CENTER FOR EMPLOYMENT TRAINING AND SUBSIDIARY. CONSOLIDATED FINANCIAL STATEMENTS, SUPPLEMENTAL SCHEDULES, and ADDITIONAL INFORMATION JUNE 30, 2016

CENTER FOR EMPLOYMENT TRAINING AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS, SUPPLEMENTAL SCHEDULES, and ADDITIONAL INFORMATION JUNE 30, 2016

C O N T E N T S Independent Auditors Report 1-2 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 Financial Statements 7-16 Supplemental Schedules: Schedule of Expenditures of Federal and Non-federal Awards 17-18 Statement of Revenue and Expenditures for the Community Services Block Grant 19 U.S. Department of Education Review of Non-profit Statements in Accordance with 34 CFR 668 Subpart L 20 Additional Information: 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 21 Independent Auditors Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance 22-23 Schedule of Findings and Questioned Costs 24

INDEPENDENT AUDITORS REPORT To the Board of Directors Center for Employment Training and Subsidiary Report on the Consolidated Financial Statements We have audited the accompanying consolidated financial statements of Center for Employment Training (a nonprofit organization) and Subsidiary (a for-profit 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. 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 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 opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Center for Employment Training and Subsidiary 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.

INDEPENDENT AUDITORS REPORT continued Other Matters Other 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 and Non-federal Awards is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), is not a required part of the consolidated financial statements. The accompanying Statement of Revenue and Expenditures for the Community Services Block Grant and the U.S. Department of Education Review of Non-profit Statements in Accordance with 34 CFR 688 Subpart L are also presented for the purposes of additional analysis and also 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. Summarized Comparative Information We have previously audited Center for Employment Training and Subsidiary s 2015 consolidated financial statements, and we expressed an unmodified audit opinion on those audited consolidated financial statements in our report dated November 13, 2015. 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 Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 29, 2016 on our consideration of Center for Employment Training and Subsidiary 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 Center for Employment Training and Subsidiary s internal control over financial reporting and compliance. San Francisco, California November 29, 2016

CONSOLIDATED STATEMENT OF FINANCIAL POSITION June 30, 2016 With comparative totals at June 30, 2015 Temporarily Unrestricted Restricted 2016 2015 ASSETS CURRENT ASSETS Cash and cash equivalents (Note 2) $ 6,028,719 $ 10,000 $ 6,038,719 $ 3,158,798 Accounts receivable - net of allowance of $3,892,867 5,496,692 5,496,692 4,748,526 Investments - - 413,650 Prepaid expenses and deposits 465,433 465,433 915,561 TOTAL CURRENT ASSETS 11,990,844 10,000 12,000,844 9,236,535 NON-CURRENT ASSETS Property and equipment (Note 3) 23,061,850 23,061,850 24,726,073 TOTAL NON-CURRENT ASSETS 23,061,850-23,061,850 24,726,073 TOTAL ASSETS $ 35,052,694 $ 10,000 $ 35,062,694 $ 33,962,608 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable $ 613,005 $ - $ 613,005 $ 799,673 Current portion accrued liabilities (Note 4) 1,442,821 1,442,821 1,547,457 Accrued unemployment liability (Note 5) 362,341 362,341 344,219 Deferred revenue (Note 6) 3,812,337 3,812,337 3,157,790 Current portion of notes payable (Note 7) 265,271 265,271 1,019,249 Capital leases (Note 9) 151,720 151,720 125,926 Line of credit (Note 8) - - TOTAL CURRENT LIABILITIES 6,647,495-6,647,495 6,994,314 NON-CURRENT LIABILITIES Accrued liabilities (Note 4) 2,901,647 2,901,647 3,392,841 Notes payable (Note 7) 10,431,740 10,431,740 9,914,357 Capital leases (Note 9) 124,269 124,269 251,852 TOTAL NON-CURRENT LIABILITIES 13,457,656-13,457,656 13,559,050 TOTAL LIABILITIES 20,105,151-20,105,151 20,553,364 NET ASSETS Unrestricted 14,947,543 14,947,543 13,399,244 Temporarily restricted (Note 11) 10,000 10,000 10,000 TOTAL NET ASSETS 14,947,543 10,000 14,957,543 13,409,244 TOTAL LIABILITIES AND NET ASSETS $ 35,052,694 $ 10,000 $ 35,062,694 $ 33,962,608 The accompanying notes are an integral part of these consolidated financial statements. 3

CONSOLIDATED STATEMENT OF ACTIVITIES For the year ended June 30, 2016 With comparative totals for the year ended June 30, 2015 Temporarily Unrestricted Restricted 2016 2015 REVENUE AND SUPPORT Government contracts (Note 12) $ 29,214,253 $ - $ 29,214,253 $ 31,200,784 Rental income 449,333 449,333 465,441 Other revenue 150,380 150,380 1,439,577 Contributions 79,372 79,372 44,377 Program service fees 59,266 59,266 23,514 Contributions - in kind (Note 2) 54,845 54,845 116,627 Interest and dividends 25,420-25,420 4,407 TOTAL REVENUE AND SUPPORT 30,032,869-30,032,869 33,294,727 EXPENSES Program services 28,215,068 28,215,068 29,906,395 Management and general 3,370,293 3,370,293 3,874,117 Fundraising 29,932 29,932 31,574 TOTAL EXPENSES 31,615,293-31,615,293 33,812,086 CHANGE IN NET ASSETS BEFORE GAIN ON DISPOSAL OF PROPERTY AND EQUIPMENT (1,582,424) - (1,582,424) (517,359) Gain on disposal of property and equipment 3,130,723 3,130,723 88,608 CHANGE IN NET ASSETS 1,548,299-1,548,299 (428,751) NET ASSETS, BEGINNING OF YEAR 13,399,244 10,000 13,409,244 13,837,995 NET ASSETS, END OF YEAR $ 14,947,543 $ 10,000 $ 14,957,543 $ 13,409,244 The accompanying notes are an integral part of these consolidated financial statements. 4

CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES For the year ended June 30, 2016 With comparative totals for the year ended June 30, 2015 Total Program Services Program Management Total Expenses Training Non Training Services and General Fundraising 2016 2015 Salaries $ 9,760,427 $ 584,530 $ 10,344,957 $ 2,475,906 $ - $ 12,820,863 $ 12,780,758 Payroll taxes and benefits 2,713,844 149,171 2,863,015 659,838 3,522,853 3,902,575 Total personnel costs 12,474,271 733,701 13,207,972 3,135,744-16,343,716 16,683,333 Consumables 1,882,678 145,108 2,027,786 44,572 12,892 2,085,250 2,263,278 Depreciation & amortization 89,694 89,694 1,339,363 1,429,057 1,357,423 Professional services 455,065 119,530 574,595 839,921 1,379 1,415,895 1,268,584 Building rent 955,102 152,933 1,108,035 258,422 1,366,457 1,822,613 Trainee allowance 1,334,380 1,334,380 1,334,380 1,217,772 Participant support 98,589 1,091,115 1,189,704 12,054 1,201,758 1,575,517 Advertising 1,128,069 9,750 1,137,819 9,494 504 1,147,817 807,239 Utilities 539,787 1,534 541,321 217,639 758,960 829,787 Communication 405,811 2,151 407,962 208,137 616,099 698,932 Building maintenance & security 522,601 455 523,056 75,812 598,868 523,685 Equipment lease and maintenance 316,946 23,113 340,059 297,590 637,649 893,044 Interest 1,343 1,343 498,619 499,962 606,547 Insurance 367,517 11,196 378,713 133,248 511,961 557,400 Bad debts expense 505,521 505,521 505,521 1,532,264 Miscellaneous 276,465 4,800 281,265 202,613 12,601 496,479 372,812 Travel 180,104 8,917 189,021 54,045 243,066 227,624 Printing and publications 116,157 10,735 126,892 34,838 22 161,752 198,221 Equipment purchase 46,771 42,518 89,289 15,373 104,662 165,490 In-kind expenses 12,018 12,018 42,827 54,845 116,627 Subcontract/grant 54,175 54,175 54,175 52,393 Staff training & business meeting 14,590 6,066 20,656 26,308 46,964 41,501 Total expenses before allocation of general and administrative expenses 21,765,636 2,375,640 24,141,276 7,446,619 27,398 31,615,293 33,812,086 Allocation of general and administrative expense 3,792,414 281,378 4,073,792 (4,076,326) 2,534 - - TOTAL 2016 FUNCTIONAL EXPENSES $ 25,558,050 $ 2,657,018 $ 28,215,068 $ 3,370,293 $ 29,932 $ 31,615,293 TOTAL 2015 FUNCTIONAL EXPENSES $ 27,209,474 $ 2,696,921 $ 29,906,395 $ 3,874,117 $ 31,574 $ 33,812,086 The accompanying notes are an integral part of these consolidated financial statements. 5

CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended June 30, 2016 With comparative totals for the year ended June 30, 2015 2016 2015 CASH FLOWS FROM OPERATING ACTIVITIES: Change in net assets $ 1,548,299 $ (428,751) Adjustments to reconcile change in net assets to net cash (used) by operating activities: Change in value of allowance for doubtful receivables 502,141 (963,892) Depreciation and amortization 1,429,057 1,357,423 (Gain) on sale of property and equipment (3,130,723) (88,608) Reinvested dividends - (41) (Increase) decrease in operating assets: Accounts receivable (1,250,307) 22,332 Prepaid expenses and deposits 450,128 164,885 Increase (decrease) in operating liabilities: Accounts payable (186,668) 63,096 Accrued liabilities (595,830) 876,205 Accrued unemployment liability 18,122 (37,755) Deferred revenue 654,547 (1,877,885) NET CASH (USED) BY OPERATING ACTIVITIES (561,234) (912,991) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (34,111) (2,594,268) Proceeds on sale of property and equipment 3,400,000 - Proceeds on sale of investments 413,650 - NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 3,779,539 (2,594,268) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from new borrowings on notes payable 711,000 900,000 Payments on notes payable (894,684) (336,936) Payments on capital leases (154,700) (54,675) NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (338,384) 508,389 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,879,921 (2,998,870) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,158,798 6,157,668 CASH AND CASH EQUIVALENTS, END OF YEAR $ 6,038,719 $ 3,158,798 SUPPLEMENTAL DISCLOSURE: Operating activities reflect interest paid of: $ 499,962 $ 606,547 Purchase of property and equipment with capital leases $ - $ 432,453 Payment of note payable through refinancing $ 2,357,624 $ - The accompanying notes are an integral part of these consolidated financial statements. 6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization Center for Employment Training is a nonprofit organization that was established in 1967. Center for Employment Training operates employment training centers in several cities throughout the states of California, Virginia, Texas and North Carolina. In addition, Center for Employment Training also operates and manages Dura Enterprises, Inc., a wholly-owned subsidiary of the Center for Employment Training, which manages real estate and other activities not related to skill training. Center for Employment Training and its wholly owned subsidiary shall be collectively referred to as ( CET ). 2. Summary of Significant Accounting Policies A summary of the significant accounting policies applied in the preparation of the accompanying consolidated financial statements is as follows: Principles of Consolidation The consolidated financial statements include the accounts of its subsidiary, Dura Enterprises, Inc. All inter-company accounts and transactions have been eliminated. Basis of Presentation The accompanying consolidated financial statements have been prepared on the accrual basis of accounting. Accounting To ensure observance of certain constraints and restrictions placed on the use of resources, the accounts of CET are maintained in accordance with the principles of net asset 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. These generally result from revenues generated by receiving unrestricted contributions, providing services, and receiving interest from investments less expenses incurred in providing program-related services, raising contributions, and performing administrative functions. Temporarily Restricted. CET 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 program or capital restrictions. At June 30, 2016, CET had temporarily restricted net assets of $10,000. continued 7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. Summary of Significant Accounting Policies, continued Permanently Restricted. These net assets are restricted by donors who stipulate that resources are to be maintained permanently, but permit CET to expend all of the income (or other economic benefits) derived from the donated assets. CET had no permanently restricted net assets at June 30, 2016. Cash and Cash Equivalents CET has defined cash and cash equivalents as cash in banks, money market funds, and certificates of deposits, with an original maturity of six months or less. Accounts Receivable CET uses the allowance method in order to reserve for potential uncollectible accounts receivable. Investments Investments consist of money market funds. Money market funds are carried at cost, which approximates fair value. Realized and unrealized gains and losses are reflected in the Consolidated Statement of Activities. Investment income and gains and losses on investments are reported as increases or decreases in unrestricted net assets unless their use is restricted by explicit donor stipulation. Money market funds held at securities institutions and not used for operations are included in investments. Fair Value Measurements Generally accepted accounting principles provide guidance on how fair value should be determined when financial statement elements are required to be measured at fair value. Valuation techniques are ranked in three levels depending on the degree of objectivity of the inputs used with each level: Level 1 inputs quoted prices in active markets for identical assets Level 2 inputs quoted prices in active or inactive for the same or similar assets Level 3 inputs estimates using the best information available when there is little or no market CET is required to measure non-cash contributions at fair value. The specific technique used to measure fair value for this financial statement element is described in the note below that relates to the element. continued 8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. Summary of Significant Accounting Policies, continued Concentration of Credit Risks CET places its temporary cash investments with high-credit, quality financial institutions. At times, such investments may be in excess of the Federal Deposit Insurance Corporation insurance limit. CET has not incurred losses related to these investments. The primary receivable balance outstanding at June 30, 2016 consists of government contract receivables due from county, state, and federal granting agencies. Concentration of credit risks with respect to trade receivables are limited, as the majority of CET s receivables consist of earned fees from contract programs granted by governmental agencies. CET holds investments in the form of short-term money market investments. The Board of Directors routinely reviews market values of such investments. For the year ended June 30, 2016, revenues derived from governmental agencies represent approximately 97% of total revenue and support. Property and Equipment Property and equipment are recorded at cost if purchased or at fair value at the date of donation if donated. Depreciation is computed on the straight-line basis over the estimated useful lives of the related assets. Maintenance and repair costs are charged to expense as incurred. Property and equipment are capitalized if the cost of an asset is greater than or equal to one thousand dollars and the useful life is greater than three years. Revenue Recognition CET recognizes the earning of tuition revenue in five months from the date of enrollment as follows: 1 st month 30% of total tuition 2 nd month 25% of total tuition 3 rd month 20% of total tuition 4 th month 15% of total tuition 5 th month 10% of total tuition CET earns the entire tuition when the student completes 60% of the scheduled hours. CET records tuition as accounts receivable and deferred revenue and amortizes deferred revenue and recognizes revenue based on the above schedule. continued 9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. Summary of Significant Accounting Policies, continued Donated Materials and Services Contributions of donated non-cash assets are measured on a non-recurring basis and recorded at fair value in the period received. Contributions of donated services that create or enhance non-financial assets or that require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation, are recorded at fair value in the period received. For the year ended June 30, 2016, CET recorded in-kind contributions of $54,845 (see Note 13). Income Taxes CET is exempt from taxation under Internal Revenue Code Section 501(c)(3) and California Revenue and Taxation Code Section 23701d. Generally accepted accounting principles provide accounting and disclosure guidance about positions taken by an organization in its tax returns that might be uncertain. Management has considered its tax positions and believes that all of the positions taken by CET in their federal and state exempt organization tax returns are more likely than not to be sustained upon examination. CET s returns are subject to examination by federal and state taxing authorities, generally for three and four years, respectively, after they are filed. Functional Allocation of Expenses Costs of providing CET 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. 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. Actual results could differ from those estimates. continued 10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. Summary of Significant Accounting Policies, continued Comparative Totals 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 CET s consolidated financial statements for the year ended June 30, 2015, from which the summarized information was derived. Subsequent Events Management has evaluated subsequent events through November 29, 2016, the date which the financial statements were available for issue. No events or transactions have occurred during this period that would appear to require recognition or disclosure in the financial statements. 3. Property and Equipment Property and equipment at June 30, 2015 consist of the following: Building improvements $ 28,913,024 Buildings 8,738,941 Equipment 6,513,416 Land 4,170,738 Leasehold improvements 846,439 Furniture 312,073 49,494,631 Less: accumulated depreciation (26,432,781) $ 23,061,850 Depreciation and amortization expense for the year ended June 30, 2016 was $1,429,057. continued 11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. Accrued Liabilities Accrued liabilities at June 30, 2016 consist of the following: Current liabilities Accrued vacation $ 637,096 Accrued payroll 667,667 Other accrued liabilities 138,058 1,442,821 Long-term liabilities Long-term severance $2,279,820 Refundable to Department of Education (Note 10) 621,827 2,901,647 Total accrued liabilities $4,344,468 5. Accrued Unemployment Liability CET has elected to be self-insured for the purposes of California state unemployment insurance. Accrued unemployment liability at June 30, 2016 of $362,341 represents estimated future claims arising from payroll paid within the year ended June 30, 2016. 6. Deferred Revenue Deferred revenue represents contract advances on various contracts. This amount will be recognized as revenue in the next fiscal year as the services are performed. Department of Education $2,559,697 Department of Labor 877,769 Other 144,462 La Cooperativa 119,303 Contract advances 111,106 $3,812,337 continued 12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. Notes Payable Notes payable at June 30, 2016 consist of the following: Note payable to a bank, secured by real property, equipment, fixtures, and deposit accounts, monthly payments of $28,251, including interest at 4.000%, due June 2022. $ 5,418,980 Note payable to a credit union, secured by real property, equipment, fixtures, and deposit accounts, monthly payments of $12,282, including interest at 3.875%, due October 2027. 2,314,014 Note payable to a bank, secured by real property, monthly payments of $5,204, including interest at 4.058%, due November 2038. 918,158 Note payable to a bank, secured by real property, monthly payments of $3,979, including interest at 4.500% due, March 2023. 707,047 Note payable to a corporation, in the amount of $500,000, bearing an annual interest of 5.500%, due December 2021. 483,557 Note payable to a bank, secured by real property, monthly payments of $3,278, including interest at 4.700%, due December 2024. 483,120 Promissory note issued to the City of San Jose for $375,000. The terms of the note require CET to pay the note upon sale or change in the use of the facility located in San Jose, California, if prior to December 2018. 372,135 $10,697,011 Maturities for notes payable are as follows: Year ended June 30, 2017 $ 265,271 2018 276,586 2019 288,390 2020 300,705 2021 313,552 Thereafter 9,252,507 $10,697,011 continued 13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. Line of Credit CET has a revolving line of credit, with a bank, in the amount of $2,000,000, bearing interest at 4.94%. There was no outstanding balance on the line of credit at June 30, 2016. 9. Capital Lease Obligations CET leases equipment and software under capital leases. Future minimum payments, by year, and in the aggregate, under these leases consist of the following: Total minimum lease payments remaining $279,546 Less: portion representing interest (3,556) Present value of net minimum lease payments $275,990 The cost of equipment and software under capital leases at June 30, 2016 consists of the following: Computers and training equipment $275,990 10. Commitments and Contingencies Obligations Under Operating Leases CET leases various facilities under operating leases with varying terms. Future minimum payments, by year and in the aggregate, under these leases with initial or remaining terms of one year or more, consist of the following: Year ended June 30, 2017 $1,242,343 2018 741,150 2019 456,171 2020 365,580 2021 344,710 Thereafter 56,709 $3,206,663 Building rent expenses and equipment rent expenses under operating leases for the year ended June 30, 2016 were $1,359,076 and $542,436, respectively. Litigation CET is a defendant in two lawsuits and management intends to defend the organization vigorously in these matters. As of the date of our report, it is not possible to predict the probable outcome of CET s liability, if any. continued 14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. Commitments and Contingencies, continued Contracts CET s grants and contracts are subject to inspection and audit by the appropriate governmental funding agency. The purpose is to determine whether program funds were used in accordance with their respective guidelines and regulations. The potential exists for disallowance of previously funded program costs. The ultimate liability, if any, which may result from these governmental audits cannot be reasonably estimated and, accordingly, CET has no provisions for the possible disallowance of program costs on its consolidated financial statements. At the end of September 2013, as a result of an internal compliance review on its Chicago Center, CET learned that inaccurate attendance records were generated and entered into CET s management information system by certain employees. As a result of those actions, some students may have received excess federal student aid. During the year ended June 30, 2015, CET assessed that the total refunds to the Department of Education was $1,244,967. As of June 30, 2016, the outstanding balance refundable to the Department of Education is $621,827 (see Note 4). 11. Temporarily Restricted Net Assets Temporarily restricted net assets at June 30, 2016 consist of the following: Economic assistance $10,000 12. Government Contracts Fees from government contracts for the year ended June 30, 2016 consist of the following: Farmworkers program $ 8,358,668 Student financial aid Pell grants (school and student) 8,055,507 Community Services Block Grant (CSBG) 3,268,057 Workforce Investment Act (WIA) 1,067,328 Federal work study program 105,791 Other contracts 8,358,902 $29,214,253 continued 15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 13. Fair Value Measurements The table below presents transactions measured at fair value on a non-recurring basis during the year ended June 30, 2016: Level 1 Level 2 Level 3 Total Contributed services $ - $54,845 $ - $54,845 The fair value of contributed services has been measured on a non-recurring basis using quoted prices for similar assets in inactive markets (Level 2 inputs). 14. Retirement Plan In November 2008, CET converted its Tax Shelter Annuity ( TSA ) into a 401k plan. The 401k plan is available to all employees who have completed two or more years of continuous service and are eligible for a matching contribution by CET. Employees may contribute any whole percentage of their annual compensation (minimum of $200 per calendar year), provided that it does not exceed maximum amounts as permitted by law. Effective January 1, 2015, employees who have one year of service and completed 1,000 hours of continued employment are eligible to participate in the 401k plan. Effective July 1, 2015, CET discontinued its matching of employee contributions; prior to then, CET had contributed a maximum of 3.34% to 6.66% of the employee s gross salary, depending on the employee s length of service, with a total matching contribution maximum of $5,000. 15. Investment in Subsidiary CET has invested $210,000 in the common stock of Dura Enterprises, Inc., a for-profit subsidiary that manages real estate and other activities not related to skill training. The investment in this subsidiary was approved by CET s Board of Directors. This amount has been eliminated in the consolidation. 16

SUPPLEMENTAL SCHEDULES

SCHEDULE OF EXPENDITURES OF FEDERAL AND NON-FEDERAL AWARDS For the year ended June 30, 2016 Federal CFDA Governmental Revenue Program Name Contract Number Number Federal Non-federal Total Federal Awards Major Awards U.S. Department of Education: Federal Pell Grant Program (a) 84.063 $ 8,055,507 $ - $ 8,055,507 Supplemental Educational Opportunity Grant (a) 84.007 140,079 140,079 Federal Work Study Program (a) 84.033 105,791 105,791 Total Major Awards 8,301,377-8,301,377 Non-major Awards U.S. Department of Health and Human Services: Pass-through, State of California: Community Services Block Grant 15F-2204 93.569 1,023,694 1,023,694 Community Services Block Grant 15F-2432 93.569 100,000 100,000 Community Services Block Grant 16F-5204 93.569 872,711 872,711 Community Services Block Grant 15F-2412 93.569 75,000 75,000 Community Services Block Grant 15F-2438 93.569 1,196,652 1,196,652 3,268,057-3,268,057 U.S. Department of Labor: Migrant and Seasonal Farmworkers - CA AC-24004-13-55-A-6 17.264 $ 8,358,668 $ - $ 8,358,668 Pass-through, Sacramento Employment & Training Agency: Workforce Investment Act 086201SWTC 17.258 157,358 157,358 Pass-through, City of San Bernardino Employment and Training Agency: Workforce Investment Act 17.258 22,529 22,529 Pass-through, City of San Jose Work2Future: Workforce Investment Act 77026 17.258 7,800 7,800 Pass-through, County of Monterey: Workforce Investment Act 17.258 23,231 23,231 Pass-through, County of Ventura: Workforce Investment Act 17.258 30,316 30,316 Pass-through, Upper Rio Grande WIA: Workforce Investment Act 17.258 12,730 12,730 Pass-through, La Cooperativa Campesina de California: Employment and Training Assistance WIA-DS-10-01-13-CET 17.260 32,879 32,879 Employment and Training Assistance WIA-DS-10-01-14-CET 17.260 48,138 48,138 Employment and Training Assistance WIOA-DWEERE-10-01-12-CET 17.260 175,322 175,322 Employment and Training Assistance WIOA-DS-01-01-16-CET 17.260 296,342 296,342 Drought Relief Rental Assistance NDWDrought-07-15-CET 59,046 59,046 9,224,359-9,224,359 U.S. Department of Veterans Affairs: Yellow Ribbon Program 07-01-06486 592,268 592,268 592,268-592,268 Total Non-major Awards 13,084,684-13,084,684 Total Federal Awards 21,386,061-21,386,061 See independent auditors' report. 17

SCHEDULE OF EXPENDITURES OF FEDERAL AND NON-FEDERAL AWARDS For the year ended June 30, 2016 continued Federal CFDA Governmental Revenue Program Name Contract Number Number Federal Non-federal Total Non-federal Awards County of Santa Clara: Citizen and Immigration Legal Services MCGF-CET-2012-215,398 215,398 Total Non-federal Awards - 215,398 215,398 Total Federal and Non-federal Awards $ 21,386,061 $ 215,398 $ 21,601,459 (a) Audited as major program Summary of Significant Accounting Policies: 1. Basis of Accounting - The Schedule of Expenditures of Federal and Non-federal Awards has been reported on the accrual basis of accounting. 2. CET is exempt from income taxation under Internal Revenue Code Section 501(c)(3) and California Revenue Taxation Code Section 23701d. 3. The information in this schedule is presented in accordance with the 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). Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the basic consolidated financial statements. See independent auditors' report. 18

STATEMENT OF REVENUE AND EXPENDITURES FOR THE COMMUNITY SERVICES BLOCK GRANT For the year ended June 30, 2016 CSD Contract CSD Contract CSD Contract CSD Contract CSD Contract No: 15F-2204 No: 16F-5204 No: 16F-2412 No: 16F-5204 No: 15F-2432 Jul 1, 2015 - Dec 31, 2015 Jan 1, 2015 - Jun 30, 2016 Jun 1, 2015 - May 31, 2016 Aug 1, 2015 - Jun 30, 2016 Jun 1, 2015 - May 31, 2016 Revenue and support Grant revenue $ 1,023,694 $ 872,711 $ 75,000 $ 1,196,653 $ 100,000 Total revenue and support 1,023,694 872,711 75,000 1,196,653 100,000 Expenses Program Salaries and wages - - 30,813 31,860 - Fringe benefits - - 10,440 3,415 - Operating expenses and equipment 11,679 2,718 - - - Space (rent/lease) 171,328 176,181 - - - Equipment lease/purchase - - - - - Subcontractors 27,050 27,125 - - - Other 15,553-13,007 - - MSFW Drought Program expenses - - - 1,144,938 - Program expenses 225,610 206,024 54,260 1,180,213 - Administrative Salaries and wages 513,554 466,596-10,673 - Fringe benefits 149,249 123,953-1,211 - Operating expenses and equipment 78,454 43,831 - - - Other 35,202 33,647 10,204 - - Administrative expenses 776,459 668,027 10,204 11,884 - Total expenses 1,002,069 874,051 64,464 1,192,097 - Revenue (under) costs $ 21,625 (a) $ (1,340) $ 10,536 (b) $ 4,556 (c) $ 100,000 (d) (a) The overrun funds of $21,625 was a carryforward from FY 2014-2015. (b) The overrun funds of $10,536 was used to supplement additional tuition fees. (c) The overrun funds of $4,556 was used to supplement additional tuition fees. (d) The overrun funds of $100,000 was used to supplement additional tuition fees. See independent auditors' report 19

U.S. DEPARTMENT OF EDUCATION REVIEW OF NON-PROFIT STATEMENTS IN ACCORDANCE WITH 34 CFR 668 SUBPART L For the year ended June 30, 2016 Enter Calculated Accounts Amounts Amounts Primary Reserve Ratio (Expendable Net Assets/Total Expenses): Total Assets $ 35,062,694 Total Liabilities $ 20,105,151 Net Assets $ 14,957,543 Intangibles Unsecured Related Party Receivables Net Fixed Assets $ 23,061,850 Permanently Restricted Net Assets $ 10,000 Annuity, Life Income & Term Long-Term Debt $ 11,594,827 $ 11,594,827 Post-Emp or Rtrmnt Liab $ 2,279,820 Expendable Net Assets $ 5,760,340 Total Expenses $ 31,615,293 $ 31,615,293 Equity Ratio (Modified Net Assets/Modified Assets): Modified Net Assets $ 14,957,543 Modified Assets $ 35,062,694 Net Income Ratio (Change in Unrest. Net Assets/Unrest. Rev.): Change in Unrestricted Net Assets $ 1,548,299 Total Unrestricted Revenues $ 33,163,592 $ 33,163,592 If Composite Score < 1.5, HEA Program Funds: Primary Reserve: Composite Ratios Strength Factors Weights Scores 0.1822 1.8220 40% 0.7288 Equity: 0.4266 2.5596 40% 1.0238 Net Income: 0.0467 ### 3.0000 20% 0.6000 Composite Score 2.4 See independent auditors' report 20

ADDITIONAL INFORMATION

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 To the Board of Directors Center for Employment Training and Subsidiary 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 Center for Employment Training and Subsidiary collectively, ( CET ), 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 November 29, 2016. Internal Control Over Financial Reporting In planning and performing our audit of the consolidated financial statements, we considered CET'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 CET s internal control. Accordingly, we do not express an opinion on the effectiveness of CET 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 CET 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 CET 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 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 entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. San Francisco, California November 29, 2016

Independent Auditors Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance To the Board of Directors Center for Employment Training and Subsidiary Report on Compliance for Each Major Federal Program We have audited Center for Employment Training and Subsidiary collectively ( CET ) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of CET s major federal programs for the year ended June 30, 2016. CET s major federal programs for the year ended June 30, 2016, 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. Auditors Responsibility Our responsibility is to express an opinion on compliance for each of CET 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 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 CET 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 CET s compliance. Opinion on Each Major Federal Program In our opinion, CET 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, 2016.

Independent Auditors Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance continued Report on Internal Control Over Compliance Management of CET 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 CET s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the 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 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 CET 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. San Francisco, California November 29, 2016

Schedule of Findings and Questioned Costs For the year ended June 30, 2016 Section I Summary of Auditors Results Financial Statements: Type of auditors report issued: Internal control over financial reporting: Material weakness(es) identified? Significant deficiencies identified? Noncompliance material to financial statements noted? Federal Awards: Internal control over major programs: Material weakness(es) identified? Significant deficiencies identified? Type of auditors report issued on compliance for major programs: Any audit findings disclosed that are required to be reported in accordance with section 200.516 Audit Findings of the Uniform Guidance? Unmodified No None reported No No None reported Unmodified No Dollar threshold used to distinguish between Type A and Type B programs: $750,000 Auditee qualified as low-risk auditee? No Identification of Major Programs: U.S. Department of Education: Federal Pell Grant Program 84.063 Supplemental Educational Opportunity Grant 84.007 Federal Work Study Program 84.033 Section II Financial Statements Findings There are no findings required to be reported in accordance with Generally Accepted Government Auditing Standards. Section III Federal Award Findings and Questioned Costs There are neither findings nor questioned costs for Federal Awards as defined in the Uniform Guidance. Section IV Summary Schedule of Prior Year Findings None. 24