CONTENTS. Independent Auditors Report Consolidated Statement of Financial Position Consolidated Statement of Activities...

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1 P C A A C ( F E S Fort heyearendedjune30,2016 ( wi t hsummar ycompar at i vei nf or mat i onf or2015) )

2 CONTENTS Independent Auditors Report Consolidated Statement of Financial Position... 3 Consolidated Statement of Activities... 4 Consolidated Statement of Cash Flows... 5 Notes to the Consolidated Financial Statements Independent Auditors 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 Supplementary Information

3 111 West Ocean Blvd. Twenty-Second Floor Long Beach, CA Von Karman Ave. Suite 1060 Irvine, CA South Figueroa St. Suite 4950 Los Angeles, CA INDEPENDENT AUDITORS REPORT To the Board of Directors of Pacific Asian Consortium in Employment and Affiliates Report on the Consolidated Financial Statements We have audited the accompanying consolidated financial statements of Pacific Asian Consortium in Employment and Affiliates (collectively, PACE ), which comprise the consolidated statement of financial position as of June 30, 2016, and the related consolidated statements of activities 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. Auditors 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 auditors 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 auditors consider 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. 1

4 Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Pacific Asian Consortium in Employment and Affiliates as of June 30, 2016, and the changes in their net assets and their cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Report on Supplementary Information Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The supplemental schedules on pages 20 to 33 are presented for purposes of additional analysis and are 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 information is fairly stated in all material respects in relation to the consolidated financial statements as a whole. Report on Summarized Comparative Information We have previously audited PACE s 2015 consolidated financial statements, and we expressed an unmodified audit opinion on those statements in our report dated December 10, 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 financial statements from which it has been derived. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 28, 2016, on our consideration of PACE 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 PACE s internal control over financial reporting and compliance. Long Beach, California November 28,

5 CONSOLIDATED STATEMENT OF FINANCIAL POSITION JUNE 30, 2016 (WITH COMPARATIVE TOTALS FOR 2015) ASSETS Cash and cash equivalents $ 3,506,364 $ 3,528,840 Cash, loan loss reserves 259,703 60,832 Cash, restricted 137, ,437 Accounts receivable 855,248 1,384,528 Other assets 239, ,307 Property and equipment, net 42,553 60,161 Investment in partnerships 15,411 15,417 5,057,138 5,357,522 Loans receivable: Total loan portfolio, net of allowance 2,099,797 1,269,263 Guaranteed portion of loans sold (552,149) (431,015) Net loans under management 1,547, ,248 TOTAL ASSETS $ 6,604,786 $ 6,195,770 LIABILITIES Accounts payable $ 732,162 $ 539,003 Accrued payroll and other accrued expenses 848,074 1,571,700 Pension payable 165, ,001 Unearned grants revenue 1,002, ,905 Notes payable 881, ,879 3,629,579 3,603,488 COMMITMENTS AND CONTINGENCIES (NOTE 8) NET ASSETS Unrestricted 2,262,557 2,041,918 Temporarily restricted 712, ,364 Total Net Assets 2,975,207 2,592,282 TOTAL LIABILITIES AND NET ASSETS $ 6,604,786 $ 6,195,770 The accompanying notes are an integral part of these consolidated financial statements. 3

6 CONSOLIDATED STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2016 (WITH COMPARATIVE TOTALS FOR 2015) REVENUE AND SUPPORT Temporarily Unrestricted Restricted Total 2015 Government grants and contracts $ 21,014,008 $ - $ 21,014,008 $ 20,798,938 Other grants and contracts 1,432,762-1,432,762 1,383,192 Contributions and donations 180, , , ,143 Interest income 134, ,643 71,230 Other income 90,126-90, ,584 Net assets released from restriction 253,718 (253,718) - - Total revenue and support 23,105, ,286 23,268,067 22,853, EXPENSES Program services Child education and nutrition 12,995,715-12,995,715 13,178,583 Employment and training 1,391,970-1,391,970 1,500,480 Business and economic development 1,858,815-1,858,815 1,888,748 Energy and environmental services 6,227,959-6,227,959 5,824,711 Real estate development 12,178-12,178 98,663 Home care 38,693-38,693 - Total program expenses 22,525,330-22,525,330 22,491,185 Support services General and administration 359, , ,092 Total expenses 22,885,142-22,885,142 23,326,277 CHANGE IN NET ASSETS 220, , ,925 (473,190) NET ASSETS, BEGINNING OF YEAR 2,041, ,364 2,592,282 3,065,472 NET ASSETS, END OF YEAR $ 2,262,557 $ 712,650 $ 2,975,207 $ 2,592,282 The accompanying notes are an integral part of these consolidated financial statements. 4

7 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2016 (WITH COMPARATIVE TOTALS FOR 2015) CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ 382,925 $ (473,190) Adjustments to reconcile change in net assets to net cash from operating activities: Depreciation and other noncash charges 17,614 17,616 Changes in operating assets and liabilities Cash, restricted (22,551) 32,231 Accounts receivable 529, ,824 Other assets (47,564) (75,312) Accounts payable 193, ,293 Accrued payroll and other accrued expenses (723,626) (88,093) Pension payable 22,925 (83,476) Unearned grants revenue 198, ,016 Net cash provided by operating activities 550,299 1,143,909 CASH FLOWS FROM INVESTING ACTIVITIES Net disbursement for loans receivable (709,400) (529,343) Increase (decrease) in cash, loan loss reserve (198,871) 75,632 Net cash used in investing activities (908,271) (453,711) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from notes payable 448,123 - Payment of notes payables (112,627) (414,113) Net cash provided by (used in) financing activities 335,496 (414,113) CHANGE IN CASH AND CASH EQUIVALENTS (22,476) 276,085 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,528,840 3,252,755 CASH AND CASH EQUIVALENTS, END OF YEAR $ 3,506,364 $ 3,528,840 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid $ 35,042 $ 13,151 The accompanying notes are an integral part of these consolidated financial statements. 5

8 (A NONPROFIT ORGANIZATION) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 1 Summary of Significant Accounting Policies Organization Pacific Asian Consortium in Employment (PACE) is a private, not-for-profit California corporation founded in 1975 to address the needs of the Asian-Pacific Islander communities. With an initial grant from the City of Los Angeles, PACE first began to offer job training and job placement services to the community and has since expanded its services beyond job skills and job creation programs. Today, its mission is to serve as a resource for identifying, securing and administering economic solutions to problems of housing, employment, education, environment and business development, while serving the community at large. Program services are grouped by the major program functions of Child Education and Nutrition, Employment and Training, Business and Economic Development, Energy and Environmental Services, and Affordable Housing. PACE is governed by a board of directors consisting of volunteers from business, education, legal and economic development fields. Lotus Construction and Property Maintenance Company (LOTUS), a wholly owned affiliate of PACE, is a for-profit company incorporated under the laws of California. LOTUS undertakes construction and housing rehabilitation projects as well as building management and maintenance contracts. BGreenLA Inc., a wholly owned affiliate of PACE, is a for-profit company incorporated under the laws of California. BGreenLA Inc. undertakes the design and installation of solar electric and solar thermal systems and other energy conservation measures. GreenBiz space Inc., a wholly owned affiliate of PACE, is a for-profit company incorporated under the laws of California. GreenBiz space Inc. is a business incubator for start-up or expanding businesses that focus on the preservation of the environment. PACE Finance Corporation (PFC) is a wholly owned subsidiary of PACE. It is a not-for-profit that operates exclusively for charitable purposes within the meaning of Internal Revenue Service Code Section 501(c)(3). PFC s mission is to promote the growth and economic expansion of diverse Los Angeles communities through the infusion of capital and provision of business consultation and technical assistance services. PFC is a certified Community Development Financial Institution (CDFI) through US Department of the Treasury, which focuses its lending in low income communities in Los Angeles County, with an emphasis on low income entrepreneurs, especially Asian Pacific Islanders and Women. PACE Care Inc. is a wholly owned subsidiary of PACE incorporated in 2016 as a for-profit company under the laws of California. PACE Care Inc. provides home care services in the greater Los Angeles area, with a particular focus in the San Gabriel Valley. 6

9 (A NONPROFIT ORGANIZATION) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 1 Summary of Significant Accounting Policies (Continued) Principles of Consolidation The accompanying consolidated financial statements include the accounts of PACE and its wholly owned affiliates, namely LOTUS, BGreenLA Inc., GreenBiz space Inc., PACE Finance Corporation and PACE Care Inc. (collectively, the Company or PACE ). All significant intercompany balances have been eliminated in the consolidation. Basis of Presentation The Company reports information regarding its financial position and activities according to three classes of net assets: unrestricted, temporarily restricted, and permanently restricted net assets. Net assets, revenues, gains and losses are classified based on the existence or absence of donor-imposed restrictions. Unrestricted Net Assets Net assets that are not subject to donor-imposed restrictions. Temporarily Restricted Net Assets Net assets subject to donor-imposed stipulations that may or will be met either by actions of the Company or the passage of time. As restrictions are satisfied, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the consolidated statement of activities and changes in net assets as net assets released from restrictions. Donor restricted contributions whose restrictions have been met in the same reporting period are reported as unrestricted support in the consolidated statement of activities and changes in net assets. Permanently Restricted Net Assets Net assets subject to donor-imposed restrictions that the corpus be invested in perpetuity and only the income be made available for program operations in accordance with donor restrictions. Such income generally includes interest, dividends, and realized and unrealized earnings from the corpus. The Company does not have any permanently restricted net assets at June 30, Prior-Period Information The consolidated financial statements include certain prior-year summarized comparative information in total, but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the Company s consolidated financial statements for the year ended June 30, 2015, from which the summarized information was derived. 7

10 (A NONPROFIT ORGANIZATION) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 1 Summary of Significant Accounting Policies (Continued) Method of Accounting The Company s consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. The accounting records of PACE are organized on the basis of a fund for each grant or contract. PACE resources are accounted for by the use of separate funds so that visibility and control are maintained for the benefit of PACE and its grantors. Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Grant Revenue Recognition PACE receives grant revenues from government and private agencies who pay PACE based on units of service provided or reimbursable costs as defined by the grants. Revenue recognition depends on the grant agreement and is generally recognized as invoiced upon completion of services for specific units. Contributions Contributions, including unconditional promises to give, are recorded as made. All contributions are available for unrestricted use unless specifically restricted by the donor. Conditional promises to give are recognized when the conditions on which they depend are substantially met. Contributions received with temporary restrictions that are met in the same reporting period are reported as unrestricted support and increase unrestricted net assets. Donated Services Donated services are recognized by the Company if the services create or enhance an asset or require specialized skills which would otherwise have been purchased if they had not been donated by entities or persons providing such services, and are recognized at the estimated fair value. There were no donated services recognized in the consolidated statement of activities for the year ended June 30, During the year ended June 30, 2016, services estimated by management of $3,350,422 were donated to PACE by volunteers, composed of $2,727,097 for its Head Start Basic program, $8,740 for its Head Start T&TA program, $580,585 for its Early Head Start program, and $34,000 for its business development center programs. The in-kind contributions were not reflected in the face of the consolidated financial statements because the in-kind contributions received do not meet the requirement for recognition as the services received do not involve specialized skills. 8

11 (A NONPROFIT ORGANIZATION) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 1 Summary of Significant Accounting Policies (Continued) Cash and Cash Equivalents For the purposes of the consolidated statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Cash, Loan Loss Reserves At June 30, 2016, the Company segregated certain cash reserved for use of losses on loans receivable. Accounts Receivable PACE considers the accounts receivable to be fully collectible and, accordingly, no allowance for doubtful accounts is required. If amounts become uncollectible, they will be charged to operations when the determination is made. All accounts receivable are expected to be collected within twelve months of year-end. Loans Receivable Loans receivable result primarily from small business loans given to individuals and small businesses. At June 30, 2016, loans receivable is recorded net of an allowance for doubtful accounts of $25,072. Property and Equipment Property and equipment acquired using unrestricted net assets are considered owned by the Company. Property and equipment are carried at cost, if purchased. Contributed assets are stated at fair market value at the date of contribution. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. The Company capitalizes all purchases of property and equipment with a cost of $5,000 or more and depreciates it over the useful life, which was deemed to be five years. Title to assets purchased with government funds are vested in the name of the Company for use in the respective programs. However, the funding source may maintain a reversionary interest in the property as well as in the determination of use of any proceeds from the sale of the assets. Such assets are not capitalized by the Company and are expensed when purchased. Investment in Partnerships Investments in partnerships are accounted for using the equity method of accounting for investments. Under the equity method, investments are carried at cost from the date of acquisition, increased or decreased by the investor's equity in the earnings or losses of the investee from the date of acquisition until cost reaches zero. 9

12 (A NONPROFIT ORGANIZATION) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 1 Summary of Significant Accounting Policies (Continued) Unearned Grants Revenue Receipts from funding sources in excess of the earned portion of grants are recorded as unearned grants until earned. Functional Allocations of Expenses The costs of providing the various programs and supporting services have been summarized on a functional basis in the statement of activities. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Fair Value Measurements Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Assets and liabilities are measured at fair value using a three-level fair value hierarchy that ranks the quality and reliability of the information used to measure fair value. The three levels of inputs used to measure fair value are as follows: Level 1: Level 2: Level 3: Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Pricing inputs include significant inputs that are generally unobservable from objective sources. These inputs may be used with internally developed methodologies that result in management s best estimate of fair value. An asset s or liability s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. All assets and liabilities for which the fair value measurement is based on significant unobservable inputs or instruments which trade infrequently and, therefore, have little or no price transparency are classified as Level 3. 10

13 (A NONPROFIT ORGANIZATION) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 1 Summary of Significant Accounting Policies (Continued) Income Taxes PACE and PACE Finance Corporation are nonprofit organizations exempt from payment of federal and California income taxes under Section 501(c)(3) of the Internal Revenue Code and Section 23701(d) of the California Revenue and Taxation Code. Accordingly, a provision for federal or state income taxes is not recorded in the accompanying financial statements. PACE is classified as an organization that is not a private foundation under Section 509(a)(i) and 170(b)(a)(vi) of the Internal Revenue Code. LOTUS, BGreenLA Inc., GreenBiz space and PACE Care Inc. are for-profit companies and are subject to federal and state income taxes. Generally accepted accounting principles prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It requires that an organization recognize in the financial statements the impact of the tax position if that position will more likely than not be sustained on audit, based on the technical merits of the position. As of and for the year ended June 30, 2016, PACE had no unrecognized tax benefits, tax penalties or interest. PACE and Affiliates is subject to potential income tax audits on open tax years by any taxing jurisdiction in which it operates. The statute of limitations for federal purposes is three years and for California is four years. Concentrations of Credit Risk At June 30, 2016 and throughout the year, the Company had cash in financial institutions in excess of federally insured limits. The Company has not experienced any losses in these accounts and believes it is not exposed to any significant credit risk. A substantial portion of the Company s revenue and accounts receivable are from grants funded by the federal and state government. Reclassifications Certain reclassifications have been made to the 2015 consolidated financial statement presentation to correspond to the current year s format. Subsequent Events The Company has evaluated subsequent events from the consolidated statements of financial position date through November 28, 2016, the date the consolidated financial statements were available to be issued for the year ended June 30, 2016, and determined there were no other items to disclose. 11

14 (A NONPROFIT ORGANIZATION) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 2 Property and Equipment At June 30, 2016, property and equipment consisted of the following: Office furniture and equipment $ 70,887 Vehicles 88, ,928 Less accumulated depreciation (116,375) Property and equipment, net $ 42,553 For the year ended June 30, 2016, depreciation expense for property and equipment amounted to $17,608. NOTE 3 Investment in Partnerships The Company invested in Grandview 9, LLC, a California limited liability company, in which PACE has 50% equity as of June 30, PACE and Grandview 9, LLC each are 0.05% general partners in Grandview Nine L.P., a California limited partnership, which built the Grandview Nine Family Housing project, a 62-unit residential apartment complex in Los Angeles. The investment activity for the year ended June 30, 2016 was as follows: June 30, 2015 balance $ 15,417 Loss from investments (6) June 30, 2016 balance $ 15,411 The Company has also invested in Pico Gramercy, LLC (Pico, LLC), a California limited liability company, in which PACE has a 33% equity as of June 30, Pico, LLC is a 0.05% general partner in Pico Gramercy L.P., a California limited partnership. Due to accumulated losses earned by the partnership in excess of initial investment, the investment was carried at cost of $0 as of June 30, NOTE 4 Loans Receivable The Company was approved for the Community Advantage Pilot Loan Program under the Small Business Administration ( SBA ) and was approved to sell the guaranteed portion of their Community Advantage loans on the Community Advantage Secondary Market ( Secondary Market ). The Secondary Market allows private investors to purchase the portion of the loans guaranteed by the SBA. The cash received from the private investors increases the Company s liquidity to allow for more loans to be disbursed to the community and satisfy the private investment match requirement by the CDFI regulator. 12

15 (A NONPROFIT ORGANIZATION) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 4 Loans Receivable (Continued) At June 30, 2016, loans receivable consisted of the following: Total loan portfolio $ 2,124,869 Less guaranteed portion sold (552,149) 1,572,720 Less allowance (25,072) Net loans under management $ 1,547,648 Payments on loans receivable to be collected, and not remitted, are as follows: Amounts due in: Less than one year $ 461,947 One to five years 834,134 Thereafter 276,639 1,572,720 Less allowance (25,072) Net loans under management $ 1,547,648 NOTE 5 Accrued Vacation PACE employees are granted varying tiers of vacation leave based on the number of years served in accordance with PACE's personnel policy. Employees can carry forward their earned vacation with various tiers of caps. Any unused vacation accrued is paid in full upon termination of employment. As of June 30, 2016, accrued vacation amounted to $471,535, which was reported under accrued payroll and other accrued expenses on the consolidated statement of financial position. In August 2013, as a term of the Head Start grant, PACE established a custodial account wherein deposited funds are used exclusively for payment of accrued vacation of employees working under the Head Start program. The fund balance at June 30, 2016 amounted to $137,988 and is reported as an asset under restricted cash. A liability corresponding to the amount is also recognized and shown in the accrued payroll and other accrued expenses on the consolidated statement of financial position. 13

16 (A NONPROFIT ORGANIZATION) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 6 Notes Payable At June 30, 2016, notes payable consisted of: Pacific Asian Consortium in Employment Note payable to the Small Business Administration in the original amount of $750,000; interest of 2.875% per annum recalculated at upon compliance of certain provisions described in the loan agreement; collateralized by a security interest in the related microloan receivables and fund cash balances; principal and interest payable monthly beginning on the thirteenth month from note date; loan matures March 2019 $ 320,219 Note payable to the Small Business Administration in the amount of $200,000; interest of 1.50% per annum recalculated at upon compliance of certain provisions described in the loan agreement; collateralized by a security interest in all funds held in the Microloan Revolving Fund, all funds held in the Loan Loss Reserve Fund, and security interest in Microloan notes made as a result of funding received under the Microloan Program; principal and interest payable monthly beginning on the thirteenth month from note date; loan matures May ,123 Note payable to Union Bank, N.A.; collateralized by a time deposit; bears fixed interest rate of 3.25% per annum; principal and interest payable in monthly installments of $2,627; loan matures November ,033 PACE Finance Corporation Advance from NCB Capital Impact; bears interest rate of 3.25%; proceeds of the loan shall be used for purposes described in the Advance Agreement; outstanding principal and interest payable due November ,000 Advance from NCB Capital Impact; bears interest rate of 3.25%; proceeds of the loan shall be used for purposes described in the Advance Agreement; outstanding principal and interest payable due June ,000 $ 881,375 14

17 (A NONPROFIT ORGANIZATION) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 6 Notes Payable (Continued) Future maturities of notes payable at June 30, 2016 are as follows: Year Ending June 30, 2017 $ 197, , , , ,648 Thereafter 15,531 $ 881,375 The loans include certain covenants for which the Company was compliant with as of June 30, NOTE 7 Temporarily Restricted Net Assets At June 30, 2016, temporary restricted net assets consisted of the following: Support for small business programs $ 536,332 Support for microloan program 173,200 Employment and training program 3,118 Total $ 712,650 NOTE 8 Commitments and Contingencies State and Federal Allowances, Award, and Grants PACE received state and federal funds for specific purposes that are subject to review and audit by grantor agencies. Although such audits could generate expenditure disallowances under terms of the grants, any required reimbursements are believed to be immaterial. Leases PACE has several noncancellable operating leases, primarily for the corporate headquarters office and its preschool facilities operated by PACE's Head Start program, that expire at various dates through June Rental expense approximated $1,628,000 for the year ended June 30,

18 (A NONPROFIT ORGANIZATION) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 8 Commitments and Contingencies (Continued) The following is a schedule of the future minimum lease payments under the operating leases: Year Ending June 30, 2017 $ 1,343, ,068, , , ,865 $ 2,591,318 NOTE 9 Pension Plan On April 1, 1993, PACE adopted the Pacific Asian Consortium in Employment (PACE) Discretionary Contribution Plan, a defined contribution plan. On the same date, a previously existing PACE Money Purchase Pension Plan was amended to merge into the PACE Discretionary Contribution Plan. Employees who have completed one year of credited service, defined as 1,000 hours in a 12- consecutive-month period, are eligible to participate in the profit-sharing portion of plan. To be eligible for the 401(k) portion of the plan, only three months of service is required. Normal retirement age is 65. PACE s pension plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA) and the Tax Reform Act of PACE may decide in any given year whether to make a contribution. The contribution may be based on a fixed formula or may vary from year to year. In July 2012, PACE approved a contribution rate of 6%, and no change to the contribution rate has since been approved. Pension plan contributions for the year ended June 30, 2016 amounted to $607,

19 (A NONPROFIT ORGANIZATION) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 10 Financial Information of Affiliates The condensed financial information of the Affiliates, LOTUS, BGreenLA Inc., GreenBiz space Inc., PACE Finance Corporation and PACE Care Inc., which were consolidated and presented on the consolidated financial statements as of and for the year ended June 30, 2016, are presented below: LOTUS BGreen LA Inc. GreenBiz space Inc. PACE Finance Corp. PACE Care Inc. Total assets $ 634 $ 271,710 $ 694,100 $2,213,108 $ 469,360 Total liabilities 4, ,857 - Total net assets (deficit) (386) 275, ,402 1,058, ,053 Total revenues ,246 - Total expenses 3,751 4,274 4, ,181 38,693 17

20 111 West Ocean Blvd. Twenty-Second Floor Long Beach, CA Von Karman Ave. Suite 1060 Irvine, CA South Figueroa St. Suite 4950 Los Angeles, CA INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF CONSOLIDATED FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Board of Directors Pacific Asian Consortium in Employment and Affiliates We have audited, in accordance with the 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 Pacific Asian Consortium in Employment and Affiliates (collectively, the Company ), which comprise the consolidated statement of financial position as of June 30, 2016, and the related consolidated statements of activities and cash flows for the year then ended, and the related notes to the consolidated financial statements, and have issued our report thereon dated November 28, Internal Control over Financial Reporting In planning and performing our audit of the consolidated financial statements, we considered the Company 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 Company s internal control. Accordingly, we do not express an opinion on the effectiveness of the Company 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 Company s consolidated 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 and, therefore, material weaknesses or significant deficiencies may exist that were not identified. 18

21 Compliance and Other Matters As part of obtaining reasonable assurance about whether the Company 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 the 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. 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 Company s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Long Beach, California November 28,

22 SUPPLEMENTARY INFORMATION

23 STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED JUNE 30, 2016 (WITH COMPARATIVE TOTALS FOR THE YEAR ENDED JUNE 30, 2015) Child Education and Nutrition Employment and Trainning Business and Economic Development PROGRAM SERVICES Energy and Environmental Services Real Estate Development Home Care Total Program Services SUPPORT SERVICES General Administration TOTAL EXPENSE 2015 TOTAL EXPENSE ADMINISTRATIVE EXPENSES Salaries and benefits $ 1,004,571 $ 4,854 $ 135,232 $ 566,180 $ 3,827 $ - $ 1,714,664 $ 295,640 $ 2,010,304 $ 1,788,498 Professional fees and contracts ,500-4,600 25,550 78,996 (4,767) 74, ,908 Occupancy 64,938-17,480 12, ,687 70, , ,080 Telephone 4, ,173 7,732 12,905 11,564 Supplies 84,661-2,175 1, ,160 16, ,578 61,737 Postage and shipping 2, , ,031 7,946 Equipment costs 5,952-1, ,580 1,905 9,485 14,705 Vehicle expense ,359 3,359 1,539 Dues and subscriptions , ,555 3,128 7,683 6,427 Conference and training 5,308-1, ,176 8,163 33,264 41,427 43,210 Insurance 49,186-9,788 2,754-3,566 65,294 12,040 77,334 73,134 Taxes, licenses and fees 645 6,041 2,642 2,297-7,740 19,365 8,817 28,182 15,118 Mileage and parking 14,293-2,055 1, ,241 11,837 30,078 32,734 Legal and audit fees 67,385-13,090 1, ,982 5,562 87,544 71,411 Acctg and computer payroll 46, ,751-50,499 10,794 61,293 60,112 Outreach and advertising 631-2, ,551 6,827 10,378 10,827 Interest expense , ,147 2,060 28,207 13,150 Indirect costs 6,642 42,839 79,838 26, ,201 (156,201) - - Other misc. expense ,686 12,986 97,314 Depreciation expense ,608 17,608 17,609 Total administrative expenses 1,357,184 53, , ,432 12,178 38,693 2,426, ,812 2,786,571 2,686,023 PROGRAM EXPENSES Salaries and benefits 8,492, , ,315 3,272, ,551,011-13,551,011 13,734,700 Professional fees and contracts 271,944-62,238 1,211, ,545,948-1,545,948 1,143,494 Occupancy 1,162, , , , ,659,476-1,659,476 1,769,965 Telephone 108,499 22,309 7,465 21, , , ,863 Supplies 801,355 5,988 21, , ,377,536-1,377,536 1,107,869 Postage and shipping 3, , ,573-9,573 12,709 Equipment costs 43,675 65,463 10,832 40, , , ,762 Construction and renovation 238, , , ,559 Vehicle expense 29, , ,723-61,723 69,774 Dues and subscriptions ,967 1, ,327-6,327 4,148 Conference and training 39,322 1,465 6,501 30, ,843-77, ,121 Insurance 73,920 9,470 10,526 63, , , ,142 Taxes, licenses and fees 23, ,492 11, ,314-45,314 46,176 Mileage and parking 126,680 11,957 17, , , , ,152 Legal and audit fees ,909 Acctg. and computer payroll , ,921-12,921 14,798 Outreach and advertising 29, ,323 18, ,295-65,295 78,678 Participant support - 211, , , , ,635 Interest expense - - 6, ,835-6,835 - Other - Head Start services 194, , , ,714 Other misc. expense 619 5,792 4, ,360-11,360 1,086 Total program expenses 11,638,531 1,338,236 1,514,277 5,607, ,098,571-20,098,571 20,640,254 TOTAL EXPENSES $ 12,995,715 $ 1,391,970 $ 1,858,815 $ 6,227,959 $ 12,178 $ 38,693 $ 22,525,330 $ 359,812 $ 22,885,142 $ 23,326, The accompanying notes are an integral part of these consolidated financial statements. 20

24 COMBINING STATEMENT OF ACTIVITIES ALL PROGRAM SERVICES FOR THE YEAR ENDED JUNE 30, 2016 (WITH COMPARATIVE TOTALS FOR THE YEAR ENDED JUNE 30, 2015) Child Education and Nutrition Employment and Trainning Business and Economic Development 2016 Energy and Environmental Services Real Estate Development Home Care Combined Totals 2015 Combined Revenue and support Government grants and contracts $ 12,995,672 $ 1,200,647 $ 1,403,842 $ 5,375,155 $ - $ - $ 20,975,316 $ 20,798,938 Other grants and contracts - 214,400-1,218, ,432,762 1,383,192 Contributions and donations , ,043 53,868 Interest income , ,576 70,770 Other income , ,446 91,658 Net assets released from restriction , , ,994 Total revenue and support 12,995,715 1,415,047 2,159,006 6,593, ,163,357 22,838,420 Administrative expenses Salaries and benefits 1,004,571 4, , ,180 3,827-1,714,664 1,329,738 Professional fees and contracts ,500-4,600 25,550 78,996 7,000 Occupancy 64,938-17,480 12, ,687 97,987 Telephone 4, ,173 5,781 Supplies 84,661-2,175 1, ,160 45,390 Postage and shipping 2, ,201 4,748 Equipment costs 5,952-1, ,580 10,329 Dues and subscriptions , , Conference and training 5,308-1, ,176 8,163 1,218 Insurance 49,186-9,788 2,754-3,566 65,294 46,705 Taxes, licenses and fees 645 6,041 2,642 2,297-7,740 19,365 2,086 Mileage and parking 14,293-2,055 1, ,241 13,231 Legal and audit fees 67,385-13,090 1, ,982 54,618 Acctg and computer payroll 46, ,751-50,499 47,682 Outreach and advertising 631-2, ,551 2,533 Interest expense , ,147 2,166 Indirect costs 6,642 42,839 79,838 26, , ,187 Other- Head Start services Other misc. expense (593) Total administrative expenses 1,357,184 53, , ,432 12,178 38,693 2,426,759 1,850,931 Program expenses Salaries and benefits 8,492, , ,315 3,272, ,551,011 13,734,700 Professional fees and contracts 271,944-62,238 1,211, ,545,948 1,143,494 Occupancy 1,162, , , , ,659,476 1,769,965 Telephone 108,499 22,309 7,465 21, , ,863 Supplies 801,355 5,988 21, , ,377,536 1,107,869 Postage and shipping 3, , ,573 12,709 Equipment costs 43,675 65,463 10,832 40, , ,762 Construction and renovation 238, , ,559 Vehicle expense 29, , ,723 69,774 Dues and subscriptions ,967 1, ,327 4,148 Conference and training 39,322 1,465 6,501 30, , ,121 Insurance 73,920 9,470 10,526 63, , ,142 Taxes, licenses and fees 23, ,492 11, ,314 46,176 Mileage and parking 126,680 11,957 17, , , ,152 Legal and audit fees ,909 Acctg. and computer payroll , ,921 14,798 Outreach and advertising 29, ,323 18, ,295 78,678 Participant support - 211, , , ,635 Interest expense - - 6, ,835 - Other - Head Start services 194, , ,714 Other misc. expense 619 5,792 4, ,360 1,086 Total program expenses 11,638,531 1,338,236 1,514,277 5,607, ,098,571 20,640,254 Total expenses 12,995,715 1,391,970 1,858,815 6,227,959 12,178 38,693 22,525,330 22,491,185 Change in net assets $ - $ 23,077 $ 300,191 $ 365,630 $ (12,178) $ (38,693) $ 638,027 $ 347,235 Totals The accompanying notes are an integral part of these consolidated financial statements. 21

25 COMBINING STATEMENT OF ACTIVITIES CHILD EDUCATION AND NUTRITION FOR THE YEAR ENDED JUNE 30, 2016 (WITH COMPARATIVE TOTALS FOR THE YEAR ENDED JUNE 30, 2015) State Preschool Head Start Basic Mini Grant State Preschool Nutrition Program Head Start T&TA ECE Others Best Start Early Head Start Combined Total Combined Total Revenue and support Government grants and contracts $ 10,041,825 $ 42,000 $ 114,712 $ 580,954 $ 34,497 $ 542 $ - $ 2,181,142 $ 12,995,672 $ 13,134,715 Contributions and donations ,868 Interest income Other income Total revenue and support 10,041,825 42, , ,954 34, ,181,142 12,995,715 13,178,583 Administrative expenses Salaries and benefits 756,263-4, ,008 1,004, ,210 Professional fees and contracts Occupancy 64, ,938 78,983 Telephone 1, ,998 4,242 5,330 Supplies 23, ,371 84,661 44,893 Postage and shipping 2, ,086 4,722 Equipment costs 5, ,952 9,805 Conference and training 1, , ,096 5,308 1,000 Insurance 38, , ,846 49,186 41,633 Taxes, licenses and fees ,280 Mileage and parking 11, ,318 14,293 11,811 Legal and audit fees 56, , ,081 67,385 44,671 Acctg. and computer payroll 36, , ,837 46,298 45,501 Outreach and advertising ,208 Indirect costs , ,642 2,350 Other- Head Start services Other misc. expense Total administrative expenses 1,000,171-6,347 13,663 2, ,995 1,357,184 1,194,397 Program expenses Salaries and benefits 6,805, , , ,291,250 8,492,304 8,615,254 Professional fees and contracts 240, , , ,023 Occupancy 983, , ,930 1,162,305 1,281,990 Telephone 84, , ,499 83,168 Supplies 301,514 42, , , , ,436 Postage and shipping 2, ,015 6,579 Equipment costs 39, , ,841 43, ,600 Construction and renovation 238, , ,559 Vehicle expense 14, , ,861 42,172 Dues and subscriptions Conference and training 5, , ,248 39,322 40,396 Insurance 63, , ,920 93,250 Taxes, licenses and fees 22, ,434 25,868 Mileage and parking 81, , , ,772 Acctg. and computer payroll ,480 Outreach and advertising 7, ,970 29,050 21,839 Other - Head Start services 149, , , , ,714 Other misc. expense ,086 Total program expenses 9,041,654 42, , ,291 32, ,846,147 11,638,531 11,984,186 Total expenses 10,041,825 42, , ,954 34, ,181,142 12,995,715 13,178,583 Change in net assets $ - $ - $ - $ - $ - $ - $ - $ - $ - $ Head Start 2015 The accompanying notes are an integral part of these consolidated financial statements. 22

26 COMBINING STATEMENT OF ACTIVITIES - EMPLOYMENT AND TRAINING FOR THE YEAR ENDED JUNE 30, 2016 (WITH COMPARATIVE TOTALS FOR THE YEAR ENDED JUNE 30, 2015) Revenue and support WIA Adult WIA Dislocated Portal Liabary Dislocated Portal Library Adult 25% Nestle Subsidized Training & Employment PACE Workforce Ventures 2015 Combined Total Combined Total Government grants and contracts $ 594,602 $ 449,744 $ 41,650 $ 58,350 $ 56,301 $ - $ - $ 1,200,647 $ 1,293,388 Other grants and contracts , , ,800 Total revenue and support 594, ,744 41,650 58,350 56, ,400-1,415,047 1,554,188 Administrative expenses Salaries and benefits 2,413 1, ,854 3,898 Taxes, licenses and fees 3,373 2, ,041 - Indirect costs 17,305 12,943 1,478 2,068 1,908 7,137-42,839 52,846 Total administrative expenses 23,091 17,473 1,609 2,249 2,175 7,137-53,734 56,744 Program expenses Salaries and benefits 318, ,684 30,744 43,675 36, , , ,343 Occupancy 74,735 58,064 4,764 5,659 10, , ,483 Telephone 10,481 8, ,018 1, ,309 15,201 Postage and shipping Supplies 2,472 1, ,988 5,025 Equipment costs 29,825 23,358 2,902 4,378 4, ,463 56,804 Dues and subscriptions Conference and training ,465 1,231 Insurance 4,761 3, ,470 7,487 Taxes, licenses and fees Mileage and parking 4,056 4, ,620-11,957 11,758 Legal and audit fees ,391 Acctg. and computer payroll Outreach and advertising ,062 Participant supp. & job training 125,684 85, , ,518 Other misc. expense ,792 5,792 - Total program expenses 571, ,271 40,041 56,101 54, ,394 5,792 1,338,236 1,443,736 Total expenses 594, ,744 41,650 58,350 56, ,531 5,792 1,391,970 1,500,480 Change in net assets $ - $ - $ - $ - $ - $ 28,869 $ (5,792) $ 23,077 $ 53, The accompanying notes are an integral part of these consolidated financial statements. 23