(A Nonprofit Organization) CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2017 AND 2016
TABLE OF CONTENTS YEARS ENDED DECEMBER 31, 2017 AND 2016 Page INDEPENDENT AUDITORS' REPORT 1-2 CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statements of Financial Position 3 Consolidated Statements of Activities and Changes in Net Assets 4 Consolidated Statements of Functional Expenses 5-6 Consolidated Statements of Cash Flows 7 Notes to Consolidated Financial Statements 8-18 SUPPLEMENTARY INFORMATION Consolidating Statements of Financial Position 19-20 Consolidating Statements of Activities and Changes in Net Assets 21-22 Schedules of ADAMH Key Performance Indicators 23 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 24-25 Independent Auditors' Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance 26-27 Schedule of Expenditures of Federal Awards 28-29 Schedule of Findings and Questioned Costs 30
& s choenfeld INDEPENDENT AUDITORS' REPORT Board of Trustees Alvis, Inc. and Affiliate Columbus, Ohio We have audited the accompanying consolidated financial statements of Alvis, Inc. and Affiliate (a nonprofit Organization), which comprise the consolidated statements of financial position as of December 31, 2017 and 2016, and the related consolidated statements of activities and changes in net assets, functional expenses, and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the 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 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 audits. We conducted our audits 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 audits 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 audit opinion. 3601 Rigby Road Suite 400 Dayton, Ohio 45342-4981 1 Woodside Drive Richmond, Indiana 47374-2630 4249 Easton Way Suite 100 Columbus, Ohio 43219-6170 11175 Cicero Drive Suite 300 Alpharetta, Georgia 30022-1166 www.bradyware.com
& s choenfeld INDEPENDENT AUDITORS' REPORT - CONTINUED Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Alvis, Inc. and Affiliate, as of December 31, 2017 and 2016, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The schedules of ADAMH Key Performance Indicators the accompanying schedule of expenditures of federal awards, as required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated March 26, 2018, on our consideration of the Organization's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely 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 the effectiveness of the Organization's internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Organization's internal control over financial reporting and compliance. Columbus, Ohio March 26, 2018 2
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION DECEMBER 31, 2017 AND 2016 2017 2016 ASSETS CURRENT ASSETS Cash and cash equivalents $ 85,575 $ 417,735 Restricted cash-resident funds 187,131 240,011 Accounts receivable, net 2,056,020 2,663,731 Promises to give 100,117 174,843 Due from affiliate 86,409 93,723 Prepaid assets and other current assets 331,137 191,907 Total current assets 2,846,389 3,781,950 PROPERTY AND EQUIPMENT, NET 6,333,125 5,452,096 INVESTMENTS 1,075,571 1,015,774 OTHER ASSETS 9,823 23,452 Total assets $ 10,264,908 $ 10,273,272 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable $ 489,293 $ 563,816 Line of credit 400,000 - Current maturities of long-term debt 348,480 308,280 Accrued payroll, vacation and benefits 1,411,280 1,585,105 Deferred revenue 41,257 634,493 Other accrued expenses 295,271 328,932 Total current liabilities 2,985,581 3,420,626 LONG-TERM DEBT, NET OF CURRENT MATURITIES 1,864,349 1,897,793 Total liabilities 4,849,930 5,318,419 NET ASSETS Unrestricted 4,947,120 4,375,508 Temporarily restricted 467,858 579,345 Total net assets 5,414,978 4,954,853 Total liabilities and net assets $ 10,264,908 $ 10,273,272 See notes to financial statements. 3
CONSOLIDATED STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31, 2017 AND 2016 UNRESTRICTED NET ASSETS 2017 2016 REVENUE AND SUPPORT Revenue $ 30,781,769 $ 26,467,863 Support 1,575,619 1,091,924 Total Revenue and Support 32,357,388 27,559,787 FUNCTIONAL EXPENSES 31,785,776 27,253,139 INCREASE IN UNRESTRICTED NET ASSETS 571,612 306,648 TEMPORARILY RESTRICTED NET ASSETS Contributions 95,000 545,937 Net assets released from restrictions (206,487) (181,045) INCREASE (DECREASE) IN TEMPORARILY RESTRICTED NET ASSETS (111,487) 364,892 TOTAL INCREASE IN NET ASSETS 460,125 671,540 NET ASSETS Beginning of year 4,954,853 4,283,313 End of year $ 5,414,978 $ 4,954,853 See notes to financial statements. 4
CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES YEAR ENDED DECEMBER 31, 2017 Columbus Chillicothe Dayton Employment DD Services OhioLink Total Program Services Management and General Fund Raising Total Salaries $ 6,705,546 $1,156,761 $ 390,542 $ 560,711 $ 5,210,348 $ 1,225,003 $ 15,248,911 $ 2,437,702 $ 90,736 $ 17,777,349 Employee benefits 784,336 136,183 33,401 68,630 427,420 110,435 1,560,405 228,363 3,093 1,791,861 Payroll taxes 716,203 123,554 46,757 70,324 612,932 132,860 1,702,630 264,525 6,515 1,973,670 Legal and professional fees 68,742 757 493 14,839 166,383-251,214 109,968-361,182 Contract services 493,371 80,637 11,908 306,174 175,323-1,067,413 297,674 86,096 1,451,183 Printing, postage and supplies 525,891 137,829 21,454 28,188 118,766 545 832,673 94,912 2,673 930,258 Food 1,105,763 438,291 28,483 1,234 89,400-1,663,171 1,399-1,664,570 Education and training 40,763 9,684 8,011 7,394 28,299 54 94,205 32,472-126,677 Telephone 212,271 38,922 26,566 34,636 80,445 318 393,158 94,746 48 487,952 Rent 1,150,047 5,745 3,663 28,327 47,359-1,235,141 2,924-1,238,065 Utilities 393,651 (22) 13,632 4,519 57,348-469,128 44,971-514,099 Property maintenance 363,247 72,440 25,284 11,320 118,435 91 590,817 101,780-692,597 Insurance and property tax 145,083 28,404 8,182 11,232 58,024 7,137 258,062 66,747-324,809 Interest 29,796 - - - 15,171-44,967 30,835-75,802 Travel and conferences 160,386 13,052 14,687 19,743 48,505-256,373 241,297 45,170 542,840 Client assistance 263,118 19,826 4,833 67,870 140,179-495,826 10,313-506,139 Drug screening 394,168 36,657 10,896 39 2,219-443,979 332-444,311 Dues and subscriptions 62,881 8,436 3,798 1,436 136,972-213,523 30,149 4,285 247,957 Miscellaneous - - - - - - - 23,722 479 24,201 Total expenses before depreciation 13,615,263 2,307,156 652,590 1,236,616 7,533,528 1,476,443 26,821,596 4,114,831 239,095 31,175,522 Depreciation and amortization 287,023 41,693 17,146 33,782 48,584-428,228 182,026-610,254 Total Functional Expenses $ 13,902,286 $2,348,849 $ 669,736 $1,270,398 $ 7,582,112 $ 1,476,443 $ 27,249,824 $ 4,296,857 $ 239,095 $ 31,785,776 See notes to financial statements. 5
CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES YEAR ENDED DECEMBER 31, 2016 Columbus Chillicothe Dayton Employment DD Services OhioLink Total Program Services Management and General Fundraising Total Salaries $ 4,831,758 $1,198,117 $ 493,364 $ 390,859 $ 5,635,734 $ 1,083,897 $ 13,633,729 $ 2,396,850 $ - $ 16,030,579 Employee benefits 525,871 108,008 41,302 55,454 391,406 92,348 1,214,389 208,515-1,422,904 Payroll taxes 602,257 129,020 52,812 40,432 625,110 119,593 1,569,224 278,113-1,847,337 Legal and professional fees 37,487 1,185 10,916 18,807 128,509-196,904 62,649 39 259,592 Contract services 235,667 80,194 7,616 284,312 100,893-708,682 183,373 93,380 985,435 Printing, postage and supplies 464,409 158,714 25,631 21,169 165,167-835,090 79,341 14,311 928,742 Food 945,155 366,885 51,369 1,762 89,972-1,455,143 2,156 29,525 1,486,824 Education and training 29,663 19,696 12,204 13,826 32,649 629 108,667 24,484 2,714 135,865 Telephone 161,018 45,568 26,931 26,189 93,501-353,207 92,217 98 445,522 Rent 425,487 6,569 2,909 26,376 40,334-501,675 6,832-508,507 Utilities 244,741 22 18,067 8,898 69,956-341,684 57,327-399,011 Property maintenance 373,114 55,273 23,850 16,837 118,596-587,670 87,270-674,940 Insurance and property tax 104,326 24,586 8,635 10,385 50,756 6,038 204,726 59,760-264,486 Interest 30,422 - - - 10,799-41,221 28,637-69,858 Travel and conferences 78,918 21,024 25,639 8,649 99,646-233,876 193,678 18,812 446,366 Client assistance 147,382 20,253 4,091 41,692 115,819-329,237 9,689 23 338,949 Drug screening 131,854 28,881 15,428 51 3,296-179,510 577-180,087 Dues and subscriptions 56,647 10,672 5,362 5,465 147,400-225,546 41,566 6,397 273,509 Miscellaneous - - - - - - - 22,616 2,100 24,716 Total expenses before depreciation 9,426,176 2,274,667 826,126 971,163 7,919,543 1,302,505 22,720,180 3,835,650 167,399 26,723,229 Depreciation and amortization 212,667 42,652 16,857 38,312 49,580-360,068 169,842-529,910 Total Functional Expenses $ 9,638,843 $2,317,319 $ 842,983 $1,009,475 $ 7,969,123 $ 1,302,505 $ 23,080,248 $ 4,005,492 $ 167,399 $ 27,253,139 See notes to financial statements. 6
CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2017 AND 2016 2017 2016 OPERATING ACTIVITIES Change in net assets $ 460,125 $ 671,540 Adjustments to reconcile change in net assets to net cash and cash equivalents provided by operating activities: Depreciation and amortization 610,254 529,910 Unrealized gain on investments (85,749) (133,621) Gain on sale of property and equipment (5,686) - Realized gain on sale of investments (45,569) - Forgiveness of debt (8,139) - Inherent contribution received (271,200) - Acquired assets and liabilities, net 177,727 - Increase (decrease) in allowance for doubtful accounts (138,714) 232,060 693,049 1,299,889 Changes in operating assets and liabilities: Accounts receivable and promises to give 825,762 (222,079) Restricted cash-resident funds 52,880 (56,741) Prepaid assets and other current assets (98,471) 53,764 Due from affiliate 7,314 (58,627) Accounts payable (74,523) 129,343 Accrued payroll, vacation and benefits (173,825) 490,426 Deferred revenue (593,236) (1,380,748) Other accrued expenses (33,661) (30,662) Net Cash and Cash Equivalents Provided by Operating Activities 605,289 224,565 INVESTING ACTIVITIES Proceeds from sale of investments 107,630 106,625 Purchase of investments (36,109) (103,967) Purchases of property and equipment (1,174,252) (1,330,012) Proceeds from sale of property and equipment 17,953 - Net Cash and Cash Equivalents Used by Investing Activities (1,084,778) (1,327,354) FINANCING ACTIVITIES Borrowings on line of credit 400,000 - Principal payments on long-term debt (252,671) (260,969) Net Cash and Cash Equivalents Provided (Used) by Financing Activities 147,329 (260,969) NET DECREASE IN CASH AND CASH EQUIVALENTS (332,160) (1,363,758) CASH AND CASH EQUIVALENTS Beginning of year 417,735 1,781,493 End of year $ 85,575 $ 417,735 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for: Interest $ 75,802 $ 69,858 Noncash transactions: Purchase of property and equipment financed with long-term debt $ - $ 332,000 See notes to financial statements. 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Alvis, Inc. and Affiliate (the "Organization") is a nonprofit Ohio corporation organized primarily to assist in the re-integration of former criminal offenders into the community as productive, law-abiding citizens, and to provide residential care and habilitation services to individuals with intellectual disabilities (IID). Programs served over 7,300 individuals in 2017 and 2016, through residential and ancillary programs in Columbus, Chillicothe, Lima, and Dayton, Ohio, including facilities for intellectually disabled offenders, and an employment service program. The Organization provides staffing and management services to a related Toledo residential operation. The Laura Stanley Gunnels Charitable Trust (the Gunnels Trust), the affiliate, is a supporting organization intended to receive donations, invest assets, and distribute funds for the benefit of Alvis, Inc. On May 1, 2017 the Organization acquired Amethyst, Inc. The Organization plans to continue the programming of Amethyst, Inc. as a compliment to their existing programming. The following table summarizes the amount of assets and liabilities assumed and recognized at the acquisition date. Cash $ 133,729 Accounts receivable 349,378 Property and equipment 320,280 Other assets 60,165 Accounts payable (57,812) Accrued expenses (73,245) Other liabilities (126,740) Note payable (66,989) ADAMH and OHMHAS long-term liability (267,566) Inherent contribution received (271,200) The inherent contribution received is reflected in support and the increase in unrestricted net assets on the accompanying statements of activities and changes in net assets. Consolidation of Related Entities - A majority of the Board of Trustees of the Gunnels Trust is appointed by Alvis, Inc. Consequently, a requisite level of control and economic interest exists to require consolidation of the Gunnels Trust when reporting on Alvis, Inc. All significant inter-company transactions and balances, have been eliminated in the consolidated financial statements. Basis of Presentation - The consolidated financial statements presentation follows the recommendations of generally accepted accounting principles. The Organization is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. Unrestricted Net Assets - Unrestricted net assets are those net assets that are not subject to donor imposed stipulations. Temporarily Restricted Net Assets - Net assets subject to donor-imposed stipulations that may or will be met by either actions of the Organization and/or the passage of time are temporarily restricted net assets. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restriction. Permanently Restricted Net Assets - Net assets subject to donor-imposed stipulations to be maintained permanently by the Organization are deemed permanently restricted net assets. Generally, the donors of these assets permit the Organization to use all or part of the income earned on related investments for general or specific purposes. The Organization had no permanently restricted net assets at December 31, 2017 or 2016. 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Basis of Accounting - The consolidated financial statements of the Organization have been prepared on the accrual basis of accounting and, accordingly, reflect all significant receivables, payables, and other liabilities in accordance with accounting principles generally accepted in the United States of America. Financial Estimates - The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Contributions - Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence and/or nature of any donor restrictions. Contributions received with donor-imposed restrictions that are met in the same year in which the contributions are received are classified as unrestricted contributions. All donor-restricted contributions are reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restriction. When a restriction expires, at a stipulated time or when the purpose was accomplished, temporarily and permanently restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. Cash and Cash Equivalents - All unrestricted cash and other highly liquid investments with initial maturities of three months or less are considered cash equivalents for the purpose of the statements of cash flows. Restricted Cash - Resident funds are considered restricted cash and are maintained in separate accounts as required by the Ohio Department of Rehabilitation and Correction (ODRC) on behalf of transitional control residents and by the Ohio Department of Developmental Disabilities (DODD) for Medicaid recipients. Accounts Receivable - Trade receivables arise in the course of providing services at contracted rates for Federal, State, and County governmental agencies, and are recorded and carried at cost. Based on management's analysis an allowance for doubtful accounts in the amount of $152,209 and $290,923 was deemed necessary at December 31, 2017 and 2016. The Organization does not accrue interest on overdue trade receivables. On a periodic basis, management evaluates its trade receivables to assess the need for potential billing adjustments. Property and Equipment - Property and equipment are carried at cost or, if donated, at the approximate fair value at the date of donation. In accordance with Medicaid guidelines, the Organization capitalizes property and equipment expenditures in excess of $500 for property and equipment related to the provision of residential and habilitation services for individuals with intellectual and developmental disabilities. The Organization capitalizes all Non-Medicaid property and equipment expenditures in excess of $1,000. Routine maintenance and repairs are charged to expense as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. During 2017 and 2016, the Organization did not capitalize any donated equipment. Buildings and improvements Furniture and equipment Leasehold improvements Vehicles 5-40 years 2-10 years 1-40 years 3-5 years 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued The Organization reviews for impairment of long-lived assets in accordance with accounting standards. These standards require organizations to determine if changes in circumstances indicate that the carrying amount of its long-lived assets may not be recoverable. If a change in circumstances warrants such an evaluation, undiscounted future cash flows from the use and ultimate disposition of the asset, as well as respective market values, are estimated to determine if an impairment exists. Management believes that there has been no impairment of the carrying value of its long-lived assets at December 31, 2017 and 2016. Investments - Investments in equity securities with readily determinable fair values and all investments in debt securities are measured at fair value in the consolidated statements of financial position. Net unrealized gains and losses are included in the change in net assets on the consolidated statements of activities and changes in net assets. Concentrations - The Organization's cash and cash equivalents as of December 31, 2017 and 2016, were on deposit in various financial institutions which, at various times throughout the period were in excess of FDIC insurance limits of $250,000 for interest and non-interest bearing accounts. The Organization's service revenue is approximately 40% and 38% from the ODRC, 8% and 11% from the Federal Bureau of Prisons, and 32% and 31% of service revenue through the Medicaid program for the years 2017 and 2016. Accounts receivable is approximately 0% and 3% from the ODRC, 13% and 26% from the Federal Bureau of Prisons, and 37% and 40% of from the Medicaid program for the years 2017 and 2016. Tax-Exempt Status - The Organization operates as a nonprofit organization and is tax exempt under IRS Code Section 501(c)(3). Accordingly, no provision for income tax is presented in these consolidated financial statements. The Organization does not conduct unrelated business activities. Accounting for Uncertainty in Income Taxes - Accounting standards require the evaluation of tax positions taken, or expected to be taken, in the course of preparing the Organization's tax returns, to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. This statement provides that a tax benefit from an uncertain tax position may be recognized in the financial statements only when it is "more-likely-than-not" the position will be sustained upon examination, including resolution of any related appeals or litigation processes, based upon the technical merits and consideration of all available information. Once the recognition threshold is met, the portion of the tax benefit that is recorded represents the largest amount of tax benefit that is greater than 50 percent likely to be realized upon settlement with a taxing authority. Based on its review, management does not believe the Organization has taken any material uncertain tax positions, including any position that would place the Organizations exempt status in jeopardy as of December 31, 2017. Temporarily Restricted Net Assets - Time Restricted - The State of Ohio provided grants for the acquisition and renovation costs of a facility for intellectually disabled offenders (IID grants). The Ohio Department of Developmental Disabilities grants provided $221,004 in 1980, and require the facility be operated for the benefit of the intellectually disabled for a period of 40 years from the effective dates of the grants. In the event such provision is not met, the State must be reimbursed for a pro-rata portion of each grant based on the months remaining of the grant's life. Consequently, the grants are being amortized on a straight-line basis over the term of the grant, which expire in the year 2020. Additionally, in 1999, as described in Note 6, Franklin County provided the use of land for a period of 20 years subject to certain use restrictions. Additionally, certain funding from the United Way is time restricted for 2018. 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued During 2016, the Organization received grants from the Alcohol, Drug and Mental Health Board of Franklin County (ADAMH) and the Ohio Department of Mental Health and Addiction Services (OHMAS) in the amounts $375,000. These grants require that the Organization operate a recovery facility over a period of 20 to 30 years and will be temporarily restricted over that time. Functional Allocation of Expenses - Salaries and related expenses are allocated to the various programs and supporting services based on actual or estimated time employees spend on each function. The remaining expenses are specifically allocated whenever practical, or are allocated based on space utilization. Revenue - The Organization recognizes revenue when earned. Ohio Department of Rehabilitation and Corrections' revenue is earned on a daily client per diem charge, and the funds are received during the fiscal quarter of service. Federal Bureau of Prison revenue is accrued based on a daily client per diem, and the funds are received within two months. Medicaid program revenue is earned on a daily client per diem, and the funds are received during the month of service. Government grant revenue is recognized on a cost reimbursement basis, and the funds are received within two months following the quarterly invoice reporting period. There are various other programs which are similarly recognized and funded. Reclassifications - Certain amounts in the 2016 financial statements have been reclassified to conform to the 2017 financial statement presentation. Subsequent Events - In preparing these consolidated financial statements, the Organization has evaluated events and transactions for potential recognition or disclosure through March 26, 2018, the date the consolidated financial statements were available to be issued. NOTE 2 - INVESTMENTS Cost 2017 Unrealized Gains Unrealized Losses Market Value ADR/foreign equities $ 32,943 $ 8,829 $ - $ 41,772 Common stock 459,913 574,936 12,050 1,022,799 Funds held at the Columbus Foundation (held at cost) 11,000 - - - Total investments $ 503,856 $ 583,765 $ 12,050 $ 1,064,571 Cost Unrealized Gains 2016 Unrealized Losses Market Value ADR/foreign equities $ 32,943 $ 4,368 $ 168 $ 37,143 Common stock 485,865 494,279 12,513 967,631 Funds held at the Columbus Foundation (held at cost) 11,000 - - - Total investments $ 529,808 $ 498,647 $ 12,681 $ 1,004,774 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 - BENEFICIAL INTEREST IN FUNDS HELD BY THE COLUMBUS FOUNDATION In December 2002, the Organization transferred $11,000 to the Columbus Foundation (the "Foundation") to establish the Alvis, Inc. Endowment Fund. The Foundation will distribute amounts to the Organization upon request by a majority vote of Alvis, Inc.'s Board of Trustees. The Foundation holds a variance power to redirect the assets should the purpose of the fund become necessary, undesirable, impractical, or impossible to fulfill pursuant to the Foundation's amended Articles of Incorporation. The Foundation draws from the fund an annual management fee of 0.5% of assets value for its services in administering the fund in addition to fees paid annually to an investment agent. The Organization has reflected this beneficial interest at the amount of the initial funds transferred in investments in the accompanying consolidated statements of financial position. NOTE 4 - ANNUITY RECEIVABLE The Organization received notification that they were named beneficiary for an annuity contract. The Organization received $54,900 in 2017 and 2016 from this annuity. The present value of the balance outstanding on the annuity as of December 31, 2017 and 2016 was $131,950 and $183,554. Management has determined that the present value of the future anticipated payments is immaterial to the consolidated financial statements and has elected not to reflect this beneficial interest in the accompanying consolidated statements of financial position. NOTE 5 - FAIR VALUE MEASUREMENTS Fair values of the Organization's financial assets measured on a recurring basis at December 31, 2017 are as follows: Quoted Prices in Active Markets for Identical Assets (Level 1) 2017 Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Fair Value Investments ADR/foreign equities $ 41,772 $ 41,772 $ - $ - Common stock 1,022,799 1,022,799 - - Total investments $ 1,064,571 $ 1,064,571 $ - $ - 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 - FAIR VALUE MEASUREMENTS - continued Fair values of the Organization's financial assets measured on a recurring basis at December 31, 2016 are as follows: Quoted Prices in Active Markets for Identical Assets (Level 1) 2016 Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Fair Value Investments ADR/foreign equities $ 37,143 $ 37,143 $ - $ - Common stock 967,631 967,631 - - Total investments $ 1,015,774 $ 1,004,774 $ - $ - ADR/foreign equities and common stock: The fair value of these investments are based on quoted prices in active markets. NOTE 6 - PROMISES TO GIVE In November, 1999, Alvis, Inc. entered into a 20-year rent free lease agreement with Franklin County of Ohio for 1.895 acres of land on which to construct a new facility. The estimated yearly fair value of the land is $5,520. The lease agreement has been recorded at its present value based on a 5.53% discount rate as an unconditional promise to give and as a contribution to temporarily restricted net assets due to certain use restrictions placed on the property. The present value of the lease is currently being amortized over the life of the lease, with the yearly fair market rental value each year being recorded as a release from temporarily restricted net assets. The related maturities of the promises to give for the Franklin County, Ohio lease are as follows: 2018 $ 5,117 2019 4,486 $ 9,603 In addition to the promise to give received from Franklin County of Ohio, the current portion of promises to give in the accompanying consolidated statements of financial position include $95,000 and $170,000 of funds receivable from the United Way at December 31, 2017 and 2016. 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 - PROPERTY AND EQUIPMENT 2017 2016 Land $ 401,623 $ 353,523 Buildings and improvements 8,033,009 6,923,904 Furniture and equipment 1,421,381 1,212,824 Vehicles 1,179,703 1,066,699 Construction in progress 55,440 132,423 Total cost 11,091,156 9,689,373 Less accumulated depreciation 4,758,031 4,237,277 Property and equipment, net $ 6,333,125 $ 5,452,096 Depreciation expense was $601,236 and $514,509 for the years 2017 and 2016. NOTE 8 - LINE OF CREDIT The Organization had a line of credit for $1,000,000, secured by the same items listed in the 2010 bonds issue agreement described in Note 10. The line of credit expired August 9, 2016 and was renewed through August 9, 2017, at which time the line of credit was increased to $2,000,000. The line of credit was renewed during 2017 through August 1, 2018 under the same terms. The line bears interest at LIBOR plus 2.75% (1.56% and 0.77% at December 31, 2017 and 2016). Interest expense for the line of credit was $1,214 and $5,418 for the years 2017 and 2016. The outstanding balance on the line of credit as of December 31, 2017 was $400,000. There was no outstanding balance on the line of credit as of December 31,2016. NOTE 9 - OPERATING LEASES Alvis, Inc. is currently making payments for building rent under several lease agreements. These lease agreements expire at various times throughout 2018 and 2020. Monthly rent payments on the current lease agreements range between approximately $615 and $26,400 per month. Rent expense was $969,229 and $444,002 for the years 2017 and 2016. Alvis, Inc. leases certain other facilities, vehicles, and office equipment under short-term or cancelable long-term contracts. Additionally, the Organization leases several copy machines and vehicles under long-term non-cancelable contracts. Future minimum lease payments under non-cancelable operating leases are as follows: 2018 $ 841,736 2019 572,480 2020 489,007 $ 1,903,223 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 - LONG-TERM DEBT 2017 2016 Note payable to PNC bank collateralized by a 100-bed substance abuse treatment and halfway house facility, maturing in November 2019, due in monthly installments of $14,917 including interest. The interest rate is determined annually, based on a calculation implementing LIBOR plus 2.75%. The rate was 4.31% and 3.52% (1.56% and 0.77% LIBOR plus 2.75) at December 31, 2017 and 2016. $ 343,083 $ 507,167 Bonds issued in 2010 by the County of Franklin as Ohio Variable Rate Demand Healthcare Facilities Revenue Bonds of $1.8 million. Used to finance the acquisition, renovation, equipping and installation of facilities whether treatment facilities or administrative offices and secured by a mortgage on the property at Stella Court, other mortgages and security agreements and assignments involving receivables and contracts of revenues generated at the facility. In addition a waiver was granted for any violation of any provision of the 1999 reimbursement agreement. The interest rate is determined monthly, based on a calculation implementing LIBOR. The rate was 4.31% and 3.52% (1.56% and 0.77% LIBOR plus 2.75) at December 31, 2017 and 2016. The bonds were originally due August 2017, but were rewritten during 2017 and are now due August 1, 2024 under the same terms. 1,303,219 1,375,206 Note payable to PNC Bank collateralized by the underlying assets, maturing June, 2021, due in monthly installments of $1,383 through maturity. A balloon payment of $251,000 will be due at maturity. Interest rate is determined annually, based on a calculation implementing LIBOR plus 2.50%. The rate was 4.06% and 3.27% (1.56% and 0.77% LIBOR plus 2.50) at December 31, 2017 and 2016. 307,100 323,700 Note payable to ADAMH Board of Franklin County, collateralized by a residential facility, due ratably on a monthly basis through April 2035. Principal and interest payments are waived as long as the facility is utilized for providing sober living facilities. The amount of debt forgiveness each year is recorded as revenue in the statement of activities. In the event of default, the unpaid balance is immediately due. Total facility cost was $293,000, funded by two mortgages. The first mortgage, the Match Mortgage, was for $146,500 and was funded by ADAMH. The second mortgage, the Bridge Mortgage, was for $146,500 and was initially funded by ADAMH then retired with funds from ODMHAS as described in the note below. 126,357-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 - LONG-TERM DEBT - continued 2017 2016 Note payable to State of Ohio Department of Mental Health and Addiction Services (ODMHAS), collateralized by a residential facility, due ratably on a monthly basis through April 2045. Principal and interest payments are waived as long as the facility is utilized for providing sober living facilities. The amount of debt forgiveness each year is recorded as revenue in the statement of activities. In the event of default, the unpaid balance is immediately due. Total facility cost was $293,000, funded by two mortgages. The first mortgage, the Match Mortgage, was for $146,500 and was funded by ADAMH as noted above. The second mortgage, the Bridge Mortgage, was for $146,500 and was initially funded by ADAMH then retired with funds from ODMHAS. 133,070-2,212,829 2,206,073 Less current portion 348,480 308,280 Total long-term debt $ 1,864,349 $ 1,897,793 As part of these debt agreements, the Organization must maintain certain covenants, the most restrictive of which are financial covenants as defined in the agreements. The Organization was in compliance with these covenants as of December 31, 2017 and 2016. The following are future maturities of long-term debt for the subsequent five years and thereafter: 2018 $ 348,480 2019 306,809 2020 160,796 2021 164,027 2022 391,437 Thereafter 841,280 Total debt $ 2,212,829 In connection with the note payable at PNC Bank, the Organization entered into an interest rate swap agreement with a 60 month term. The debt agreement calls for interest at the one month LIBOR rate plus 2.75%. Terms of the swap agreement require the Organization to make monthly payments or receive funds from the Bank, equal to an amount defined by the agreement. This agreement covers the notional value of the term debt held by the bank and has effectively fixed the Organization's otherwise variable debt at a rate of 4.26% The Organization's purpose for entering into the swap agreement was to hedge against the risk of interest rate increases on the debt. Accordingly, the swap agreement is classified as a cash flow hedging activity and represents a derivative financial instrument. At December 31, 2017 and 2016, the net present value of the swap was a $958 and $(2,129) and had a related accrued interest of $37 and $(343). Amounts are immaterial to the consolidated financial statements and management has elected not to reflect the these in the accompanying consolidated statements of financial position and consolidated statements of activities and changes in net assets. 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 - DEFINED CONTRIBUTION 401(K) RETIREMENT PLAN Alvis, Inc. established a 401(k) Profit Sharing plan as of July 1, 2007. The Plan covers all employees age 20 and over as of January 1 following the date of hire. Once eligible, employees can contribute up to the lesser of the dollar maximum as set forth annually by the U.S. Treasury or 25% of taxable wages and are immediately 100% vested in any employer contributions. Employees age 20 and over existing on July 1, 2007 were immediately 100% vested participants. Alvis, Inc. makes safe harbor contributions to the Plan, which in 2017 and 2016 was 3% of compensation. The contribution expense for the years 2017 and 2016 was $410,788 and $364,975. NOTE 12 - RELATED PARTY TRANSACTIONS During 1998, Alvis, Inc. and three other organizations, providing the same services as Alvis, Inc., formed OhioLink Corrections and Treatment, Inc. ("OhioLink"), a 501(c)(3) nonprofit chartered in Ohio. One of the four founding members has withdrawn from the corporation. The other members are Talbert House in Cincinnati, Ohio and Oriana House in Akron, Ohio. These three entities entered into this agreement to provide services in Ohio where none existed. Alvis, Inc. invoices OhioLink monthly for direct costs of payroll, related fringes, and payroll taxes for staff assigned to OhioLink's facility. Revenues of $1,469,034 and $1,301,175 were recognized in 2017 and 2016 for such reimbursable items of which $134,242 and $138,216 were due at December 31, 2017 and 2016 and included in current assets. Alvis, Inc. charges monthly management fees equal to 7% of OhioLink's program service and interest revenue pursuant to a contract to provide daily administrative services. These fees total $182,314 and $188,465 in 2017 and 2016. The Organization had receivables of $16,438 and $14,156 from OhioLink related to the management fees as of December 31, 2017 and 2016. NOTE 13 - CONTINGENCIES AND GUARANTEES In April 2004, Alvis, Inc. and two similar organizations agreed to each guarantee one-third of a $670,000 bank mortgage loan to OhioLink, a related organization, for the purchase of its Toledo facility, two vacant adjacent lots, and to repay debt including advances from Alvis, Inc. Alvis Inc.'s maximum exposure on such guarantee, prior to liquidation of OhioLink collateral, was $70,723 and $81,889 as of December 31, 2017 and 2016. In September 2011, OhioLink obtained a loan for $385,000 which was renewed in April 2017 for $320,664, secured by the related constructed buildings and OhioLink collateral. Alvis, Inc. agreed to guarantee one-third of the bank loan for a maximum exposure of $102,477 and $107,348 as of December 31, 2017 and 2016. In September 2012, OhioLink obtained two loans for $225,000 and $199,000, secured by the related Lima building and OhioLink collateral. In September 2017, the $199,000 loan was renewed for $113,438. Alvis, Inc. agreed to guarantee one-third of the bank loan for a maximum exposure of $97,244 and $106,585 as of December 31, 2017 and 2016. In April 2017, OhioLink obtained a loan for $550,000, secured by he related Lima building and OhioLink collateral. Alvis Inc. agreed to guarantee one-third of the bank loan for a maximum exposure of $177,001 as of December 31,2017. Alvis, Inc.'s total debt exposure is $447,445 and $295,822 as of December 31, 2017 and 2016. 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13 - CONTINGENCIES AND GUARANTEES - continued The Organization is in a program with the ODJFS to self-insure unemployment claims, and has provided a surety bond to ODJFS. The Company has an agreement with an unemployment claims management company whereby the claims company agrees to assume all liability for reimbursements requested by the State in exchange for a fee based on a percentage of the Company's total wages paid quarterly. Should the claims company fail to pay claims to the State, Alvis, Inc. remains liable to directly reimburse the State. 18
CONSOLIDATING STATEMENT OF FINANCIAL POSITION DECEMBER 31, 2017 ASSETS Alvis, Inc. Gunnels Trust Alvis, Inc. and Affiliate CURRENT ASSETS Cash and cash equivalents $ 66,592 $ 18,983 $ 85,575 Restricted cash-resident funds 187,131-187,131 Accounts receivable, net 2,056,020-2,056,020 Promises to give 100,117-100,117 Due from affiliate 86,409-86,409 Prepaid assets and other current assets 331,137-331,137 Total current assets 2,827,406 18,983 2,846,389 PROPERTY AND EQUIPMENT, NET 6,333,125-6,333,125 INVESTMENTS 11,000 1,064,571 1,075,571 OTHER ASSETS 9,823-9,823 Total assets $ 9,181,354 $ 1,083,554 $ 10,264,908 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable $ 489,293 $ - $ 489,293 Line of credit 400,000-400,000 Current maturities of long-term debt 348,480-348,480 Accrued payroll, vacation and benefits 1,411,280-1,411,280 Deferred revenue 41,257-41,257 Other accrued expenses 295,271-295,271 Total current liabilities 2,985,581-2,985,581 LONG-TERM DEBT, NET OF CURRENT MATURITIES 1,864,349-1,864,349 Total liabilities 4,849,930-4,849,930 NET ASSETS Unrestricted 3,863,566 1,083,554 4,947,120 Temporarily restricted 467,858-467,858 Total net assets 4,331,424 1,083,554 5,414,978 Total liabilities and net assets $ 9,181,354 $ 1,083,554 $ 10,264,908 See independent auditors' report. 19
CONSOLIDATING STATEMENT OF FINANCIAL POSITION DECEMBER 31, 2016 ASSETS Alvis, Inc. Gunnels Trust Alvis, Inc. and Affiliate CURRENT ASSETS Cash and cash equivalents $ 393,672 $ 24,063 $ 417,735 Restricted cash-resident funds 240,011-240,011 Accounts receivable, net 2,663,731-2,663,731 Promises to give 174,843-174,843 Due from affiliate 93,723-93,723 Prepaid assets and other current assets 191,907-191,907 Total current assets 3,757,887 24,063 3,781,950 PROPERTY AND EQUIPMENT, NET 5,452,096-5,452,096 INVESTMENTS 11,000 1,004,774 1,015,774 OTHER ASSETS 23,452-23,452 Total assets $ 9,244,435 $ 1,028,837 $ 10,273,272 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable $ 563,816 $ - $ 563,816 Current maturities of long-term debt 308,280-308,280 Accrued payroll, vacation and benefits 1,585,105-1,585,105 Deferred revenue 634,493-634,493 Other accrued expenses 328,932-328,932 Total current liabilities 3,420,626-3,420,626 LONG-TERM DEBT, NET OF CURRENT MATURITIES 1,897,793-1,897,793 Total liabilities 5,318,419-5,318,419 NET ASSETS Unrestricted 3,346,671 1,028,837 4,375,508 Temporarily restricted 579,345-579,345 Total net assets 3,926,016 1,028,837 4,954,853 Total liabilities and net assets $ 9,244,435 $ 1,028,837 $ 10,273,272 See independent auditors' report. 20
CONSOLIDATING STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31, 2017 AND 2016 Alvis, Inc. Gunnels Trust 2017 2016 Alvis, Inc. and Gunnels Eliminations Affiliate Alvis, Inc. Trust Eliminations Alvis, Inc. and Affiliate UNRESTRICTED NET ASSETS REVENUE AND SUPPORT REVENUE Ohio Department of Rehabilitation and Correction (ODRC) $ 12,422,576 $ - $ - $ 12,422,576 $ 10,024,030 $ - $ - $ 10,024,030 Federal Bureau of Prisons 2,361,253 - - 2,361,253 2,973,170 - - 2,973,170 Medicaid and resident fees 9,900,854 - - 9,900,854 8,218,631 - - 8,218,631 Other governmental agencies 3,823,671 - - 3,823,671 3,531,715 - - 3,531,715 ODRC resident fees 12,974 - - 12,974 18,945 - - 18,945 OhioLink 1,651,348 - - 1,651,348 1,489,640 - - 1,489,640 Miscellaneous 603,407 - - 603,407 211,732 - - 211,732 Gain on sale of property and equipment 5,686 - - 5,686 - - - - Total Revenue 30,781,769 - - 30,781,769 26,467,863 - - 26,467,863 SUPPORT United Way contributions 95,000 - - 95,000 170,000 - - 170,000 Contributions 845,288 6,830 (100,000) 752,118 373,975 - (100,000) 273,975 Fundraising 349,441 - - 349,441 290,695 - - 290,695 Interest and dividends 1,776 39,479-41,255 2,214 40,374-42,588 Realized and unrealized gain on investments - 131,318-131,318-133,621-133,621 Net assets released from restrictions 206,487 - - 206,487 181,045 - - 181,045 Total Support 1,497,992 177,627 (100,000) 1,575,619 1,017,929 173,995 (100,000) 1,091,924 Total Revenue and Support 32,279,761 177,627 (100,000) 32,357,388 27,485,792 173,995 (100,000) 27,559,787 See independent auditors' report. 21
CONSOLIDATING STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS - CONTINUED YEARS ENDED DECEMBER 31, 2017 AND 2016 Alvis, Inc. Gunnels Trust 2017 2016 Alvis, Inc. and Gunnels Eliminations Affiliate Alvis, Inc. Trust Eliminations Alvis, Inc. and Affiliate FUNCTIONAL EXPENSES PROGRAM SERVICES Residential services 25,979,426 - - 25,979,426 22,070,773 - - 22,070,773 Employment 1,270,398 - - 1,270,398 1,009,475 - - 1,009,475 Total Program Services 27,249,824 - - 27,249,824 23,080,248 - - 23,080,248 SUPPORTING SERVICES General and administrative 4,273,947 122,910 (100,000) 4,296,857 3,984,264 121,228 (100,000) 4,005,492 Fundraising 239,095 - - 239,095 167,399 - - 167,399 Total Supporting Services 4,513,042 122,910 (100,000) 4,535,952 4,151,663 121,228 (100,000) 4,172,891 Total Functional Expenses 31,762,866 122,910 (100,000) 31,785,776 27,231,911 121,228 (100,000) 27,253,139 INCREASE IN UNRESTRICTED NET ASSETS 516,895 54,717-571,612 253,881 52,767-306,648 TEMPORARILY RESTRICTED NET ASSETS Contributions 95,000 - - 95,000 545,937 - - 545,937 Net assets released from restrictions (206,487) - - (206,487) (181,045) - - (181,045) INCREASE (DECREASE) IN TEMPORARILY RESTRICTED NET ASSETS (111,487) - - (111,487) 364,892 - - 364,892 TOTAL INCREASE IN NET ASSETS 405,408 54,717-460,125 618,773 52,767-671,540 NET ASSETS Beginning of year 3,926,016 1,028,837-4,954,853 3,307,243 976,070-4,283,313 End of year $ 4,331,424 $ 1,083,554 $ - $ 5,414,978 $ 3,926,016 $ 1,028,837 $ - $ 4,954,853 See independent auditors' report. 22
SCHEDULES OF ADAMH KEY PERFORMANCE INDICATORS YEARS ENDED DECEMBER 31, 2017 AND 2016 2017 2016 Key Performance Indicator Method of Calculation Calculation Ratio Calculation Ratio Current Ratio Current assets $ 3,921,960 1.31 $ 4,797,724 1.40 Current liabilities 2,985,581 3,420,626 Debt to Equity Ratio Total liabilities $ 4,849,930 0.90 $ 5,318,419 1.07 Total net assets 5,414,978 4,954,853 Administrative Costs to Expenses Administrative expenses $ 4,296,857 0.14 $ 4,005,492 0.15 Total expenses 31,785,776 27,253,139 Revenue to Expenses Total revenue $ 32,357,388 1.02 $ 27,559,787 1.01 Total expenses 31,785,776 27,253,139 Fund Balance Reserve Total fund balance $ 5,414,978 2.04 $ 4,954,853 2.18 Total expenses / 12 2,648,815 2,271,095 Percent of funding from ADAMH Board Total revenue from ADAMH $ 466,606 0.01 $ 442,073 0.02 Total revenue 32,357,388 27,559,787 Cash to Average Days Expenses Cash $ 85,575 0.98 $ 417,735 5.59 Expenses / 365 87,084 74,666 See independent auditors' report. 23