THE LOS ANGELES FREE CLINIC dba SABAN COMMUNITY CLINIC AND LOS ANGELES FREE CLINIC HOLLYWOOD CENTER ENDOWMENT CORPORATION REPORTS REQUIRED BY TITLE 2

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1 THE LOS ANGELES FREE CLINIC dba SABAN COMMUNITY CLINIC AND LOS ANGELES FREE CLINIC HOLLYWOOD REPORTS REQUIRED BY TITLE 2 U.S. CODE OF FEDERAL REGULATIONS (CFR) PART 200, UNIFORM ADMINISTRATIVE REQUIREMENTS, COST PRINCIPLES, AND AUDIT REQUIREMENTS FOR FEDERAL AWARDS (UNIFORM GUIDANCE) YEAR ENDED JUNE 30, 2016

2 REPORTS REQUIRED BY TITLE 2 U.S. CODE OF FEDERAL REGULATIONS (CFR) PART 200, UNIFORM ADMINISTRATIVE REQUIREMENTS, COST PRINCIPLES, AND AUDIT REQUIREMENTS FOR FEDERAL AWARDS (UNIFORM GUIDANCE) YEAR ENDED JUNE 30, 2016 CONTENTS Page 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... 1 Report on Compliance for Each Major Federal Program and Report on Internal Control over Compliance in Accordance with the Uniform Guidance... 3 Schedule of Findings and Questioned Costs... 5 Financial Statements... Appendix

3 10990 Wilshire Boulevard T 16 th Floor F Los Angeles, CA 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 INDEPENDENT AUDITOR S REPORT To the Board of Directors The Los Angeles Free Clinic dba Saban Community Clinic and Los Angeles Free Clinic Hollywood Center Endowment Corporation We have audited 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, the consolidated financial statements of The Los Angeles Free Clinic dba Saban Community Clinic and Los Angeles Free Clinic Hollywood Center Endowment Corporation (collectively, the Organization), which comprise the consolidated statement of financial position as of June 30, 2016, and the related consolidated statements of activities, functional expenses and cash flows for the year then ended, and the related notes to the consolidated financial statements and have issued our report thereon dated January 17, Internal Control over Financial Reporting In planning and performing our audit of the consolidated financial statements, we considered the Organization s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the consolidated financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Organization s internal control. Accordingly, we do not express an opinion on the effectiveness of the Organization s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit, we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Organization s consolidated financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of consolidated financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. An independent member of HLB International, a worldwide network of accounting firms and business advisors.

4 To the Board of Directors The Los Angeles Free Clinic dba Saban Community Clinic and Los Angeles Free Clinic Hollywood Center Endowment Corporation Page 2 Purpose of This Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. January 17, 2017 Los Angeles, California Green Hasson & Janks LLP -2-

5 10990 Wilshire Boulevard T 16 th Floor F Los Angeles, CA REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH THE UNIFORM GUIDANCE INDEPENDENT AUDITOR S REPORT To the Board of Directors The Los Angeles Free Clinic dba Saban Community Clinic and Los Angeles Free Clinic Hollywood Center Endowment Corporation Report on Compliance for Each Major Federal Program We have audited The Los Angeles Free Clinic dba Saban Community Clinic and Los Angeles Free Clinic Hollywood Center Endowment Corporation s (collectively, the Organization) compliance with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Compliance Supplement that could have a direct and material effect on each of the Organization s major federal programs for the year ended June 30, The Organization s major federal programs are identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of the Organization s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Organization s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the Organization s compliance. Opinion on Each Major Federal Program In our opinion, the Organization complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, An independent member of HLB International, a worldwide network of accounting firms and business advisors. -3-

6 To the Board of Directors The Los Angeles Free Clinic dba Saban Community Clinic and Los Angeles Free Clinic Hollywood Center Endowment Corporation Report on Internal Control over Compliance Management of the Organization is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the Organization s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program as a basis for designing auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Organization s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. January 17, 2017 Los Angeles, California Green Hasson & Janks LLP -4-

7 SCHEDULE OF FINDINGS AND QUESTIONED COSTS Year Ended June 30, 2016 SECTION I - SUMMARY OF AUDITOR'S RESULTS Financial Statements Type of auditor's report issued: Unmodified Internal control over financial reporting: Are any material weaknesses identified? Yes x No Are any significant deficiencies identified? _ Yes x None reported Is any noncompliance material to financial statements noted? Yes x No Federal Awards Internal control over major federal programs: Are any material weaknesses identified? Yes x No Are any significant deficiencies identified? Yes x None reported Type of auditor's report issued on compliance for major federal programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with 2 CFR (a)? Yes x No Dollar threshold used to distinguish between type A and type B programs: $750,000 Auditee qualified as a low-risk auditee? x Yes No -5-

8 SCHEDULE OF FINDINGS AND QUESTIONED COSTS Year Ended June 30, 2016 SECTION I - SUMMARY OF AUDITOR'S RESULTS (continued) Federal Awards (continued) Identification of Major Federal Programs: CFDA Number(s) Name of Federal Program or Cluster U.S. Department of Health and Human Services, Health Resources and Services Administration Health Center Cluster U.S. Department of Health and Human Services, Health Resources and Services Administration Health Center Cluster Passed through North East Valley Health Corporatioin (NEVHC) SECTION II - FINANCIAL STATEMENT FINDINGS There were no current year audit findings, SECTION III - FEDERAL AWARD FINDINGS AND QUESTIONED COSTS There were no current year audit findings or questioned costs. SECTION IV - SUMMARY OF PRIOR YEAR AUDIT FINDINGS There were no prior year audit findings. -6-

9 APPENDIX

10 THE LOS ANGELES FREE CLINIC dba SABAN COMMUNITY CLINIC AND LOS ANGELES FREE CLINIC HOLLYWOOD CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2016

11 CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2016 CONTENTS Page Independent Auditor's Report... 1 Consolidated Statement of Financial Position... 3 Consolidated Statement of Activities... 4 Consolidated Statement of Functional Expenses... 5 Consolidated Statement of Cash Flows... 6 Notes to Consolidated Financial Statements... 7 Supplementary Information Schedule of Expenditures of Federal Awards... 22

12 10990 Wilshire Boulevard T 16 th Floor F Los Angeles, CA INDEPENDENT AUDITOR S REPORT To the Board of Directors The Los Angeles Free Clinic dba Saban Community Clinic and Los Angeles Free Clinic Hollywood Center Endowment Corporation Report on the Consolidated Financial Statements We have audited the accompanying consolidated financial statements of The Los Angeles Free Clinic dba Saban Community Clinic and Los Angeles Free Clinic Hollywood Center Endowment Corporation (collectively, the Organization), which comprise the consolidated statement of financial position as of June 30, 2016, and the related consolidated statements of activities, functional expenses and cash flows for the year then ended and the related notes to the consolidated financial statements. Management s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated 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 consolidated 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 consolidated 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 consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Organization as of June 30, 2016, and the changes in its net assets and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. An independent member of HLB International, a worldwide network of accounting firms and business advisors.

13 To the Board of Directors The Los Angeles Free Clinic dba Saban Community Clinic and Los Angeles Free Clinic Hollywood Center Endowment Corporation Report on Summarized Comparative Information We have previously audited the Organization s 2015 consolidated financial statements, and we expressed an unmodified audit opinion on those audited consolidated financial statements in our report dated December 15, In our opinion, the summarized comparative information presented herein as of and for the year ended June 30, 2015, is consistent, in all material respects, with the audited consolidated financial statements from which it has been derived. Other Matters - Supplementary Information Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The accompanying Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by the audit requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), and is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the Schedule of Expenditures of Federal Awards is fairly stated in all material respects in relation to the consolidated 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 January 17, 2017 on our considerda6tion of the Organization 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 Organization s internal control over financial reporting and compliance. January 17, 2017 Los Angeles, California Green Hasson & Janks LLP -2-

14 ENDOWMENT CORPORATION CONSOLIDATED STATEMENT OF FINANCIAL POSITION June 30, 2016 With Summarized Totals at June 30, 2015 ASSETS CURRENT ASSETS: Cash and Cash Equivalents $ 353,973 $ 733,954 Investments 662,897 57,547 Fee-for-Service Contracts Receivable (Net) 3,162,877 1,466,867 Contributions and Grants Receivable 685, ,401 Other Receivables 1,452 8,513 Inventories 38,273 30,309 Prepaid Expenses and Other Current Assets 257, ,920 Due from Friends of Saban Community Clinic 99, ,326 TOTAL CURRENT ASSETS 5,261,864 3,518,837 OTHER ASSETS: Fee-for-Service Contracts Receivable 861, ,212 Property and Equipment (Net) 6,062,350 6,215,298 Investments Held for Long-Term Purposes 11,848,595 13,705,607 TOTAL OTHER ASSETS 18,772,817 20,230,117 TOTAL ASSETS $ 24,034,681 $ 23,748,954 LIABILITIES AND NET ASSETS CURRENT LIABILITIES: Accounts Payable and Accrued Expenses $ 1,860,947 $ 1,567,567 Deferred Revenue 16,526 32,217 Current Portion of Note Payable 21,851 31,971 TOTAL CURRENT LIABILITIES 1,899,324 1,631,755 OTHER LIABILITIES: Long-Term Portion of Note Payable - 21,851 TOTAL LIABILITIES 1,899,324 1,653,606 NET ASSETS: Unrestricted: Investment in Land and Building 6,040,499 6,161,476 General 3,617,123 2,049,254 TOTAL UNRESTRICTED 9,657,622 8,210,730 Temporarily Restricted 11,399,452 12,806,335 Permanently Restricted 1,078,283 1,078,283 TOTAL NET ASSETS 22,135,357 22,095,348 TOTAL LIABILITIES AND NET ASSETS $ 24,034,681 $ 23,748,954 The Accompanying Notes are an Integral Part of These Consolidated Financial Statements -3-

15 CONSOLIDATED STATEMENT OF ACTIVITIES Year Ended June 30, 2016 With Summarized Totals at June 30, Temporarily Permanently 2015 Unrestricted Restricted Restricted Total Total REVENUE AND SUPPORT: Fee-for-Service (Net) $ 8,921,308 $ - $ - $ 8,921,308 $ 5,325,807 Capitation 3,585, ,585,178 4,212,953 Incentives 1,091, ,091, ,600 Other Contracts 2,995, ,995,096 2,646,750 Contributions: Friends of The Saban Free Clinic 1,757,440 1,757,440 1,819,970 Foundations and Corporations 57, , ,500 1,295,599 Individuals 215, , ,460 Contributed Pharmaceuticals and Laboratory Services 288, , ,252 Special Events 22,775 22,775 59,514 Debt Forgiveness ,527 Net Assets Released from: Purpose Restrictions 1,637,279 (1,637,279) TOTAL REVENUE AND SUPPORT 20,572,003 (806,779) - 19,765,224 17,474,432 EXPENSES: Program Services 17,120, ,120,893 16,377,531 Management and General 1,382, ,382, ,489 Fundraising 661, , ,050 TOTAL EXPENSES 19,164, ,164,247 17,795,070 OPERATING INCOME (LOSS) 1,407,756 (806,779) - 600,977 (320,638) OTHER INCOME (LOSS): Investment Income (Loss) (Net) (38,390) (600,104) - (638,494) 186,836 Other Income 77, ,526 16,721 TOTAL OTHER INCOME (LOSS) 39,136 (600,104) - (560,968) 203,557 CHANGE IN NET ASSETS 1,446,892 (1,406,883) - 40,009 (117,081) Net Assets - Beginning of Year 8,210,730 12,806,335 1,078,283 22,095,348 22,212,429 NET ASSETS - END OF YEAR $ 9,657,622 $ 11,399,452 $ 1,078,283 $ 22,135,357 $ 22,095,348 The Accompanying Notes are an Integral Part of These Consolidated Financial Statements -4-

16 CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES Year Ended June 30, 2016 With Summarized Totals for the Year Ended June 30, 2015 Program Services Beverly Taper WAC Dental Behavioral Outreach and Management Clinic Clinic Clinic Clinic Health Enrollment Total and General Fundraising Total Total Salaries $ 2,900,906 $ 917,344 $ 3,674,928 $ 1,363,545 $ 1,037,695 $ 134,806 $ 10,029,224 $ 580,918 $ 381,775 $ 10,991,917 $ 10,480,983 Payroll Taxes 228,975 72, , ,055 81,945 10, ,797 42,194 29, , ,424 Employee Benefits 367, , , , ,534 11,033 1,273,687 50,446 43,489 1,367,622 1,366,565 TOTAL PERSONNEL EXPENSES 3,497,130 1,095,911 4,435,396 1,640,399 1,266, ,698 12,091, , ,563 13,219,829 12,689,972 OTHER EXPENSES: Consultants and Subcontractors 164,129 51, ,056 34,076 34,327 7, , ,859 16, , ,681 Depreciation and Amortization 127,509 55, ,392 41,874 37,684 8, ,817 4,469 7, , ,689 Equipment and Facility Maintenance 196,341 65, ,659 50,813 16,391 3, ,194 3,062 9, , ,967 Facility Rent 3,364 8,963 40,864 7,778 10,052 2,506 73, , , ,784 Insurance 61,775 21,295 80,720 31,342 16,305 3, ,039 3,088 5, , ,443 Interest , ,177 2,122 Laboratory Services 204,206 81, ,945 16, , , ,536 Legal and Professional Services 16,639 5,418 22,193 6,801 6,792 1,587 59, ,126 3, , ,645 Maintenance and Security 234, , ,375 52, ,985 24, ,523 13,774 26, , ,838 Office 180,020 55, ,089 64,502 56,958 13, ,616 89,294 25, , ,391 Printing and Reproductions 26,473 6,290 32,372 7,100 5,293 1,265 78,794 4,268 11,354 94,416 87,802 Program Supplies 230,679 49, ,697 98,489 9,579 1, ,597 3,448 27, , ,801 Telephone and Utilities 87,500 29,433 67,649 24,906 32,797 8, ,967 7,812 17, , ,275 Travel 15,191 4,867 20,642 3,663 3, ,512 14,129 1,514 64,155 84,124 TOTAL 2016 FUNCTIONAL EXPENSES $ 5,045,828 $ 1,639,017 $ 6,514,460 $ 2,080,644 $ 1,607,146 $ 233,797 $ 17,120,893 $ 1,382,101 $ 661,253 $ 19,164,247 89% 7% 4% 100% TOTAL 2015 FUNCTIONAL EXPENSES $ 4,849,007 $ 1,895,001 $ 6,210,817 $ 1,841,787 $ 1,363,126 $ 217,793 $ 16,377,531 $ 850,489 $ 567,050 $ 17,795,070 92% 5% 3% 100% The Accompanying Notes are an Integral Part of These Consolidated Financial Statements -5-

17 CONSOLIDATED STATEMENT OF CASH FLOWS Year Ended June 30, 2016 With Summarized Totals for the Year Ended June 30, CASH FLOWS FROM OPERATING ACTIVITIES: Change in Net Assets 40,009 $ (117,081) Adjustments to Reconcile Change in Net Assets to Net Cash Used in Operating Activities: Depreciation and Amortization 488, ,689 Realized and Unrealized Losses on Investments 1,097, ,597 Contributions Restricted for Long-Term Purposes - (41,783) Debt Forgiveness - (719,527) (Increase) Decrease in: Fee-for-Service Contracts Receivable (Net) (2,248,670) (77,558) Contributions and Grants Receivable 269,286 (678,401) Other Receivables 7, ,310 Inventories (7,964) 57,107 Prepaid Expenses and Other Current Assets (121,931) (21,750) Due from Friends of Saban Community Clinic 31,900 (41,012) Increase (Decrease) in: Accounts Payable and Accrued Expenses 293,380 (109,976) Deferred Revenue (15,691) 32,217 NET CASH USED IN OPERATING ACTIVITIES (166,989) (399,168) CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from Sales of Investments 605, ,717 Purchases of Investments (451,579) (667,432) Purchases of Property and Equipment (335,319) (427,465) NET CASH USED IN INVESTING ACTIVITIES (181,021) (414,180) CASH FLOWS FROM FINANCING ACTIVITIES: Contributions Restricted for Long-Term Purposes - 41,783 Payments of Notes Payable (31,971) (31,027) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (31,971) 10,756 NET DECREASE IN CASH AND CASH EQUIVALENTS (379,981) (802,592) Cash and Cash Equivalents - Beginning of Year 733,954 1,536,546 CASH AND CASH EQUIVALENTS - END OF YEAR $ 353,973 $ 733,954 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash Paid During the Year for Interest $ 1,177 $ 2,122 The Accompanying Notes are an Integral Part of These Consolidated Financial Statements -6-

18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2016 NOTE 1 - ORGANIZATION Saban Community Clinic (the Clinic, legally known as The Los Angeles Free Clinic) serves patients at three locations: The Beverly Clinic (Beverly Clinic), located in the Seniel Ostrow Building on Beverly Boulevard The S. Mark Taper Hollywood Clinic (Taper Clinic) on Hollywood Boulevard The Hollywood Wilshire Health Clinic and the Wallis Annenberg Children and Family Health Center on Melrose Avenue (WAC Clinic), a co-location with the County of Los Angeles Department of Health Services Services of the Clinic include: Medical and dental care Mental health services, including case management, counseling and crisis intervention HIV testing and counseling Prenatal services Family planning Wellness programs, including chronic disease management, nutrition, and general health education Prevention programs for teen pregnancy and HIV The Clinic has the status of a Federally Qualified Health Center (FQHC), which requires that the Clinic demonstrate compliance with applicable requirements of section 330 of the Public Health Service Act. This designation provides the Clinic with enhanced Medicare and Medicaid reimbursement and Health Resources and Service Administration (HRSA) Section 330 grants. The Clinic has direct administrative control of the funds held by the Los Angeles Free Clinic Hollywood Center Endowment Corporation (the Endowment). The Endowment is a separate entity created in November 1991 for the purpose of providing income from its investment to be used solely for the operations of the S. Mark Taper Hollywood Clinic, owned and operated by the Clinic. Accordingly, the Endowment's financial activity is consolidated with that of the Clinic. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Clinic and the Endowment (collectively, the Organization). All significant intercompany accounts and transactions have been eliminated on consolidation. (b) BASIS OF PRESENTATION The accompanying consolidated financial statements have been prepared on the accrual basis of accounting. -7-

19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2016 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (c) ACCOUNTING To ensure observance of certain constraints and restrictions placed on the use of resources, the accounts of the Organization are maintained in accordance with the principles of net assets accounting. This is the procedure by which resources for various purposes are classified for accounting and reporting purposes into net asset classes that are in accordance with specified activities or objectives. Accordingly, all financial transactions have been recorded and reported by net asset class as follows: Unrestricted Investment in Land and Building. This represents the investment in land and building, net of accumulated depreciation, and net of the related notes payable secured by the land and building. The Organization has unrestricted investment in land and building net assets of $6,040,499 at June 30, Unrestricted General. These generally result from revenues generated by receiving unrestricted contributions, providing services, and receiving income from investments less expenses incurred in providing program related services, raising contributions, and performing administrative functions. Temporarily Restricted. The Organization reports gifts of cash and other assets as temporarily 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 the purpose of the restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the consolidated statement of activities as net assets released from purpose or time restrictions. The Organization has temporarily restricted net assets of $11,399,452 at June 30, Permanently Restricted. These net assets are received from donors who stipulate that resources are to be maintained permanently, but permit the Organization to expend all of the income (or other economic benefits) derived from the donated assets. The Organization has permanently restricted net assets of $1,078,283 at June 30, (d) USE OF ESTIMATES The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets, liabilities, revenues and expenses as of the date and for the period presented. Accordingly, actual results could differ from those estimates. (e) CASH AND CASH EQUIVALENTS Cash and cash equivalents are short-term, highly liquid investments with maturities of three months or less at the time of purchase. The carrying value of cash equivalents approximates its fair value at June 30,

20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2016 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (f) INVESTMENTS Investments in marketable securities with readily determinable fair values and all investments in debt securities are reported at fair value. Investments in alternative investments, for which there is no readily available market, are valued by the Organization using methods that management believes provide a reasonable estimate of fair value. These methods include initial due diligence and ongoing monitoring of investment funds by management and outside consultants. Investment purchases and sales are accounted for on a trade-date basis. Realized gains and losses are calculated based upon the underlying cost of the securities traded. Interest and dividend income is recorded when earned. Gains or losses (including investments bought, sold, and held during the year), and interest and dividend income are reflected in the consolidated statement of activities as increases or decreases in unrestricted net assets unless their use is temporarily restricted by donor stipulations or by law. Investment securities, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility. Because of the level of risk associated with certain long-term investments, it is reasonably possible that changes in the values of these investments will occur in the near term and that such changes could materially affect the amounts reported in the consolidated statement of financial position. (g) CONTRACTS RECEIVABLE Receivables are recorded when billed or accrued and represent claims against third parties that will be settled in cash. The carrying value of receivables, net of the allowance for doubtful accounts if any, represents their estimated net realizable value. The allowance for doubtful accounts is estimated based on historical collection trends, type of customer, the age of outstanding receivables and existing economic conditions. If events or changes in circumstances indicate that specific receivable balances may be impaired, further consideration is given to the collectability of those balances and the allowance is adjusted accordingly. Past due receivable balances are written-off when internal collection efforts have been unsuccessful in collecting the amount due. A general allowance for doubtful accounts of $25,948 has been established. (h) CONTRIBUTIONS AND GRANTS RECEIVABLE Unconditional contributions, including grants recorded at estimated fair value, are recognized as revenues when the grant is received. The Organization reports unconditional contributions as restricted support if they are received with donor stipulations that limit the use of the donated assets. Conditional promises to give are not included as support until such time as the conditions are substantially met. Contributions and grants receivable at June 30, 2016 are due in their entirety within one year. The Organization evaluated the collectability of contributions and grants receivable at June 30, 2016 and determined that no allowance for doubtful accounts was needed. -9-

21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2016 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (i) INVENTORIES Inventories of medical supplies and pharmaceuticals are stated at the lower of cost (firstin, first-out) or market. Contributed pharmaceuticals are valued at their estimated cost at the time of their contribution. (j) PROPERTY AND EQUIPMENT Property and equipment are recorded at cost at the date of acquisition if purchased or at estimated fair value at the date of donation if donated. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. The estimated useful lives are as follows: Buildings and Improvements Machinery and Equipment Furniture and Fixtures Leasehold Improvements 40 Years 5 Years 5 Years 5 Years Expenditures for repairs and maintenance are charged to expense as incurred. Property and equipment are capitalized if the cost of an asset is greater than or equal to $500, $2,000 for building improvements and the useful life is greater than one year. Expenditures for fixed assets from certain grant funds are expensed when acquired because the grantor retains title to such assets. (k) LONG-LIVED ASSETS The Organization evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss is recognized when the sum of the undiscounted future cash flows is less than the carrying amount of the asset, in which case a write-down is recorded to reduce the related asset to its estimated realizable value. During the year ended June 30, 2016, no impairment loss was recognized. (l) INCOME TAXES The Clinic and the Endowment are nonprofit public benefit corporations organized under the laws of California and, as such, are exempt from federal and state income taxes under Internal Revenue Code (IRC) Section 501(c)(3) and corresponding state provisions. -10-

22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2016 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (m) NET FEE-FOR-SERVICE AND OTHER CONTRACT REVENUE AND SUPPORT Net fee-for-service and other contract revenue and support are reported at the estimated net realizable amounts from patients, third party payors, and others for services rendered. Net fee-for-service and other contract revenue and support revenue also includes estimated retroactive adjustments under reimbursement agreements with third party payors. The Organization has agreements with third-party payors that provide for payments to the Organization at amounts different from its established rates. Payment arrangements include prospectively determined rates per service, reimbursed costs, discounted charges, and per diem payments. Retroactive adjustments are accrued on an estimated basis in the period the services are rendered and adjusted in future periods, as final settlements are determined. Differences between the estimated amounts accrued and interim and final settlements are reported in operations in the year of settlement. Estimated third-party payor settlement amounts included in the accompanying consolidated statement of financial position approximates fair value. Payment agreements have been established with certain commercial insurance carriers, health maintenance organizations, and preferred provider organizations. Premiums are due monthly (calculated on a prospectively determined capitated rate) and are recognized as revenue during the period in which the Organization is obligated to provide services to its members. Revenue from cost-reimbursable grants and contracts is recorded to the extent of expenses incurred applicable to the grant or contract. Any difference between expenses incurred and the total funds received (not to exceed the grant or contract maximum) is recorded as a receivable or deferred revenue, whichever is applicable. Revenue from other grants is recognized on an accrual basis as earned according to the provisions of the grant. (n) CONTRIBUTED PHARMACEUTICALS AND LABORATORY SERVICES Contributions of donated non-cash assets are recorded at fair value in the period received. Contributions of donated services are recognized if the services received (a) create or enhance long-lived assets, or (b) require specialized skills, are provided by individuals possessing those skills and would typically need to be purchased if not provided by donation. The Organization recognized contributed pharmaceuticals and laboratory services valued at $65,352 and $223,524, respectively, which are included in revenue and support for the year ended June 30, No amounts were included in the accompanying consolidated financial statements for the fair value of contributed medical and legal services as such services, primarily contributed by physicians, dentists and attorneys, would not otherwise have been purchased by the Organization if they had not been contributed. During the year, management estimated medical, dental and legal professionals and other volunteers contributed approximately 18,813 hours of volunteer services to support the medical and dental clinics, administration and fundraising. Pharmaceuticals received under the Patient Assistance Program (PAP) are not included in the accompanying consolidated financial statements as the Organization does not have variance power. PAP pharmaceuticals were received totaling $79,951 during the year ended June 30,

23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2016 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (o) UNCOMPENSATED CARE The Organization defines uncompensated care as services rendered for which the patient shall not be held liable. The Organization is committed to providing quality health care for certain members of its community, including the poor and underserved who cannot afford health insurance, copays and deductibles. During the year ended June 30, 2016, the Organization provided uncompensated care of $6,495,962 to its patients, which has been calculated as the difference between total health care costs less net third party reimbursements for services. (p) ELECTRONIC HEALTH RECORDS INCENTIVE PROGRAM The Electronic Health Records Incentive Program, enacted as part of the American Recovery and Reinvestment Act of 2009, provides for one-time incentive payments under both the Medicare and Medi-Cal programs to eligible health centers that demonstrate meaningful use of certified electronic health records technology (EHR). Payments under the Medicare program are generally made for up to four years based on a statutory formula. Payments under the Medi-Cal program are generally made for up to four years based upon a statutory formula, as determined by the state, which is approved by the Centers for Medicare and Medi-Cal Services. Payment under both programs are contingent on the health center continuing to meet escalating meaningful use criteria and any other specific requirements that are applicable for the reporting period. The final amount for any payment year is determined based upon an audit by the fiscal intermediary. Events could occur that would cause the final amounts to differ materially from the initial payments under the program. The Organization recognizes incentive revenue over the reporting period starting at the point when management is reasonably assured it will meet all of the meaningful use objectives and any other specific grant requirements applicable for the reporting period. In the year ending June 30, 2016, the Organization completed first and second-year requirements under the Medi-Cal program and has recorded revenue of $327,240, which is included in Other Contracts in the statement of activities. (q) FUNCTIONAL ALLOCATION OF EXPENSES The costs of providing the Organization s programs and other activities have been presented in the consolidated statement of functional expenses. During the year, such costs are accumulated into separate groupings as either direct or indirect. Indirect or shared costs are allocated among program and support services by a method that best measures the relative degree of benefit. (r) CONCENTRATION OF RISK The Organization maintains its cash and cash equivalents in bank deposit accounts and other investment accounts, which, at times, may exceed federally insured limits. The Organization has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on these accounts. -12-

24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2016 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (r) CONCENTRATION OF RISK (continued) The Organization received $3,125,683 and $9,267,110, respectively, from the County of Los Angeles Department of Health Services and the State of California Department of Health Services, comprising 16% and 48%, respectively, of the Organization's revenue and support during the year. At June 30, 2016, these two entities comprise 13% and 84%, respectively, of the balance in contracts receivable. (s) NEW ACCOUNTING PRONOUNCEMENTS In May 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No , Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent), which is effective for fiscal years beginning after December 15, 2016 for entities other than public business entities. The ASU eliminates the requirement to categorize investments in the fair value hierarchy if the fair value is measured at net asset value (NAV) per share (or its equivalent) using the practical expedient in the FASB s fair value measurement guidance. The Organization elected to early implement this ASU in the year ending June 30, In February 2016, FASB issued ASU No , Leases, which is intended to improve financial reporting about leasing transactions. The new standard will require organizations that lease assets with terms of more than 12 months to recognize on the statement of financial position the assets and liabilities for the rights and obligations created by those leases. The ASU also will require disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements and providing additional information about the amounts recorded in the financial statements. This ASU will be effective for the Organization for the year ending June 30, In August 2016, FASB issued ASU No , Presentation of Financial Statements of Not-for-Profit Entities (Topic 958), which is intended to reduce complexity in financial reporting. The ASU focuses on improving the current net asset classification requirements and information presented in financial statements that is useful in assessing a nonprofit s liquidity, financial performance, and cash flows. This ASU will be effective for the Organization for the year ending June 30, (t) SUBSEQUENT EVENTS The Organization has evaluated events and transactions occurring subsequent to the consolidated statement of financial position date of June 30, 2016 for items that should potentially be recognized or disclosed in these consolidated financial statements. The evaluation was conducted through January 17, 2017, the date these consolidated financial statements were available to be issued. No such material events or transactions were noted to have occurred. -13-

25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2016 NOTE 3 - INVESTMENTS Investments are recorded at fair value and are aggregately included in the consolidated statement of financial position as follows: Investments $ 662,897 Investments Held for Long-Term Purposes 11,848,595 TOTAL INVESTMENTS $ 12,511,492 Included in investments held for long-term purposes are the Hollywood endowment investments totaling $1,209,262. Net investment loss for the year ended June 30, 2016 consists of the following: Interest and Dividend Income $ 497,261 Net Realized and Unrealized Losses (1,097,365) Management Fees (38,390) INVESTMENT LOSS $ (638,494) NOTE 4 - FAIR VALUE MEASUREMENTS The Organization has implemented the accounting standard for those assets that are re-measured and reported at fair value at each reporting period. This standard establishes a single authoritative definition of fair value, sets out a framework for measuring fair value based on inputs used, and requires additional disclosures about fair value measurements. This standard applies to fair value measurements already required or permitted by existing standards. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset and include situations where there is little, if any, market activity for the asset. -14-

26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2016 NOTE 4 - FAIR VALUE MEASUREMENTS (continued) The following table presents information about the Organization s assets that are measured at fair value on a recurring basis at June 30, 2016 and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value: Year Ended June 30, 2016 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Net Asset Values per Share or Its Equivalent (NAV) Cash Equivalents $ 673,854 $ 673,854 $ - $ - $ - Mutual Funds 3,616,402 3,616, International Equities 2,286,872 2,286, Fixed Income 4,677,049 4,677, Alternative Investments 1,257, ,257,315 TOTAL INVESTMENTS $12,511,492 $11,254,177 $ - $ - $ 1,257,315 The fair values of marketable securities within Level 1 inputs were obtained based on quoted market prices at the closing of the last business day of the fiscal year. Investments using NAV are comprised of private equity funds that invest in U.S. and international companies in various industries. These investments (a) do not have a readily determinable fair value and (b) prepare their financial statements consistent with the measurement principles of an investment company or have the attributes of an investment company. Investments are value using the NAV provided by the fund managers or general managers. It is probably that the investments will be sold at an amount different from their fair value at June 30, The funds may provide distributions only upon liquidation of the underlying assets. It is probable that the investments will be sold at an amount different from their fair value at June 30, There were no unfunded commitments at June 30, The Organization recognizes transfers at the beginning of each reporting period. Transfers between Level 1 and 2 generally relate to whether a market becomes active or inactive. During the year ended June 30, 2016, there were no transfers between Level 1 and Level 2. Transfers between Level 2 and 3 investments relate to whether significant relevant observable inputs are available for the fair value measurement in their entirety and when redemption rules become more or less restrictive. There were no transfers between levels for the year ended June 30,