THE CENTER FOR THE PARTIALLY SIGHTED FINANCIAL STATEMENTS

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1 FINANCIAL STATEMENTS

2 TABLE OF CONTENTS Page INDEPENDENT AUDITORS' REPORT 1-2 FINANCIAL STATEMENTS Statement of Financial Position 3 Statement of Activities 4 Statement of Functional Expenses 5 Statement of Cash Flows 6 NOTES TO FINANCIAL STATEMENTS 7-14

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4 Emphasis-of-Matter Regarding Going Concern The accompanying financial statements have been prepared assuming the Center will continue as a going concern. As discussed in Note 2 to the financial statements, the Center has suffered recurring significant reductions in revenue and has a net deficiency in its net assets that raise substantial doubt about its ability to continue as a going concern. Management s plans regarding those matters also are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated September 1, 2015, 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. September 1, 2015 Armanino LLP Los Angeles, California 2

5 STATEMENT OF FINANCIAL POSITION JUNE 30, 2014 ASSETS Cash and Cash Equivalents $ 54,850 Accounts Receivable, net 232,167 Government Funded Receivables 54,676 Inventory 106,078 Prepaid and Other Assets 14,859 Property and Equipment, net 124,860 Deposits 21,613 $ 609,103 LIABILITIES AND NET ASSETS Liabilities Note payable $ 100,000 Accounts payable and accrued liabilities 508,677 Related party payables 127,977 Total Liabilities 736,654 Commitments (Note 9) Net Assets (Deficit) Unrestricted (255,288) Temporarily restricted 127,737 Total Net Assets (Deficit) (127,551) $ 609,103 See accompanying notes to financial statements. 3

6 STATEMENT OF ACTIVITIES Unrestricted Temporarily Restricted Total Revenue and Support Patient service revenue, net $ 672,978 $ - $ 672,978 Government grants 577, ,980 Contributions 190, , ,052 Miscellaneous 23,269-23,269 Net Assets Released from Restrictions 476,173 (476,173) - 1,941,387 (4,108) 1,937,279 Functional Expenses Program services 1,904,217-1,904,217 Management and general 259, ,394 Fundraising 164, ,307 2,327,918-2,327,918 Changes in Net Assets (Deficit) (386,531) (4,108) (390,639) Net Assets, beginning of year 131, , ,088 Net Assets (Deficit), end of year $ (255,288) $ 127,737 $ (127,551) See accompanying notes to financial statements. 4

7 STATEMENT OF FUNCTIONAL EXPENSES Program Services Management and General Fundraising Total Personnel Expenses Salaries and wages $ 1,019,768 $ 59,289 $ 106,720 $ 1,185,777 Employee benefits 96,596 20,913 9, ,484 Payroll taxes 78,665 4,575 8,232 91,472 Workers' compensation 14, ,558 17,307 1,209,913 85, ,485 1,422,040 Other Expenses Bank and credit card fees 6,485 6, ,414 Bad debt - 109, ,249 Clinical supplies 6, ,124 Consultants and outside services 241,119 23, ,989 Depreciation and amortization 36,781 2,508 2,508 41,797 Dues, fees, and accreditation 2, ,028 Insurance 33, ,131 35,220 Interest - 15,893-15,893 Miscellaneous 5, ,772 Occupancy 284,775 9,525 11, ,434 Office supplies and expenses 38,051 2,149 11,937 52,137 Postage 1, ,967 Publications and publicity 1, ,551 8,035 Staff development and education 5, ,765 7,203 Telephone 22,957 1,020 1,531 25,508 Travel 7,673 1,435-9,108 $ 1,904,217 $ 259,394 $ 164,307 $ 2,327,918 See accompanying notes to financial statements. 5

8 STATEMENT OF CASH FLOWS Cash Flows from Operating Activities Changes in net assets (deficit) $ (390,639) Adjustments to reconcile changes in net assets (deficit) to net cash used in operating activities Depreciation and amortization 41,797 Change in allowance for doubtful accounts 109,249 (Increase) decrease in operating assets Accounts receivable (39,816) Government funded receivables 69,811 Inventory (1,582) Prepaid and other assets 424 Deposits 17,550 Increase (decrease) in operating liabilities Accounts payable and accrued liabilities 114,469 Net Cash Used in Operating Activities (78,737) Cash Flows from Investing Activities Purchases of property and equipment (47,371) Net Cash Used in Investing Activities (47,371) Cash Flows from Financing Activities Advances from related parties 117,496 Net proceeds from note payable 20,000 Net Cash Provided by Financing Activities 137,496 Net Increase in Cash and Cash Equivalents 11,388 Cash and Cash Equivalents, beginning of year 43,462 Cash and Cash Equivalents, end of year $ 54,850 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash Paid during the Year for Interest $ 15,893 See accompanying notes to financial statements. 6

9 NOTES TO FINANCIAL STATEMENTS NOTE 1 - NATURE OF OPERATIONS The Center for the Partially Sighted (the "Center") was formed in 1978 and incorporated in 1982 to promote independent living for people of all ages with impaired sight. The Center is licensed by the State of California as a primary care clinic to assist partiallysighted individuals by equipping them with low-vision aids and/or by providing counseling and training to lead independent and productive lives. The Center receives fees for services from Medicare, Medi-Cal, and clients, based on their ability to pay. Additionally, the Center seeks public support in order to offer services to clients unable to pay. The Center holds ongoing fundraising drives to attract contributions from private foundations, corporations, and individuals. The Center also receives grants from the State of California and other governmental agencies. NOTE 2 - MANAGEMENT'S PLANS TO ADDRESS FINANCIAL LOSS AND SUBSEQUENT EVENTS In the fiscal year ended June 30, 2014, and again in the fiscal year ended June 30, 2015, the Center has experienced significant losses, reducing its June 30, 2014, net assets to a deficit balance of $(127,551), of which unrestricted net assets net assets totaled $(255,288). The losses were generally the result of several factors: 1. Management s slow response to ongoing fee reductions from government providers, in terms of: a. Making appropriate cost cuts; b. Establishing efficient billing, collection systems, and responsive accounting systems; and c. Restructuring the operational side of things to increase productivity and minimize inefficiencies. 2. The Center s lack of a Funds Development Department meant that fundraising activities (grants, donations, special events) were performed by individuals with competing operational responsibilities. 3. The Board of Directors has recently responded by hiring an outside accounting firm, searching for new Board members with fundraising ability, and planning fundraising events. 7

10 NOTES TO FINANCIAL STATEMENTS NOTE 2 - MANAGEMENT'S PLANS TO ADDRESS FINANCIAL LOSS AND SUBSEQUENT EVENTS (Continued) The Center has funded these losses by relying on advances from the Executive Director and a colleague and extending its trade creditors. Effective April 2015, the Board of Directors hired an outside accounting firm to help stabilize its operations and cash flow. Together they are making significant efforts to increase its funding, cut costs, restructure operations, and seek other strategic opportunities. The Center's ability to continue as a going concern depends on these efforts being successful. The following measures have been initiated: A. Costs have been cut, primarily in staffing and payroll. B. The backlog in billing is being brought current, and significantly delinquent receivables owed by the California Department of Rehabilitation are in the process of being billed and collected. C. Operations are being restructured, reducing costs, increasing efficiencies, and simplifying information technology. D. The accounting has been brought current from July 2013 through August E. The Board Chair has persuaded a socially well-connected individual to coordinate two special events for the Center, one scheduled for October 2015, and another for February The Board Chair is also actively recruiting new Board members with a view to increasing the Board s fundraising capabilities. NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Income Tax Status The Center is a nonprofit public benefit corporation organized under the laws of California and, as such, is exempt from federal and state income taxes under Section 501(c)(3) of the Internal Revenue Code ("IRC") and corresponding state provisions. The Center s federal income tax and informational returns for tax years ended June 30, 2012, and subsequent remain subject to examination by the Internal Revenue Service. The returns for California, the Center s only state tax jurisdiction, remain subject to examination by the California Franchise Tax Board for tax years ended June 30, 2011, and subsequent. 8

11 NOTES TO FINANCIAL STATEMENTS NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Financial Statement Presentation The Center reports information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets and permanently restricted net assets. Unrestricted Net Assets - Include patient service revenue, grants, contributions, and other forms of unrestricted revenue and expenditures related to the general operations and fundraising efforts of the Center. Temporarily Restricted Net Assets - Include contributions received that are temporarily restricted with respect to use by the donor or grantor. When the restrictions are met or expire, the net assets restricted by donors are reclassified to unrestricted net assets. Permanently Restricted Net Assets - Include assets that have been restricted by the donor in perpetuity and cannot be expended by the Center. The Center had no permanently restricted net assets at June 30, Use of Estimates Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from these estimates. Concentration of Risk Occasionally the Center's cash balances exceed FDIC-insured limits. The Center has not experienced and does not anticipate any losses relating to cash held in these accounts. The Center has one major funding source that comprised 27% of its revenue during the year and 3% of its receivables at June 30, Cash and Cash Equivalents The Center considers all financial instruments purchased with an original maturity of three months or less to be cash equivalents. 9

12 NOTES TO FINANCIAL STATEMENTS NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Accounts Receivable Accounts receivable is recorded net of an allowance for doubtful accounts, which management has calculated based on its estimate of future collections. Government funded receivables are deemed to be 100% collectible by management; no allowance for doubtful accounts has been recorded. Inventory Inventory is stated at the lower of cost (first-in, first-out basis) or fair value. Inventory consists primarily of low-vision aid equipment. Property and Equipment Property and equipment are recorded at cost. Contributed items are recorded at estimated fair values at the time of the contribution. The Center uses straight-line and accelerated methods of depreciation over the estimated useful lives of the respective assets. Leasehold improvements are amortized on a straight-line basis over the term of the lease or the life of improvements, whichever is less. The estimated useful lives are as follows: Optical equipment Computer equipment Office furniture and equipment 5 years 5 years 5 years Normal repairs and maintenance are expensed as incurred, whereas significant charges that materially increase values or extend useful lives are capitalized and depreciated over the estimated useful lives of the related assets. Impairment of Long-Lived Assets Management reviews each asset or asset group for impairment whenever events or circumstances indicate that the carrying value of an asset or asset group may not be recoverable, but at least annually. No impairment provision was recorded by the Center during the year. 10

13 NOTES TO FINANCIAL STATEMENTS NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Donated Goods and Services Management estimated the Center received approximately 6,000 hours of donated services during the year. No amounts are included in the accompanying financial statements for the fair value of donated services as such services do not meet the criteria for recognition in accordance with Accounting Standards Codification Topic Nonprofit Organizations. In addition, the Center received donated clinical supplies totaling $15,074 during the year which are included in contribution revenue on the accompanying statement of activities. Functional Expenses The Center allocates its expenses on a functional basis among its various programs and support services. Expenses that can be identified with a specific program or support service are allocated directly according to their natural expense classification. Other expenses that are common to several functions are allocated accordingly. Subsequent Events The Center has evaluated events subsequent to June 30, 2014, to assess the need for potential recognition or disclosure in the financial statements. Such events were evaluated through September 1, 2015, the date the financial statements were available to be issued. Based upon this evaluation, relevant subsequent events are described in Note 2. NOTE 4 - ACCOUNTS RECEIVABLE Accounts receivable consist of the following: Accounts receivable $ 486,114 Allowance for doubtful accounts (253,947) $ 232,167 11

14 NOTES TO FINANCIAL STATEMENTS NOTE 5 - PROPERTY AND EQUIPMENT Property and equipment consist of the following: Optical equipment $ 437,820 Computer equipment 85,502 Office furniture and equipment 106,253 Leasehold improvements 13, ,810 Accumulated depreciation and amortization (517,950) $ 124,860 NOTE 6 - NOTE PAYABLE The Center had a $100,000 unsecured line of credit with City National Bank, with interest-only payments at 4.5% through September 30, 2014, at which time the line of credit was refinanced into an unsecured term note payable, with monthly principal payments of $1,667 plus interest at the greater of 3.5% or the bank's prime rate (3.25% at June 30, 2014) plus 1.25% through September 30, As of June 30, 2014, the Center had $100,000 outstanding on this line of credit. Future maturities of the note payable are as follows: Year Ending June 30, 2015 $ 20, , , , ,000 $ 100,000 NOTE 7 - RELATED PARTY PAYABLES The Executive Director of the Center has made operating advances to the Center totaling $127,977. These advances are unsecured, non-interest-bearing, and will be repaid as cash flow permits. 12

15 NOTES TO FINANCIAL STATEMENTS NOTE 8 - TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets during the year are as follows: Purpose Restriction Balance July 1, 2013 Temporarily Restricted Contributions Net Assets Released from Restrictions Balance June 30, 2014 Pediatric Programs $ 96,922 $ 221,000 $ (234,500) $ 83,422 Optometric Equipment 4,719 48,000 (28,404) 24,315 Adult Optometry 27,000 57,000 (64,000) 20,000 Low-Vision Aids 3,204 13,165 (16,369) - Diabetes - 10,400 (10,400) - Orientation and Mobility - 20,000 (20,000) - Low Income Services - 102,500 (102,500) - $ 131,845 $ 472,065 $ (476,173) $ 127,737 NOTE 9 - COMMITMENTS The Center is committed under noncancelable operating leases on office space and equipment through August 2016 with future required annual payments as follows: Year Ending June 30, 2015 $ 258, , ,543 $ 517,148 Rent expense related to the office space and equipment totaled $305,434 for the year. 13

16 NOTES TO FINANCIAL STATEMENTS NOTE 10 - RETIREMENT PLAN The Center has an IRC Section 403(b) individual defined contribution retirement plan for all eligible employees. Participants may make salary deferrals to their individual accounts up to the maximum allowable deferral amount for defined contribution plans. The Center may make discretionary matching contributions to the 403(b) plan for eligible employees; no matching contributions were made for the year. 14