrealized gains and losses are included in the change in net assets. Investment income and gains and losses are reported as increases or decreases in unrestricted net assets in the reporting period in which the income and gains and losses are recognized. The Center's investment transactions are made based on its existing investment policy. The Center invests in a portfolio that contains common shares of publicly traded companies, U.S. obligations, mutual funds, exchange traded funds and money market funds. Such investments are exposed to various risks, such as interest rate, market and credit risks. Due to the level of risk associated with such investments and the uncertainty related to changes in the value of such investments, it is at least reasonably possible that changes in risks in the near term could materially affect investment balances and the amounts reported in the financial statements. Property and equipment Property and equipment are stated at cost, or, if donated, at the fair value at the date of donation. Depreciation and amortization are recorded on a straight-line basis over the estimated useful lives of the assets, ranging from 3 to 40 years. Leasehold improvements are amortized on a straight-line basis over the estimated useful life of the improvement or the term of the lease, whichever is less. The Center capitalizes all purchases of property and equipment in excess of $500. Construction-in-progress is recorded at cost. The Center capitalizes construction, insurance and other costs during the period of construction. Depreciation is recorded when construction is substantially complete and the assets are placed in service. Maintenance, repairs and minor renewals are expensed as incurred. When assets are retired or otherwise disposed of, their costs and related accumulated depreciation and amortization are removed from the accounts and any resulting gains or losses are included in changes in net assets. According to federal regulations, any equipment items obtained through federal funds are subject to a lien by the federal government. Provided that the Center maintains its tax-exempt status, and the equipment is used for its intended purpose, the Center is not required to reimburse the federal government. If the stated requirements are not met, the Center would be obligated to the federal government in an amount equal to the fair value of the equipment. 10

12 Notes to Financial Statements Deferred rent The Center's lease agreements for certain facilities contain escalation clauses that require normalization of the rental expense over the life of the lease. The resulting deferred rent is reflected in the accompanying statement of financial position. Patient service revenue The Center recognizes patient services revenue associated with services provided to patients who have third-party payor coverage on the basis of contractual rates for the services rendered. For uninsured patients who do not qualify for charity care, the Center recognizes revenue on the basis of its standard rates for services provided (or on the basis of discounted rates, if negotiated or provided by policy). Based on historical experience, the Center has been able to collect the vast majority of account balances. The Center has agreements with third-party payors that provide for payments to the Center at amounts different from its established rates. Payment arrangements include predetermined fee schedules and discounted charges. Service fees are reported at the estimated net realizable amounts from patients, third-party payors and others for services rendered, including retroactive adjustments under reimbursement agreements with third-party payors, which are subject to audit by administrating agencies. These adjustments are accrued on an estimated basis and are adjusted in future periods as final settlements are determined. The Center provides care to certain patients under Medicaid and Medicare payment arrangements. Laws and regulations governing the Medicaid and Medicare programs are complex and subject to interpretation. Compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action. Self-pay revenue is recorded at published charges with charitable care deducted to arrive at gross self-pay revenue. Contractual allowances are then deducted to arrive at net self-pay patient revenue before provision for bad debts. Charity care and community benefit The Center is open to all patients, regardless of their ability to pay. In the ordinary course of business, the Center renders services to patients who are financially unable to pay for healthcare. The Center provides care to these patients who meet certain criteria under its sliding fee discount policy without charge or at amounts less than the established rates. Charity care services are computed using a sliding fee scale based on patient income and family size. The Center maintains records to identify and monitor the level of sliding fee discount it provides. For uninsured self-pay patients that do not qualify for charity care, the Center recognizes revenue on the basis of its standard rates for services provided or on the basis of discounted rates, if negotiated or provided by policy. On the basis of historical experience, a significant portion of the Center's uninsured patients will be unable or unwilling to pay for the services provided. Thus, the Center records provision for bad debts related to uninsured patients in the period the services are provided. Community benefit represents the cost of services for Medicaid, Medicare and other public patients for which the Center is not reimbursed. Based on the cost of patient services, charity care and community benefit for the year ended amounted to approximately $2.3 million and $4.0 million, respectively. 11

13 Notes to Financial Statements DHHS grants revenue Grants are recognized as revenue when earned. Expense-driven grants are recognized as revenue when the qualifying expenses have been incurred and all other grant requirements have been met. Grant funds received prior to the incurrence of the qualifying expenses are deferred. At, the Center has received grants from governmental entities that have not been recorded in these financial statements as they have not been earned. These grants require the Center to provide certain healthcare services during specified periods. If such services are not provided, the governmental entities are not obligated to expend the funds allotted under the grants. Contract services and other grants Revenue from government grants and contracts designated for use in specific activities is recognized in the period when expenditures have been incurred in compliance with the grantor's restrictions. Grants and contracts awarded for the acquisition of long-lived assets are reported as unrestricted nonoperating revenue, in the absence of donor stipulations to the contrary, during the fiscal year in which the assets are acquired. Cash received in excess of revenue recognized is recorded as refundable advances. At, the Center has received conditional grants and contracts from governmental entities in the aggregate amount of $2,598,053 that have not been recorded in the accompanying financial statements. These grants and contracts require the Center to provide certain services or capital projects during specified periods. If such services are not provided during the periods, the governmental entities are not obligated to expend the funds allotted under the contracts. Foundation grants, pledges and contributions Contributions are recorded as either temporarily or permanently restricted revenue if they are received with donor stipulations that limit the use of the donated asset. Contributions received with no donor stipulations are recorded as unrestricted revenue. 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 are reported in the statement of activities and change in net assets as net assets released from restriction. Donor-restricted contributions whose restrictions expire during the same fiscal year are recognized as unrestricted revenue. Donated vaccines Donated vaccines are recognized in the accompanying financial statements based on fair value. Meaningful use incentives The American Recovery and Reinvestment Act of 2009 ("ARRA") amended the Social Security Act to establish one-time incentive payments under the Medicare and Medicaid programs for certain professionals that: (1) meaningfully use certified EHR technology, (2)use the certified EHR technology for electronic exchange of health information to improve quality of healthcare and (3) use the certified EHR technology to submit clinical and quality measures. These provisions of ARRA, together with certain of its other provisions, are referred to as the Health Information Technology for Clinical and Economic Health ("HITECH") Act. The criteria for meaningful use incentives will be staged in three steps over the course of six years and be paid out based on a transitional schedule. Certain providers of the Center have met the criteria for Year 1 and Year 2 and have earned $242,250 from the Medicaid incentive program for the year ended December 31, 2016 which is included in other revenue on the statement of activities and change in net assets. 12

14 Notes to Financial Statements 340B pharmacy revenue The Center participates in Section 340B of the Public Health Service Act ("PHS Act"), Limitation on Prices of Drugs Purchased by Covered Entities. Participation in this program allows the Center to purchase pharmaceuticals at discounted rates for prescriptions to eligible patients. The Center operates through its agreement with various third party vendors. Performance indicator The statement of activities and change in net assets includes changes in unrestricted net assets as the performance indicator. Interest earned on federal funds Interest earned on federal funds would be recorded as required, as a payable to the United States Public Health Service (the "PHS") in compliance with the regulations of the United States Office of Management and Budget, if applicable. Functional expenses Expenses are charged to program or general and administrative based on a combination of specific identification and allocation by management. Tax status The Center was incorporated as a not-for-profit corporation under the laws of the State of New York and is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code. Therefore, there is no provision for income taxes. The Center has no unrecognized tax benefits at. The Center's federal and state income tax returns prior to fiscal year 2013 are closed and management continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. The Center recognizes interest and penalties associated with tax matters as operating expenses and includes accrued interest and penalties with accrued expenses in the statement of financial position. Subsequent events The Center has evaluated subsequent events through May 3, 2017, which is the date the financial statements were available to be issued. 13

15 Notes to Financial Statements Note 3 - Patient services receivable, net Patient services receivable, net consist of the following at : Medicaid and Medicaid managed care $ 5,155,696 Medicare 56,372 Self-pay 81,349 Subtotal 5,293,417 Less allowance for doubtful accounts (37,950) Total 5,255,467 New York State uncompensated care 2,311,009 Total $ 7,566,476 Patient services receivable are reduced by an allowance for doubtful accounts. In evaluating the collectability of patient services receivable, the Center analyzes its past history and identifies trends for each of its major payor sources of revenue to estimate the appropriate allowance for doubtful accounts and provision for bad debts. Management regularly reviews data about these major payor sources of revenue in evaluating the sufficiency of the allowance for doubtful accounts. For receivables associated with services provided to patients who have third-party coverage, the Center analyzes contractually due amounts and provides an allowance for doubtful accounts and a provision for bad debts, if necessary (for example, for expected uncollectible deductibles and copayments on accounts for which the third-party payor has not yet paid, or for payors who are known to be having financial difficulties that make the realization of amounts due unlikely). For receivables associated with self-pay patients (which include both patients without insurance and patients with deductible and copayment balances due for which third-party coverage exists for part of the bill), the Center records a provision for bad debts in the period of service on the basis of its past experience, which indicates that many patients are unable or unwilling to pay the portion of their bill for which they are financially responsible. The difference between the standard rates or the discounted rates provided by the Center's policy and the amounts actually collected after all reasonable collection efforts have been exhausted is charged against the allowance for doubtful accounts. The Center's allowance for doubtful accounts was approximately 1% of patient services receivable as of. The Center did not have any direct write-offs for the year ended. The Center has not changed its charity care or uninsured discount policies during fiscal year

16 Notes to Financial Statements Note 4 - Contracts and other grants receivable Contracts and other grants receivable consist of the following at : Safe Space NYC, Inc. - Consumer Assistance for The NYS Health Exchange: In-person Assistors and Navigators $ 15,503 Public Health Solutions: Title X Family Planning Program 64,091 New York State Department of Health: Comprehensive 77,703 Adolescent Pregnancy Prevention Program Other grants 6,250 Total $ 163,547 Note 5 - Foundation pledges and contributions receivable Foundation pledges and contributions receivable consist of the following at all of which are due in the next year: NYS Health Foundation $ 15,000 Note 6 - Investments, at fair value Total $ 15,000 At, investments consist of the following: Cost Fair value Mutual funds $ 13,243 $ 13,243 Exchange-traded funds 5,584,782 5,973,913 Total $ 5,598,025 $ 5,987,156 For the year ended, the Center recorded a net realized and unrealized gain on investments of $388,397. For the year ended, investment advisory fees amounted to $150. Investment advisory fees are included in other expenses in the statement of functional expenses. Note 7 - Fair value measurements The Center values its financial assets and liabilities based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, a fair value hierarchy prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below: Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities. The fair value hierarchy gives the highest priority to level 1 inputs. 15

17 Notes to Financial Statements Level 2: Observable inputs other than level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in inactive markets; or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated with observable market data. Level 3 Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to level 3 inputs. In determining fair value, the Center utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value. The following tables set forth by level, within the fair value hierarchy, the Center's investments and deferred compensation accounts as of : Level 1 Level 2 Level 3 Total Investments at fair value Mutual funds US money market $ 13,243 $ - $ - $ 13,243 Exchange-traded funds Large blend stock index 3,996, ,996,471 International large blend stock index 838, ,574 Intermediate-term bond index 563, ,671 International bond index 575, ,197 Total $ 5,987,156 $ - $ - $ 5,987,156 Level 1 Level 2 Level 3 Total Deferred compensation asset account Mutual funds Money Market $ 892,858 $ - $ - $ 892,858 Large Value 348, ,802 Large Blend 454, ,349 Small Blend 316, ,829 Foreign Large Blend 293, ,508 Intermediate-Term Bond 480, ,062 Mid-Cap Value 89,981 89,981 Large Growth 212, ,385 Conservative Allocation 45,023 45,023 Moderate Allocation 333, ,343 Mid-Cap Blend 533, ,777 Total $ 4,000,917 $ - $ - $ 4,000,917 Deferred compensation liability $ - $ 4,000,917 $ - $ 4,000,917 The following is a description of the valuation methodologies used for investments at fair value. There have been no changes in the methodologies used at. Investments in exchange-traded funds and mutual funds are designated as level 1 and are valued using market prices on active markets and valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets. The deferred compensation liability is valued at the fair value of the corresponding assets which comprise the deferred compensation asset account. 16

18 Notes to Financial Statements The Center's policy is to recognize transfers into and transfers out of a level as of the actual date of the event or change in circumstance that caused the transfer. There were no transfers among the three levels in The preceding methods may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Center 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. Note 8 - Property and equipment, net Property and equipment, net, consists of the following at : Land $ 14,958,494 Leasehold improvements 19,396,199 Furniture and fixtures 3,599,434 Equipment 5,544,213 Construction-in-progress 1,060,502 Subtotal 44,558,842 Less accumulated depreciation and amortization (15,380,224) Total $ 29,178,618 In 2016, the Center purchased a parcel of land for approximately $14.9 million which will be used as a future site for the Center's expanded services. In the event the DHHS grants are terminated, the DHHS reserves the right to transfer all property and equipment purchased with grant funds to the PHS or third parties. Note 9 - Temporarily restricted net assets The Center receives contributions from various funders designated for program specific purposes and time. The following consists of the unspent restricted funds as of : Temporarily Net assets Temporarily restricted released restricted beginning Contributions for programs ending Susan G. Komen for the Cure Breast Cancer Project $ 9,875 $ 15,938 $ (9,875) $ 15,938 Robin Hood Foundation: monitoring and treatment of uninsured patients with chronic Hepatitis B 64,167 31,250 (64,167) 31,250 W.K. Kellogg Foundation: To educate and promote breastfeeding in New York City's Chinatown community using a multi-pronged approach 258,333 (191,666) 66,667 NYS Health Foundation: New York State Department of Health Consumer Assistance Project - Chinese Outreach and Enrollment 30,000 (30,000) - RCHN Community Health Foundation, Inc. Community Action on Smoking and Health Project 75,000 14,286 (75,000) 14,286 Total $ 437,375 $ 61,474 $ (370,708) $ 128,141 17

19 Notes to Financial Statements Note 10 - Patient services revenue, net For the year ended, the Center recognized patient services revenue, net of contractual allowances and discounts (but before the provision for bad debts) for the following major payors: Medicaid $ 3,144,649 Medicare 1,079,063 Private insurance 8,415,562 Self-pay 1,003,740 Managed care plans 8,671,477 New York State Medicaid managed care wraparound 18,846,000 New York State uncompensated care 2,311,009 Total $ 43,471,500 Medicaid and Medicare revenue is reimbursed to the Center at the net reimbursement rates as determined by each program. Reimbursement rates are subject to revisions under the provisions of reimbursement regulations. Adjustments for such revisions are recognized in the fiscal year incurred. Note 11 - DHHS grants For the year ended, the Center received the following grants from the DHHS: Grant number Grant period Total grant Revenue 6 H80CS /1/15-3/31/16 $ 4,204,413 $ 1,051,103 3 H80CS /1/16-3/31/17 4,529,164 3,301,867 Total $ 4,352,970 18

20 Notes to Financial Statements Note 12 - Contract services and other grants revenue Contract services and other grants revenue consist of the following for the year ended : Safe Space NYC, Inc.: Consumer Assistance for The NYS Health Exchange In-person Assistors and Navigators $ 153,003 Public Health Solutions: Title X Family Planning Services 208,812 Association of Asian Pacific Community Health Organizations Community Health Applied Research Network - Building Data Infrastructure in the Safety Net to Conduct Patient - Centered Outcomes Research Studies 55,000 Avon Foundation Breast Health Outreach Program 59,650 Asian American Accountable Care Organization, LLC 68,136 Asian Americans Advancing Justice 15,000 The Mayor s Fund to Advance New York City: ActionHealthNYC 60,686 Advocate Community Partners 261,786 New York State Department of Health Cancer Services Program 68,708 Clinical Directors Network 13,822 New York State Department of Health CAPP Adolescent Pregnancy ,703 Cancer Services Initiative 78,113 Immigrant Health Initiative 117,187 City University of New York 10,243 New York State Department of Health, Poison Control Center Expanding Education Efforts to Targeted Communities (Poison Control) 13,100 Vicky Chang: Medical Home for Children with Special Needs 79,563 NYU Hospitals Center 112,800 Public Health Solutions PHS Hep B ,266 PHS Hep B ,686 NYC Department For The Aging 25,000 St. Barnabas Medical Center 70,000 Association of Asian Pacific Community Health Organizations Civic Engagement 50,000 CAMS CAIPA: CAMS flu vaccination 8,750 Hepatitis B Challenge 61,795 Other 9,912 Total $ 2,125,721 19

21 Notes to Financial Statements Note 13 - Foundation grants, pledges and contributions Foundation grants, pledges and contributions revenue consists of the following for the year ended : Unrestricted Chu and Chan Foundation $ 25,000 NYS Health Foundation 75,000 Robin Hood Foundation 343,750 RCHN Community Health Foundation, Inc. 10,714 CHCFI Shau-Wai & Marie Lam 61,067 Charles B. Wang International Foundation 25,000 Various Individual donors 106,567 Susan G. Komen for the Cure 54,062 Subtotal 701,160 Temporarily restricted Susan G. Komen for the Cure 15,938 RCHN Community Health Foundation, Inc. 14,286 Robin Hood Foundation 31,250 Subtotal 61,474 Total $ 762,634 See Note 9 for more details on temporarily restricted net assets as of. Note 14 - Other revenues For the year ended, other revenues consist of the following: Health plan quality distribution $ 2,728,821 Meaningful use incentive 242,250 Medical reports 42, b pharmacy revenue 576,045 Management services fees 250,573 Metrocard reimbursement 316,674 Other 21,056 Total $ 4,177,522 20

22 Notes to Financial Statements Note 15 - Leases In January 2010, the Center and Chinatown Health Clinic Foundation (the "Foundation") entered into a noncancelable operating lease of a facility with a term of five years which was extended for another five years until December 31, In January 2017, the aforementioned lease agreement was pre-terminated and the Center and the Foundation entered into a new lease agreement for the same facility with a term of five years until December 31, Moreover, in November 2014, the Center and the Foundation entered into another noncancelable operating lease of a facility with a term of fifteen years. The Center has also entered into four other noncancelable operating leases for facility space. Rent expense amounted to $3,386,489 for the year ended. The leases require future minimum payments as follows: 2017 $ 3,613, ,635, ,655, ,792, ,813,715 Thereafter 29,781,609 Total $ 48,291,711 The lease for five of the Center's spaces includes scheduled base rent increases over the term of the lease. The total amount of the base rent payments is being charged to expense on the straightline method over the term of the lease. The Center has recorded deferred rent to reflect the excess of rent expense over payments since inception of the lease. Note 16 - Retirement plan The Center maintains a 403(b) defined contribution retirement plan covering employees meeting certain eligibility requirements. The amount contributed to the plan is determined by resolution of the Board of Directors. Retirement expense for the year ended amounted to $1,358,110, and is included in the salaries and related benefits expense in the statement of activities and change in net assets. Note 17 - Deferred compensation plan The Center established an Executive 457(b) Retirement Plan (the "Plan"). The Plan is a deferred compensation plan under Section 457(b) of the Internal Revenue Code. The Plan provides deferred compensation benefits for management and highly compensated employees. Note 18 - Related party transactions The Center has a lease with a company affiliated with a board member for which the amount paid was $396,624 for the year ended. As of, the Center has a security deposit and prepaid rent in relation to the aforementioned lease amounting to $51,958 and $34,209, respectively. As mentioned in Note 15, the Center has two leases with the Foundation, a not-for-profit organization created partly to support and benefit the Center. For the year ended December 31, 2016 the Center made lease payments of $1,994,701 to the Foundation. As of, the Center has security deposits and prepaid rent to the Foundation in relation to the two leases 21

23 Notes to Financial Statements amounting to $401,000 and $167,533, respectively. The Center also provides accounting and management services to the Foundation under a verbal management agreement. For the year ended, management fees and other reimbursable expenses charged by the Center to the Foundation amounted to $250,573 and is recorded under other revenue in the statement of activities and change in net assets. Note 19 - Commitments and contingencies The Center has contracted with various funding agencies to perform certain healthcare services and receives Medicaid and Medicare revenue from the state and federal governments. Reimbursements received under these contracts and payments under Medicaid and Medicare are subject to audit by the federal and state governments and other agencies. Upon audit, if discrepancies are discovered, the Center could be held responsible for reimbursing the agencies for the amounts in question. The Center maintains its medical malpractice coverage under the Federal Tort Claims Act ("FTCA"). FTCA provides malpractice coverage to eligible PHS-Supported programs and applies to the Center and its employees while providing services within the scope of employment included under grant-related activities. The Attorney General, through the U.S. Department of Justice, has the responsibility for the defense of the individual and/or grantee for malpractice cases approved for FTCA coverage. The Center purchases professional and general liability insurance to cover medical malpractice claims in excess of the FTCA coverage. There are no known claims or incidents that may result in the assertion of additional claims arising from services provided to patients as of. The Center provides medical and prescription insurance coverage for all eligible employees. Under the terms of the insurance policy, the Center is at risk for covered claims submitted, not to exceed $150,000 per person per year. The Center is indemnified for claims in excess of $5.3 million in the aggregate by the stop-loss insurance policy coverage. As of, the Center has recorded $461,000 of claims liability in relation to the medical and prescription insurance; it is included in accounts payable and accrued expenses in the statement of financial position. The healthcare industry is subject to voluminous and complex laws and regulations of federal, state and local governments. Compliance with such laws and regulations can be subject to future government review and interpretation as well as regulatory actions unknown or unasserted at this time. These laws and regulations include, but are not necessarily limited to, matters such as licensure, accreditation, government healthcare program participation requirements, reimbursement laws and regulations, anti-kickback and anti-referral laws, and false claims prohibitions. In recent years, government activity has increased with respect to investigations and allegations concerning possible violations of reimbursement, false claims, anti-kickback and anti-referral statutes and regulation by healthcare providers. The Health Center believes that it is in material compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of potential wrongdoing. Upon audit, if discrepancies are discovered, the Center could be held responsible for refunding the amount in question. 22

24 Supplementary Information

25 Schedule of Expenditures of Federal Awards Year Ended Federal Agency Passed CFDA or pass through through to Federal grantor / pass through grantor / program or cluster title number grantor's number subrecipients Expenditures U.S. Department of Health and Human Services Direct programs Consolidated Health Centers Cluster Consolidated Health Centers N/A $ - $ 1,288,285 Affordable Care Act (ACA) Grants for New and Expanded Services Under the Health Center Program N/A - 3,064,685 Subtotal Consolidated Health Centers Cluster - 4,352,970 Passed through New York State Department of Health Medical Assistance Program C ,445 Passed through Safe Space NYC, Inc. Medical Assistance Program C ,803 Total ,248 Sub-total Medicaid Cluster 194,248 Passed through New York City Department of Health and Mental Hygiene Immunization Cooperative Agreements Not Available - 2,054,925 Passed through Safe Space NYC, Inc. State Planning and Establishment Grants for the Affordable Care Act (ACA)'s Exchanges C ,102 Children's Health Insurance Program C ,298 Passed through Public Health Solutions Family Planning Services FPHPA ,812 Passed through St. Barnabas Medical Center Adult Viral Hepatitis Prevention and Control U51PS ,000 Passed through Health Research Incorporated Centers for Disease Control and Prevention - Investigations and Technical Assistance Not Available - 68,708 Total - U.S. Department of Health and Human Services - 7,064,063 Total Expenditures of Federal Awards $ - $ 7,064,063 See Notes to Schedule of Expenditures of Federal Awards. 24