PROMESA RESIDENTIAL HEALTH CARE FACILITY, INC. FINANCIAL STATEMENTS AND AUDITOR S REPORT DECEMBER 31, 2016 AND 2015

PROMESA RESIDENTIAL HEALTH CARE FACILITY, INC. FINANCIAL STATEMENTS AND AUDITOR S REPORT

TABLE OF CONTENTS Independent Auditor s Report Exhibit A - Balance Sheet B - Statement of Activities C - Statement of Cash Flows Notes to Financial Statements Schedule 1 - Schedule of Operating Expenses

Independent Auditor s Report Board of Directors PROMESA Residential Health Care Facility, Inc. Report on the Financial Statements We have audited the accompanying financial statements of PROMESA Residential Health Care Facility, Inc., which comprise the balance sheet as of December 31, 2016 and 2015, and the related statements of activities and cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these 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. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the 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 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 financial statements. Auditors Auditors and Consultants and Consultants Serving Serving the Health the Health Care & Care Not for & Not Profit for Sectors Profit Sectors 655 Third 655 Avenue, Third Avenue, 12th Floor, 12th New Floor, York, New NY York, 10017 NY 10017 (212) 867-4000 (212) 867-4000 / Fax (212) / Fax 867-9810 (212) 867-9810 / / www.loebandtroper.com

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of PROMESA Residential Health Care Facility, Inc. as of December 31, 2016 and 2015, and the results of its operations, 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 Matter Our audits were conducted for the purpose of forming an opinion on the financial statements as a whole. The information included in Schedule 1 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. 2. July 31, 2017

EXHIBIT A BALANCE SHEET ASSETS 2016 2015 Current assets Cash and cash equivalents $ 5,299,993 $ 3,632,837 Cash - resident trust funds 35,207 50,097 Investments - money market mutual funds (Note 2) 178,011 48,609 Investment in real estate (Note 4) 3,464,827 Accounts receivable (net of allowance for doubtful accounts of $500,000 in 2016 and $458,000 in 2015) 2,924,493 1,686,295 Mortgage receivable (Note 6) 21,206 Due from affiliated entities (Note 5) 13,630,445 13,278,242 Security deposit (Note 5) 17,500 Prepaid expenses and other assets 256,325 180,241 Total current assets 22,324,474 22,379,854 Assets limited as to use Operating escrow fund - cash 174,587 292,386 Due from the Dormitory Authority of the State of New York - mortgage repayment escrow funds 605,616 683,348 Depreciation reserve fund - cash 264,861 264,332 Total assets limited as to use 1,045,064 1,240,066 Noncurrent assets Cash - escrow 48,103 3,422 Mortgage receivable (Note 6) 4,455,258 Notes receivable (Notes 6 and 7) 2,790,449 900,000 Accrued interest receivable (Notes 6 and 7) 246,450 220,301 Due from Amidacare, Inc. (Note 12) 222,869 222,869 Investment in real estate (Note 4) 5,547,207 Fixed assets - net (Note 3) 12,323,663 13,277,844 Total noncurrent assets 21,178,741 19,079,694 Total assets $ 44,548,279 $ 42,699,614

EXHIBIT A -2- BALANCE SHEET 2016 2015 LIABILITIES AND NET ASSETS Current liabilities Accounts payable and accrued expenses $ 1,049,060 $ 860,234 Accrued payroll and related liabilities 1,157,974 1,110,383 Estimated liabilities due to third parties (Note 8) 1,807,506 3,332,119 Mortgage payable (Note 9) 2,937,202 2,434,702 Loan payable - Adult Day Health Care Program (Note 10) 176,726 168,483 Resident trust funds 35,207 50,097 Total current liabilities 7,163,675 7,956,018 Long-term liabilities Mortgages payable (Note 9) 2,241,136 592,238 Loans payable (Note 10) Adult Day Health Care Program 1,037,885 1,214,611 Homeless Housing Assistance Program 4,360,000 4,360,000 Affiliated entities 998,000 Total long-term liabilities 8,637,021 6,166,849 Total liabilities 15,800,696 14,122,867 Net assets - unrestricted (Exhibit B) Operating fund 27,702,519 27,336,681 Operating escrow fund 174,587 292,386 Mortgage repayment escrow fund 605,616 683,348 Depreciation reserve fund 264,861 264,332 Total net assets 28,747,583 28,576,747 Total liabilities and net assets $ 44,548,279 $ 42,699,614 See independent auditor's report. The accompanying notes are an integral part of these statements.

EXHIBIT B STATEMENT OF ACTIVITIES YEARS ENDED 2016 2015 Unrestricted Unrestricted Assets Limited as to Use Assets Limited as to Use Mortgage Mortgage Operating Repayment Depreciation Operating Repayment Depreciation Operating Escrow Escrow Reserve Operating Escrow Escrow Reserve Fund Fund Fund Fund Total Fund Fund Fund Fund Total Operating revenues Net patient service revenues $ 16,532,527 $ 16,532,527 $ 17,399,151 $ 17,399,151 Prior year revenue adjustments 734,951 734,951 Provision for bad debts (58,879) (58,879) (262,016) (262,016) Net resident and patient service revenue less provision for bad debts 17,208,599 17,208,599 17,137,135 17,137,135 Other operating revenues 53,940 53,940 82,156 82,156 Total operating revenues 17,262,539 17,262,539 17,219,291 17,219,291 Operating expenses (Schedule 1) Professional care of patients 6,676,374 6,676,374 7,104,017 7,104,017 Service departments 1,976,008 1,976,008 1,934,807 1,934,807 Administrative 2,464,039 2,464,039 2,190,773 2,190,773 Nondepartmental (including depreciation and amortization of $682,090 and interest of $181,743 in 2016 and depreciation and amortization of $800,177 and interest of $225,907 in 2015) 5,340,698 5,340,698 5,597,427 5,597,427 Total operating expenses 16,457,119 16,457,119 16,827,024 16,827,024 Excess of operating revenues over operating expenses 805,420 805,420 392,267 392,267 Nonoperating revenues and expenses Interest and dividend income 214,065 $ 385 $ 21,641 $ 529 236,620 272,937 $ 484 $ 1,058 $ 528 275,007 Loss on disposal of fixed assets (Note 3) (687,655) (687,655) Expenses related to investment in real estate (183,549) (183,549) Rental income (Note 14) 109,000 109,000 109,000 109,000 Depreciation expense (109,000) (109,000) (109,000) (109,000) Total nonoperating revenues and expenses (657,139) 385 21,641 529 (634,584) 272,937 484 1,058 528 275,007 Other changes in net assets Transfers of escrow deposits (987,437) 145,747 841,690 (828,835) 145,488 683,347 Use of escrow deposits 1,204,994 (263,931) (941,063) 978,270 (294,923) (683,347) 217,557 (118,184) (99,373) 149,435 (149,435) Change in net assets (Exhibit C) 365,838 (117,799) (77,732) 529 170,836 814,639 (148,951) 1,058 528 667,274 Net assets - beginning of year 27,336,681 292,386 683,348 264,332 28,576,747 26,522,042 441,337 682,290 263,804 27,909,473 Net assets - end of year (Exhibit A) $ 27,702,519 $ 174,587 $ 605,616 $ 264,861 $ 28,747,583 $ 27,336,681 $ 292,386 $ 683,348 $ 264,332 $ 28,576,747 See independent auditor's report. The accompanying notes are an integral part of these statements.

EXHIBIT C STATEMENT OF CASH FLOWS YEARS ENDED 2016 2015 Cash flows from operating activities Change in net assets (Exhibit B) $ 170,836 $ 667,274 Adjustments to reconcile change in net assets to net cash provided (used) by operating activities Depreciation and amortization 791,090 909,177 Amortization of debt issuance costs 32,071 32,071 Loss on disposal of fixed assets 687,655 Decrease (increase) in assets Accounts receivable (1,238,198) 490,323 Due from affiliated entities (1,807,652) (975,751) Accrued interest receivable (26,149) (259,200) Estimated retroactive adjustments - due from third parties 23,571 Prepaid expenses and other assets (76,084) 200,799 Security deposit 17,500 200,000 Increase (decrease) in liabilities Accounts payable and accrued expenses 188,826 (107,050) Accrued payroll and related liabilities 47,591 (25,841) Estimated liabilities due to third parties (1,524,613) (22,555) Net cash provided (used) by operating activities (2,737,127) 1,132,818 Cash flows from investing activities Investment in real estate (2,272,206) (125,052) Proceeds from sale of investment in real estate 1,930,326 Purchase of investments (129,402) Proceeds from the sale and redemption of investments 2,895,700 Payments received from mortgage receivable 4,476,464 Decrease in assets limited as to use 195,002 147,365 Increase in cash - escrow (44,681) (914) Fixed asset acquisitions (524,564) (393,361) Loans to affiliated entities (435,000) (2,724,000) Net cash provided (used) by investing activities 3,195,939 (200,262)

EXHIBIT C -2- STATEMENT OF CASH FLOWS YEARS ENDED 2016 2015 Cash flows from financing activities Payment of loans payable $ (168,483) $ (160,959) Proceeds from mortgage 2,251,827 Principal payments of mortgage (875,000) (867,233) Net cash provided (used) by financing activities 1,208,344 (1,028,192) Net change in cash and cash equivalents 1,667,156 (95,636) Cash and cash equivalents - beginning of year 3,632,837 3,728,473 Cash and cash equivalents - end of year $ 5,299,993 $ 3,632,837 Supplemental disclosure of cash flow information Cash paid during the year for interest $ 156,052 $ 187,783 Supplemental disclosure of non-cash transactions Accrued interest receivable rolled into mortgage receivable $ 225,035 Note receivable rolled into mortgage receivable $ 971,314 Note receivable received in exchange for property transferred to an affiliated entity $ 1,890,449 Mortgage paid by affiliated entity in exchange for $ 1,559,702 investment property Investment property directly financed by related party through: Mortgage $ 2,302,202 Loan $ 998,000 See independent auditor's report. The accompanying notes are an integral part of these statements.

NOTE 1 - NATURE OF ORGANIZATION PROMESA Residential Health Care Facility, Inc. (RHCF) is a not-for-profit voluntary nursing home company organized under the provisions of Article 28-A of the New York State Public Health Law and the Not-for-Profit Corporation Law. Incorporated in New York State on June 6, 1992, its purpose is to maintain and operate a residential health care facility to provide health care and residential care for adults who test positive for the Human Immunodeficiency Virus (HIV) and are symptomatic or are diagnosed as having contracted Acquired Immune Deficiency Syndrome (AIDS). On July 21, 1992, RHCF entered into an agreement to construct the health care and residential care facility as approved by the New York State Department of Health (DOH) and the Dormitory Authority of the State of New York. In October 1993, the construction of RHCF began and the first admission to the facility was on March 8, 1995. On October 26, 2003, RHCF was approved to commence operating an Adult Day Health Care Program for AIDS/HIV registrants. The original approved capacity was 10 clients per day, which was increased to 60 clients per day and approved effective December 12, 2003. The Adult Day Health Care Program was closed in August 2015. RHCF provided 36,449 and 36,624 days of skilled nursing care for the years ended December 31, 2016 and 2015, respectively. The facility is supported primarily by patient service fees paid by Medicaid. RHCF also receives rent from Promesa, Inc., a related company. RHCF is exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of accounting - The financial statements are prepared on the accrual basis of accounting. Use of estimates - The preparation of financial statements in conformity with accounting principles generally accepted 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 financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

2. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Accounts receivable and allowance for doubtful accounts - RHCF records receivables for services rendered based on established rates and contracts for services provided. Management determines whether an allowance for uncollectibles should be provided for accounts receivable. Such estimates are based on management s assessment of the aged basis of its receivables, historical collections information and review of payments recorded subsequent to year end. Accounts receivable are written off against the allowance for doubtful accounts when all reasonable collection efforts have been exhausted. Interest income is not accrued or recorded on delinquent accounts receivable. Mortgages, notes and accrued interest receivable and allowance for doubtful accounts - Mortgages and notes receivable are recorded based upon contractual obligations and are measured at their unpaid balance. Accrued interest receivable is recorded based upon fixed rates set in the contractual obligation. Management determines whether an allowance for uncollectibles should be provided for mortgages, notes and accrued interest receivable. Such estimates are based on management s periodic review. Mortgages and notes receivable are written off against the allowance for doubtful accounts when all reasonable collection efforts have been exhausted. RHCF ceases accruing and recording interest on mortgages and notes receivable that have been determined to be doubtful for collection. RHCF has determined that no allowance is necessary for its mortgages, notes and accrued interest receivable as of December 31, 2016 and 2015. Cash and cash equivalents - Cash and cash equivalents include investments in highly liquid instruments with original maturities, when acquired, of three months or less, excluding amounts whose use is limited by Board designation or other arrangements under trust agreements or with third-party payors. Escrow - In accordance with the terms of its mortgage, RHCF makes monthly deposits into an escrow account for payment of real estate taxes. Investments - Investments are reported at fair value. RHCF invests in various types of investment securities. Investment securities, in general, are exposed to various risks such as interest rate, credit and overall market volatility risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term, based upon the markets fluctuations, and that such changes could affect the amounts reported in RHCF s statement of activities and balance sheet. Resident trust funds - Resident trust funds are maintained in bank accounts separate from RHCF s accounts.

3. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Assets limited as to use - Assets set aside under regulatory requirements for the eventual replacement of assets and payment of mortgages are classified as assets limited as to use. Investment income related to assets limited as to use is included in nonoperating revenues. Investment in real estate - Investment in real estate is reflected at historical cost. The balance represents the cost of land acquisition, capitalized interest, real estate taxes, property insurance, project development and maintenance costs of real estate undergoing development by RHCF. The investment property held at December 31, 2015 was sold in 2016 and was, therefore, reported as a current asset. Investment in real estate is reviewed annually for impairment. Fixed assets and depreciation - Fixed assets are stated at cost. Depreciation is recorded on the straight-line method over the estimated useful lives of the assets, which range from five to forty years. Individual items in excess of $500 and a useful life of greater than one year are capitalized. Leasehold improvements are amortized on the straight-line basis over the lesser of the estimated useful life of the improvements or term of the lease. Debt issuance costs - Debt issuance costs are reflected as a reduction of the carrying amount of the related debt, and are amortized on the straight-line basis over the life of the associated debt. Amortization of debt issuance costs is included in interest expense. Skilled nursing facilities - 28A and non-28a reimbursement - The financial statements of RHCF recognize interest and depreciation and amortization as expenses. The mechanism for reimbursement in non-28a nursing homes is to receive this amount (interest and depreciation and amortization) in the capital component portion of the Medicaid rate, which is included in revenues. However, 28A facilities receive interest, mortgage amortization (in lieu of depreciation and amortization), and escrow deposits in the capital component of their Medicaid rate, which are included in revenues. Under the 28A program, the mortgage amortization payments are accelerated from the second to the sixth year. As a result, during this period RHCF will recognize excess revenues resulting from the receipt of mortgage amortization payments in excess of the amounts due under the mortgage that will be offset in later years by equal amounts. Any assets not purchased from 28A funds have been capitalized, and related depreciation and amortization have been recorded and reimbursed through the rate.

4. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Patient service revenues - Patient service revenues are reported at the estimated net realizable amounts from residents and clients, third-party payors and others for services rendered, including estimated retroactive adjustments under reimbursement agreements with third-party payors. Retroactive adjustments are accrued on an estimated basis in the period the related services are rendered and adjusted in future periods as final settlements are determined. Laws and regulations governing health care programs are subject to interpretation. As a result, there is at least a reasonable possibility that recorded estimates may change by a material amount in the near term. Additionally, noncompliance with such laws and regulations could result in fines, penalties and exclusion from the Medicare and Medicaid programs. Net patient service income, net of contractual allowances and discounts, consists of third-party payors of $17,267,478 in 2016 and $17,399,151 in 2015. Rental income - Rental income is recognized on the straight-line basis over the term of the lease. Deferred rental income is recorded when material. Measure of operations - RHCF includes in its definition of operations all revenues and expenses directly related to patient care. Interest and dividend income, expenses related to investment in real estate, rental income, and depreciation expense related to rental income are considered nonoperating. Advertising - Advertising costs are expensed as they are incurred. Advertising expense was $35,106 in 2016 and $29,925 in 2015. Functional expenses - The costs of providing services have been summarized on a functional basis. Accordingly, certain costs have been allocated among the program and supporting services benefited. Net assets - Unrestricted net assets include net assets having no restriction as to use or purpose imposed by the donors. In addition, resources whose use is limited under terms of debt indentures, trust agreements, third-party reimbursement arrangements, or other similar arrangements which are set aside for board-designated purposes are considered to be unrestricted.

5. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Fair Value Measurements Fair Value Measurements establishes a framework for measuring fair value. The framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below. Level 1 inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that RHCF has the ability to access. Level 2 inputs to the valuation methodology include: Quoted prices for similar assets or liabilities in active markets; Quoted prices for identical or similar assets or liabilities in inactive markets; Inputs other than quoted prices that are observable for the asset or liability; Inputs that are derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability. Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. The asset or liability s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The following is a description of the valuation methodology used for assets measured at fair value. There has been no change in the methodology used at December 31, 2016 as compared to that used at December 31, 2015. Money market mutual funds - Valued at the net asset value ( NAV ) of shares held by the RHCF at year end.

6. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Fair Value Measurements (continued) The method described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while RHCF believes its valuation method is appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. 2016 2015 Level 1 Level 1 Investments Current assets Money market mutual funds $ 178,011 $ 48,609 Uncertainty in income taxes - RHCF has determined that there are no material uncertain tax positions that require recognition or disclosure in the financial statements. Periods ended December 31, 2013 and subsequent remain subject to examination by applicable taxing authorities. Subsequent events - Subsequent events have been evaluated through July 31, 2017, which is the date the financial statements were available to be issued. New Accounting Pronouncements In April 2015, FASB issued Accounting Standards Update (ASU) No. 2015-03 - Simplifying the Presentation of Debt Issuance Costs. This update was issued as part of an initiative to reduce complexity in accounting standards. This amendment updates Subtopic 835-30 - Interest - Imputation of Interest and requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The amendments to this update are effective for financial statements issued for fiscal years beginning after December 15, 2015.

7. NOTE 3 - FIXED ASSETS 2016 2015 Estimated Useful Lives Land $ 114,311 $ 114,311 Land improvements 6,480 6,480 15 years Building, building improvements and fixed equipment 19,444,680 19,331,872 11-40 years Movable equipment 3,181,272 3,152,165 5-14 years Automobiles 113,271 113,271 10 years Leasehold improvements and fixed equipment 3,372,908 10 years Building and fixed equipment - homeless housing program 4,360,000 4,360,000 40 years 27,220,014 30,451,007 Accumulated depreciation and amortization (14,896,351) (17,173,163) $ 12,323,663 $ 13,277,844 In 2016, as a result of giving up the lease for space in which RHCF operated the Adult Day Health Care program, RHCF wrote off $3,755,557 of leasehold improvements, fixed and movable equipment, net of accumulated depreciation and amortization of $3,067,902, resulting in a loss on disposal of $687,655. NOTE 4 - INVESTMENT IN REAL ESTATE In November 2014, RHCF purchased property located at 1661-1675 Westchester Avenue, Bronx, NY for $3,200,000. In conjunction with the purchase in November 2014, RHCF entered into a mortgage (Note 9, item B). Interest of $24,706 and property insurance of $495 in 2016 and interest of $65,947, real estate taxes of $57,405, and property insurance of $1,550 in 2015 were capitalized and were reflected within investment in real estate. In June 2016, the property was sold to a joint venture in which a related party owns 50%. The non-related 50% owner contributed cash to the joint venture which was used to purchase the property at cost, including capitalized costs, from RHCF. Proceeds from the sale were used to satisfy the mortgage.

8. NOTE 4 - INVESTMENT IN REAL ESTATE (continued) In June 2016, RHCF purchased property located at 1140 Pacific Street, Brooklyn, NY for $5,286,750 from related entities. In conjunction with the purchase in June 2016, RHCF entered into mortgages (Note 9, items C, D and E) and assumed loans payable to related entities (Note 10, item 3). Interest of $61,678, real estate taxes of $13,275, and closing costs of $185,504 in 2016 have been capitalized and reflected within investment in real estate. NOTE 5 - DUE FROM (TO) AFFILIATED ENTITIES Acacia Network, Inc. is the sole member of RHCF and related through common control. Acacia Network, Inc. is also the sole member of PROMESA, Inc., Promesa Housing Development Fund Corporation, Inc. (HDFC), Promesa Enterprises, Ltd., Promesa Administrative Services Organization, Inc. (PASO), Promesa Foundation Inc. (Foundation), La Casa De Salud Inc. (Note 6), Corporation for Youth Energy Corps (CYEC), Community Association of Progressive Dominicans, Inc., United Bronx Parents, Inc., Audubon Partnership for Economic Development, Inc., Acacia Network Housing, Inc. (ANH) and South Bronx Community Management Corp. (OUB). RHCF receives management services from PASO. The total charged to operations for the years ended December 31, 2016 and 2015 was $1,723,631 and $1,418,912, respectively. There were no amounts due to PASO as of December 31, 2016 and 2015. In addition, RHCF has loaned and advanced funds to various related parties. As of December 31, 2016 and 2015, there was $13,640,445 and $13,278,242, respectively, due from (to) the related parties.

9. NOTE 5 - DUE FROM (TO) AFFILIATED ENTITIES (continued) The following are the receivable balances due from (to) affiliates: 2016 2015 PROMESA, Inc. $ 3,265,612 $ 2,412,763 Promesa Housing Development Fund Corporation, Inc. 1,989,354 2,111,838 Promesa Enterprises, Ltd. 73,895 73,895 Promesa Administrative Services Organization, Inc. 5,317,929 4,201,640 Promesa Foundation, Inc. 564,373 604,373 Acacia Network, Inc. 1,789,255 1,629,255 Corporation for Youth Energy Corps 181,100 181,100 Community Association of Progressive Dominicans, Inc. 615 615 United Bronx Parents, Inc. 19,145 12,763 Acacia Network Housing, Inc. (100,833) 1,800,000 Audubon Partnership for Economic Development, Inc. 5,000 South Bronx Community Management Corp. 525,000 250,000 $ 13,630,445 $ 13,278,242 In 2013, RHCF loaned approximately $819,000 to HDFC to serve as collateral for housing construction purposes. The total amount is due the later of 26 months or when construction is completed. As of the date of these financial statements, The HDFC has not repaid RHCF. Interest is not being charged on the amounts outstanding and RHCF does not believe an allowance is necessary. In 2014, RHCF loaned $30,000 to Acacia Network, Inc. and $41,100 to CYEC for working capital. In 2015, RHCF loaned $105,000 to Foundation to assist it in purchasing real property $429,000 to HDFC for construction $1,800,000 to ANH for a down payment on property acquired in June 2016 (Note 9). In lieu of repayment, in September 2016, ANH transferred property to RHCF (Note 4). As a result of the transfer, the balance due to ANH from RHCH was $100,833 at December 31, 2016. $250,000 to OUB for working capital $140,000 to CYEC for working capital

10. NOTE 5 - DUE FROM AFFILIATED ENTITIES (continued) In 2016, RHCF loaned $160,000 to Acacia Network Inc. for working capital $275,000 to OUB for working capital The loans are unsecured and RHCF is not charging interest on the amounts outstanding. As discussed in Note 1, in October 2003 RHCF opened an Adult Day Health Care Program, which operates in a building owned by the Foundation. In September 2013, RHCF entered into a 25-year lease ending on June 30, 2038. RHCF had a $217,500 security deposit with the Foundation, and as a result of RHCF closing the program in August of 2015, the Foundation allowed RHCF to reduce it to $17,500. This was returned in 2016. During 2015, rental expense totaled $89,748. In January 2016, an affiliated company assumed the lease, and RHCF was refunded its security deposit. NOTE 6 - MORTGAGE RECEIVABLE A. On March 13, 2014, the Dormitory Authority of the State of New York (DASNY) assigned its rights, title and interest in its foreclosure action against the mortgage receivable from Hunts Point for its property at 754 East 151st Street in the Bronx to Promesa Residential Health Care Facility, Inc. in exchange for $4,127,554, which represents principal of $3,280,115 and accrued interest receivable of $847,439. Interest was charged and accrued at 5.25%, amounting to $123,876 in 2014. B. On October 28, 2014, La Casa De Salud, Inc. purchased the property and assumed the mortgage payable to RHCF from Hunts Point. La Casa De Salud, Inc. issued a secured mortgage note for $3,280,115, the principal amount outstanding, and an unsecured note to RHCF in the amount of $971,314 for the accrued interest at that date. Interest is being charged and accrued at 5.25%, amounting to $30,195 and $8,941 for the secured and unsecured notes, respectively in 2014. Interest of $143,426 and $42,473 was charged and accrued for the secured and unsecured notes, respectively in 2015.

11. NOTE 6 - MORTGAGE RECEIVABLE (continued) C. On October 31, 2015, RHCF modified and consolidated the mortgage, note and interest receivable into a new mortgage receivable in the amount of $4,476,464. Payments of approximately $30,164, including principal and interest of 5.25% are due monthly, beginning November 1, 2016. The mortgage was set to mature on November 1, 2035, at which point any unpaid principal and accrued interest would be due. Interest income was $136,978 in 2016 and $37,301 in 2015. In August 2016, La Casa De Salud, Inc. repaid RHCF. Accrued interest receivable was $37,301 at December 31, 2015. NOTE 7 - NOTES RECEIVABLE In February 2004, PROMESA, Inc. borrowed $900,000 from RHCF in exchange for an unsecured note receivable. Interest is being charged and accrued at 4%, amounting to $36,000 annually. Accrued interest receivable was $219,000 and $183,000 at December 31, 2016 and 2015, respectively. The principal and accrued interest are due on February 28, 2020. Management has determined that no allowance is necessary at December 31, 2016 and 2015. In June 2016, RHCF transferred the property at 1661-1675 Westchester Avenue, Bronx, NY to HDFC in exchange for HDFC paying off the mortgage on the property (Note 9). In addition, HDFC issued an unsecured note of $1,890,449 to the benefit of RHCF. Beginning in September 2016, interest is charged at 5% annually on the amounts outstanding and interest income was $27,450. Accrued interest receivable was $27,450 at December 31, 2016. The principal and accrued interest are due on September 17, 2021. Management has determined that no allowance is necessary at December 31, 2016. NOTE 8 - ESTIMATED LIABILITIES DUE TO THIRD PARTIES AND CONTINGENCIES RHCF is responsible for reporting to and is regulated by various third parties, among which are the Centers for Medicare and Medicaid Services (CMS) and DOH. These agencies, as well as the New York State Office of Attorney General s Medicaid Fraud Control Unit (MFCU), the Internal Revenue Service, the New York State Office of the Attorney General s Charities Bureau, the Office of Inspector General (OIG) and the New York State Department of Health s Independent Office of Medicaid Inspector General (OMIG), and other agencies have the right to audit RHCF. These agencies have the right to audit fiscal as well as programmatic compliance, i.e., clinical documentation and physician certifications, among other compliance requirements. RHCF has estimated the potential liability for the retroactive adjustments based on information presently available.

12. NOTE 8 - ESTIMATED LIABILITIES DUE TO THIRD PARTIES AND CONTINGENCIES (continued) Management believes that amounts recorded in the financial statements are adequate and appropriate for such retroactive adjustments. RHCF has filed cost reports with CMS in connection with the Medicare program. Final settlements have been received through 2015. No provision for 2016 has been recorded for possible adjustments, since RHCF does not anticipate any material adjustments based on the cost reports. Medicaid Reimbursement A. Commencing January 2012, rates for RHCF, which is a specialty facility or a discrete specialty unit (RHCF s AIDS beds) are those that were effective January 1, 2009 adjusted for capital but no adjustment for case mix index updates. Medicaid per diem rates for RHCF s skilled nursing facilities effective for the period April 1, 2009 through December 31, 2011 were updated utilizing the 2002 RHCF cost report data. This base year is subject to audit. B. Reimbursement for capital costs are subject to interpretation and audit. Provisions have been established to recognize potential exposure on a conservative basis. C. DOH increased nursing facility rates for the purposes of recruitment and retention through March 31, 2009. These rate increases are subject to audit. D. DOH has conducted an audit of RHCF s 1997 base year reporting period. Based on the DOH proposed preliminary audit adjustments, the impact on the base year rate was recalculated and rolled forward through December 31, 2016. The projected impact is recorded in these financial statements. The final audit report has not been issued as of the date of these financial statements. As of December 31, 2016 and 2015, $1,807,506 and $3,332,119, respectively, has been accrued for the above liabilities. Malpractice or negligence claims may be asserted against RHCF by various claimants. There is malpractice and general liability insurance in place that management feels is adequate to cover claims. There are no known incidents occurring through December 31, 2016.

13. NOTE 9 - MORTGAGES PAYABLE 2016 2015 A) On April 13, 2005, RHCF refinanced its mortgage through the issuance of the AIDS Long-Term Health Care Facilities Revenue Bonds, Series 2005, reducing the mortgage interest rate while maintaining substantially all the other terms of the original mortgage note. The mortgage is collateralized by the building. Under the terms of the agreement, principal payments commenced in 2007, including interest of 3.5% through 2008, 5% from 2008 through 2014, and 4.375% through 2017, the end of the mortgage term. $ 635,000 $ 1,510,000 B) In November 2014, RHCF obtained a $1,600,000 mortgage from Investors Bank. Payments of approximately $8,609, including interest at 4.125%, are due monthly. The mortgage is secured by a first mortgage on the land purchased. The mortgage was set to mature on November 1, 2024, at which time a balloon payment of $1,154,149 was due. In June 2016, this mortgage was repaid (Note 4). - 1,559,702 C) In June 2016, in connection with the purchase of the property at 1140 Pacific Street, Brooklyn, NY, RHCF assumed a $2,302,202 mortgage from the City of New York Department of Housing Preservation and Development (HPD). Interest is not charged on the amounts outstanding. The mortgage is secured by a first mortgage on the land purchased. No payments are due until the mortgage matures in August 2017. 2,302,202 -

14. NOTE 9 - MORTGAGES PAYABLE (continued) 2016 2015 D) In June 2016, in connection with the purchase of the property at 1140 Pacific Street, Brooklyn, NY, RHCF obtained a $2,066,880 mortgage from Banco Popular North America. Payments of interest only at the greater of 3.81% or the 30-day LIBOR rate plus 2.15%, which was 2.92% at December 31, 2016, are due monthly until January 1, 2018. Beginning January 1, 2018, Payments of approximately $20,740, including interest at 3.81%, are due monthly. The interest rate is subject to a rate change in December 2022. The mortgage is secured by a second mortgage on the land purchased. The mortgage matures on December 1, 2027. $ 2,066,880 $ - E) In June 2016, in connection with the purchase of the property at 1140 Pacific Street, Brooklyn, NY, RHCF obtained a $184,947 mortgage from Banco Popular North America. Payments of interest only at the greater of 3.81% or the 30-day LIBOR rate plus 2.15%, which was 2.92% at December 31, 2016, are due monthly until January 1, 2018. Beginning January 1, 2018, Payments of approximately $20,740, including interest at 3.81%, are due monthly. The interest rate is subject to a rate change in December 2022. The mortgage is secured by a third mortgage on the land purchased. The mortgage matures on December 1, 2027. 184,947 - $ 5,189,029 $ 3,069,702

15. NOTE 9 - MORTGAGES PAYABLE (continued) Required principal payments are as follows: 2017 $ 2,937,202 2018 188,627 2019 195,941 2020 203,538 2021 211,429 Thereafter 1,452,292 5,189,029 Less unamortized debt issuance costs (10,691) Net total $ 5,178,338 Change in Accounting Principle In 2016, RHCF adopted new requirements to present debt issuance costs as a reduction of the carrying amount of the related debt rather than as an asset. Amortization of the debt issuance costs is reported as interest expense rather than as amortization expense. The effect of the change for 2016 was to decrease deferred charges by $10,691, net them against mortgage payable and to record interest expense of $32,071, instead of amortization expense. The effect of the change for 2015 was to decrease deferred charges by $42,762, net them against mortgage payable and to record interest expense of $32,071, instead of amortization expense. The change does not impact the change in net assets or net assets. Interest expense was $96,782 in 2016 and $128,394 in 2015 including amortization of debt issuance costs of $32,071 in each of the years ended December 31, 2016 and 2015. Unamortized debt issuance costs were $10,691 and $42,762 at December 31, 2016 and 2015, respectively. In June 2016, RHCF obtained a $2,602,430 mortgage commitment for construction costs. There were no amounts advanced as of December 31, 2016, and as of the date of this report. Payments of interest only at the greater of 3.81% or the 30-day LIBOR Swap rate plus 2.15%, which was 2.92% at December 31, 2016, are due monthly until January 1, 2018, on amounts outstanding. Beginning January 1, 2018, the amounts advanced will be amortized over a ten-year term and will include interest at 3.81% due monthly. The interest rate is subject to a rate change in December 2022. The mortgage is secured by a fourth mortgage on the land purchased. The mortgage matures on December 1, 2027.

16. NOTE 10 - LOANS PAYABLE (1) On November 28, 2001, RHCF obtained a loan for improvements made to the Adult Day Care building. On September 15, 2013, RHCF extended the loan until January 1, 2023, with monthly payments of $19,154, including principal and interest at 4.62%. Until January 2016, the loan was secured by the real property and improvements of the adult day health care treatment center. In 2016, upon disposing of the real property and improvements, the loan was modified to remove the security interest in the property. For the years ended December 31, 2016 and 2015, total interest expense amounted to $61,370 and $68,893, respectively. The balance of the loan at December 31, 2016 and 2015 was $1,214,611 and $1,383,094, respectively. Required principal payments over the next five years and thereafter are as follows: 2017 $ 176,726 2018 185,185 2019 194,048 2020 203,252 2021 213,063 Thereafter 242,337 $ 1,214,611 (2) In 2001, RHCF entered into a forgivable housing loan agreement with New York State Homeless Housing and Assistance Corporation to build a homeless housing facility. The homeless housing facility is run by an affiliated entity. The construction was completed in December 2004. Pursuant to the regulatory agreement, RHCF must comply with certain compliance requirements and maintain the property as a homeless housing facility for 25 years. At that time, this loan of $4,360,000 will be recorded as grant income. (3) In June 2016, as part of RHCF s purchase of the property at 1140 Pacific Street, Brooklyn, NY, RHCF assumed $998,000 of unsecured loans payable to affiliated entities. Interest is charged monthly at 5% on the amounts outstanding, and The RHCF capitalized $14,491 in 2016 of interest to investment in real estate (Note 4). $998,000 was outstanding at December 31, 2016 and accrued interest payable at December 31, 2016 was $14,491 and has been included in accounts payable and accrued expenses.

17. NOTE 11 - PENSIONS RHCF participates in the affiliated entities employee retirement plans. The noncontributory defined contribution pension plan covers substantially all eligible employees that are over age twenty-one who have completed one year of service and one thousand hours or more of service. RHCF contributes an amount equal to 5% of compensation if an employee is active as of December 31 each year. Union employees of RHCF participate in the 1199 SEIU 401(k) plan. RHCF contributes 5% of the employee s W-2 wages. Total pension expense for the years ended December 31, 2016 and 2015 was $307,500 and $288,099, respectively. NOTE 12 - DUE FROM AMIDACARE, INC. Prior to 2009, RHCF acquired $442,869 in subvention certificates. Of this amount, $250,000 was purchased with AIDS Revolving Loan Funds provided by DASNY. This loan was forgiven in 2008, and RHCF wrote down its receivable from Amidacare, Inc. to reflect the $250,000 forgiveness. An additional $30,000 was provided in 2009, with the total balance of $222,869 reflected at December 31, 2016 and 2015. RHCF has guaranteed a loan by an entity related to Amidacare, which also has given a subvention to Amidacare in the amount of $750,000. In connection with the guaranteed loan, which has not been recorded as a liability in these financial statements, RHCF paid interest of $28,620 in 2016 and 2015. NOTE 13 - FUNCTIONAL EXPENSES RHCF provides general health care services to its residents. Expenses related to providing these services are as follows: 2016 2015 Health care services $ 14,025,356 $ 14,509,018 General and administrative 2,724,312 2,427,006 $ 16,749,668 $ 16,936,024

18. NOTE 14 - RENTAL INCOME During December 2003, RHCF (the landlord) entered into a forty-year noncancelable lease agreement with Promesa HDFC at the annual rental rate of $109,000. Per agreement, Promesa HDFC shall use and occupy the property to run a Homeless Housing Assistance Program. The lease expires in November 2043. Commencing July 2010, PROMESA, Inc. contracted with the City of New York to operate the Homeless Housing Assistance Program and has assumed the lease from Promesa HDFC. Future minimum payments are as follows: 2017 $ 109,000 2018 109,000 2019 109,000 2020 109,000 2021 109,000 Thereafter 2,388,917 $ 2,933,917 NOTE 15 - CONCENTRATIONS Financial instruments which potentially subject RHCF to a concentration of credit risk are cash accounts with major financial institutions in excess of FDIC insurance limits. Management believes that credit risk related to these accounts is minimal. The majority of patient services are reimbursed by Medicaid. Accordingly, RHCF is highly dependent on the Medicaid reimbursement system. RHCF grants credit without collateral to its patients, who are insured under the medical program. Receivables from patients and third-party payors are as follows: 2016 2015 Medicaid 57% 57% Managed care 36 36 Medicare and other 7 7 100% 100%

SCHEDULE 1 SCHEDULE OF OPERATING EXPENSES YEARS ENDED 2016 2015 Salaries Supplies Salaries Supplies and and and and Wages Expenses Total Wages Expenses Total Professional care of patients Nursing $ 4,321,294 $ 550,172 $ 4,871,466 $ 4,074,567 $ 590,575 $ 4,665,142 Activities 149,722 23,685 173,407 127,122 25,387 152,509 Pharmacy 135,535 135,535 106,485 106,485 Substance abuse 26,841 26,841 56,908 56,908 Psychiatry 100,141 35,445 135,586 100,495 35,725 136,220 Physical therapy 98,321 31,772 130,093 94,747 23,724 118,471 Occupational therapy 89,076 3,531 92,607 73,026 29,103 102,129 Medical office 469,558 1,271 470,829 462,079 3,127 465,206 Social services 343,349 176,319 519,668 344,016 167,960 511,976 Medical records 42,458 42,458 40,986 40,986 Dental 77,884 77,884 77,809 77,809 Adult day care 365,875 304,301 670,176 Total professional care of patients 5,640,760 1,035,614 6,676,374 5,739,821 1,364,196 7,104,017 Service departments Dietary 83,445 570,321 653,766 85,090 554,099 639,189 Plant maintenance 97,394 226,703 324,097 101,158 258,882 360,040 Transportation 133,957 24,116 158,073 91,630 38,602 130,232 Security 54,778 182,924 237,702 53,734 183,040 236,774 Laundry and linen 62,456 62,456 64,539 64,539 Housekeeping 413,279 126,635 539,914 358,193 145,840 504,033 Total service departments 782,853 1,193,155 1,976,008 689,805 1,245,002 1,934,807

SCHEDULE OF OPERATING EXPENSES SCHEDULE 1-2- YEARS ENDED 2016 2015 Salaries Supplies Salaries Supplies and and and and Wages Expenses Total Wages Expenses Total Administrative Administration $ 247,979 $ 1,293,280 $ 1,541,259 $ 258,976 $ 1,037,713 $ 1,296,689 Finance 151,279 771,501 922,780 172,213 721,871 894,084 Total administrative 399,258 2,064,781 2,464,039 431,189 1,759,584 2,190,773 Nondepartmental Payroll taxes and employee benefits 2,850,585 2,850,585 2,689,120 2,689,120 NYS cash receipts assessment 895,049 895,049 1,030,360 1,030,360 Insurance 189,915 189,915 247,491 247,491 Mortgage fees 30,738 30,738 30,738 30,738 Interest 181,743 181,743 225,907 225,907 Legal fees 62,819 62,819 30,274 30,274 Utilities 273,638 273,638 297,979 297,979 Telephone 79,412 79,412 61,259 61,259 Leases and rentals 94,709 94,709 184,122 184,122 Depreciation and amortization 682,090 682,090 800,177 800,177 Total nondepartmental 5,340,698 5,340,698 5,597,427 5,597,427 Total operating expenses (Exhibit B) $ 6,822,871 $ 9,634,248 $ 16,457,119 $ 6,860,815 $ 9,966,209 $ 16,827,024 See independent auditor's report.