Consolidated Financial Statements and Supplementary Information Together with Report of Independent Certified Public Accountants PHOENIX HOUSES OF CALIFORNIA, INC. AND AFFILIATES June 30, 2014 and 2013
TABLE OF CONTENTS Page Report of Independent Certified Public Accountants 1-2 Consolidated Financial Statements: Consolidated Statements of Financial Position as of June 30, 2014 and 2013 3 Consolidated Statement of Operations and Changes in Net Assets for the year ended June 30, 2014 4 Consolidated Statement of Operations and Changes in Net Assets for the year ended June 30, 2013 5 Consolidated Statements of Cash Flows for the years ended June 30, 2014 and 2013 6 Notes to Consolidated Financial Statements 7-16 Supplementary Information: Consolidated Schedule of Functional Expenses for the year ended June 30, 2014 18 Consolidated Schedule of Functional Expenses for the year ended June 30, 2013 19 Consolidating Schedule of Financial Position as of June 30, 2014 20 Consolidating Schedule of Financial Position as of June 30, 2013 21 Consolidating Schedule of Operations and Changes in Net Assets for the year ended June 30, 2014 22 Consolidating Schedule of Operations and Changes in Net Assets for the year ended June 30, 2013 23
Grant Thornton LLP 757 Third Avenue, 9th Floor New York, NY 10017 T 212.599.0100 F 212.370.4520 www.grantthornton.com REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors of Phoenix Houses of California, Inc. and Affiliates: We have audited the accompanying consolidated financial statements of Phoenix Houses of California, Inc. and Affiliates (collectively, PHC&A ), which comprise the consolidated statements of financial position as of June 30, 2014 and 2013, and the related consolidated statements of operations and changes in net assets 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. Auditor s 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. Those standards require that we plan and perform our 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 consolidated financial statements. The procedures selected depend on the auditor s 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 PHC&A 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 PHC&A 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. Grant Thornton LLP U.S. member firm of Grant Thornton International Ltd
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 consolidated financial statements referred to above present fairly, in all material aspects, the consolidated financial position of Phoenix Houses of California, Inc. and Affiliates as of June 30, 2014 and 2013, and the results of their operations and changes in net assets and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Supplemental Information Our audits were conducted for the purposes of forming an opinion on the consolidated financial statements of PHC&A as of and for the years ended June 30, 2014 and 2013, taken as a whole. The supplementary information included on pages 18 through 23 is presented for purposes of additional analysis and is not a required part of the consolidated financial statements. Such supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audits of the consolidated financial statements and certain additional procedures. These additional procedures included comparing and reconciling the information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information is fairly stated, in all material respects, in relation to the consolidated financial statements as a whole. New York, New York December 11, 2014-2 -
Consolidated Statements of Financial Position As of June 30, 2014 and 2013 ASSETS 2014 2013 CURRENT ASSETS Cash $ 447,725 $ 83,499 Due from government agencies, net of allowance of approximately $0 and $291,000 in 2014 and 2013, respectively 3,464,541 3,484,795 Current portion of contributions receivable, net - 65,244 Other receivables, net of allowance of approximately $32,000 and $39,000 in 2014 and 2013, respectively 491,447 298,120 Food stamps and inventories, net - 37,603 Prepaid expenses and other assets 697,331 532,319 Total current assets 5,101,044 4,501,580 Investments, at fair value 846,753 830,275 Property and equipment, net 7,937,955 7,646,173 Total assets $ 13,885,752 $ 12,978,028 LIABILITIES AND NET ASSETS LIABILITIES Accounts payable and accrued expenses $ 2,445,574 $ 1,148,802 Current portion of long-term debt 315,000 315,000 Total current liabilities 2,760,574 1,463,802 Conditional asset retirement obligations 161,968 155,472 Due to parent 3,818,781 3,401,152 Long-term debt, net of current portion 1,267,500 1,582,500 Total liabilities 8,008,823 6,602,926 Commitments and contingencies (Note 11) NET ASSETS Unrestricted 5,606,141 5,514,613 Temporarily restricted 270,788 860,489 Total net assets 5,876,929 6,375,102 Total liabilities and net assets $ 13,885,752 $ 12,978,028 The accompanying notes are an integral part of these consolidated financial statements. - 3 -
Consolidated Statement of Operations and Changes in Net Assets For the year ended June 30, 2014 Temporarily Unrestricted Restricted Total OPERATING REVENUES AND SUPPORT Government contract revenue $ 16,230,579 $ - $ 16,230,579 Client and third-party revenue 12,626,381-12,626,381 Donated goods and services 199,234-199,234 Other revenue 125,232-125,232 Special event revenue, net of costs of direct benefits to donors of approximately $60,000 291,033-291,033 Contributions 48,106 228,298 276,404 Net investment income designated for operations 11,313-11,313 Net assets released from restrictions 467,999 (467,999) - Total operating revenues and support 29,999,877 (239,701) 29,760,176 OPERATING EXPENSES Salaries 16,505,235-16,505,235 Employee benefits and payroll taxes 5,003,564-5,003,564 Consulting and contractual services 1,436,297-1,436,297 Resident sustenance 998,165-998,165 Occupancy costs 1,338,418-1,338,418 Vehicle costs 144,096-144,096 Communications 721,943-721,943 Supplies 932,268-932,268 Insurance 374,910-374,910 Travel 356,765-356,765 Interest 30,024-30,024 Miscellaneous 374,373-374,373 Repairs and maintenance 425,295-425,295 Administtrative charges from Parent 1,054,200-1,054,200 Depreciation 542,985-542,985 Total operating expenses 30,238,538-30,238,538 Loss from operations (238,661) (239,701) (478,362) OTHER ITEMS Net realized and unrealized gains on investments 4,408-4,408 Depreciation on capital assets funded by government grants (17,722) - (17,722) Accretion of interest on conditional asset retirement obligations (6,497) - (6,497) Total other items (19,811) - (19,811) Deficiency in revenues over expenses (258,472) (239,701) (498,173) OTHER CHANGES IN NET ASSETS Net assets released from restrictions for capital initiatives 350,000 (350,000) - Changes in net assets 91,528 (589,701) (498,173) Net assets, beginning of year 5,514,613 860,489 6,375,102 Net assets, end of year $ 5,606,141 $ 270,788 $ 5,876,929 The accompanying notes are an integral part of these consolidated financial statements. - 4 -
Consolidated Statement of Operations and Changes in Net Assets For the year ended June 30, 2013 Temporarily Unrestricted Restricted Total OPERATING REVENUES AND SUPPORT Government contract revenue $ 12,607,054 $ - $ 12,607,054 Client and third-party revenue 11,943,325-11,943,325 Donated goods and services 348,535-348,535 Other revenue 112,113-112,113 Special event revenue, net of costs of direct benefits to donors of approximately $59,000 384,288-384,288 Contributions 106,341 776,098 882,439 Net investment income designated for operations 15,099-15,099 Net assets released from restrictions 339,542 (339,542) - Total operating revenues and support 25,856,297 436,556 26,292,853 OPERATING EXPENSES Salaries 14,231,415-14,231,415 Employee benefits and payroll taxes 4,167,151-4,167,151 Consulting and contractual services 1,188,257-1,188,257 Resident sustenance 1,248,227-1,248,227 Occupancy costs 1,031,297-1,031,297 Vehicle costs 157,892-157,892 Communications 701,459-701,459 Supplies 608,373-608,373 Insurance 396,126-396,126 Travel 244,367-244,367 Interest 32,569-32,569 Miscellaneous 828,868-828,868 Repairs and maintenance 355,152-355,152 Administrative charges from Parent 1,039,000-1,039,000 Depreciation 526,140-526,140 Total operating expenses 26,756,293-26,756,293 (Loss) income from operations (899,996) 436,556 (463,440) OTHER ITEMS Net realized and unrealized losses on investments (21,116) - (21,116) Depreciation on capital assets funded by government grants (4,371) - (4,371) Accretion of interest on conditional asset retirement obligations (6,485) - (6,485) Total other items (31,972) - (31,972) (Deficiency in) excess of revenues over expenses (931,968) 436,556 (495,412) OTHER CHANGES IN NET ASSETS Net assets released from restrictions for capital initiatives 106,080 (106,080) - Changes in net assets (825,888) 330,476 (495,412) Net assets, beginning of year 6,340,501 530,013 6,870,514 Net assets, end of year $ 5,514,613 $ 860,489 $ 6,375,102 The accompanying notes are an integral part of these consolidated financial statements. - 5 -
Consolidated Statements of Cash Flows For the years ended June 30, 2014 and 2013 2014 2013 CASH FLOWS FROM OPERATING ACTIVITIES Changes in net assets $ (498,173) $ (495,412) Adjustments to reconcile changes in net assets to net cash provided by operating activities Accretion of interest on conditional asset retirement obligations 6,497 6,485 Depreciation 560,707 530,511 Net realized and unrealized (gains) losses on investments (4,408) 21,116 Change in provision for uncollectible amounts (298,259) (92,691) Changes in operating assets and liabilities: Due from government agencies 311,559 (1,362,349) Receivables (186,373) (59,567) Food stamps and inventories 37,603 - Contributions receivable 65,244 (65,244) Prepaid expenses and other assets (165,012) (63,011) Accounts payable and accrued expenses 1,296,772 339,039 Due to Parent 417,629 1,726,875 Net cash provided by operating activities 1,543,786 485,752 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (852,489) (287,316) Proceeds from sales of investments 658,487 978,135 Purchases of investments (670,558) (994,086) Net cash used in investing activities (864,560) (303,267) CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on long-term debt (315,000) (315,000) Net cash used in financing activities (315,000) (315,000) Net increase (decrease) in cash 364,226 (132,515) Cash, beginning of year 83,499 216,014 Cash, end of year $ 447,725 $ 83,499 Supplemental disclosure of cash flow information: Interest paid $ 26,000 $ 33,000 The accompanying notes are an integral part of these consolidated financial statements. - 6 -
Notes to Consolidated Financial Statements June 30, 2014 and 2013 1. ORGANIZATION The accompanying consolidated financial statements include the accounts and transactions of Phoenix Houses of California, Inc. and Affiliates (collectively, PHC&A ). PHC&A is a Section 501(c)(3) not-forprofit organization exempt from federal income taxes under Section 501(a) of the Internal Revenue Code (the IRC ) and has been classified as an organization that is not a private foundation under Section 509(a) of the IRC. PHC&A is also exempt from state and local income taxes. The accompanying consolidated financial statements include the accounts of Phoenix Houses of California, Inc.; Phoenix House San Diego, Inc.; Phoenix House Orange County, Inc.; and, Phoenix Houses of Los Angeles, Inc. Phoenix House Foundation, Inc. (the Parent ) is the sole member of PHC&A and the following affiliated organizations: Phoenix Houses of New York, Inc. and Affiliates (which consist of Phoenix Houses of New York, Inc. and Phoenix Houses of Long Island, Inc.); Phoenix Houses of New England, Inc.; Phoenix Houses of Texas, Inc.; Phoenix Programs of Florida, Inc.; Phoenix Houses of the Mid-Atlantic, Inc. and Affiliates (which consist of Phoenix House of the Mid-Atlantic, Inc. and Phoenix House Mid-Atlantic Property Management, Inc.); American Council for Drug Education, Inc.; Center on Addiction and the Family, Inc.; and, Phoenix Houses of New Jersey, Inc. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements have been prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. Accordingly, all significant intercompany accounts and transactions have been eliminated in the accompanying consolidated financial statements. The net assets of PHC&A and changes therein are classified and reported based upon the existence or absence of donor-imposed restrictions as follows: Unrestricted net assets represent expendable resources that are used to carry out PHC&A s operations and are not subject to donor-imposed stipulations. Temporarily restricted net assets contain donor-imposed restrictions that permit PHC&A to use or expend such resources only as or when specified. Restrictions are satisfied either by the passage of time or by actions of PHC&A. Permanently restricted net assets contain donor-imposed restrictions that stipulate that such resources be maintained permanently, but permit PHC&A to expend all of the income for unrestricted purposes or as stipulated by the donor. PHC&A had no permanently restricted net assets as of June 30, 2014 and 2013. 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 and the reported amounts of revenues and expenses during the reporting period. The allowance - 7 -
Notes to Consolidated Financial Statements June 30, 2014 and 2013 for doubtful accounts on accounts and other receivables and the fair value of donated goods and services represent significant accounting estimates reflected in the consolidated financial statements. Actual results could differ from those estimates. Contributed Services PHC&A receives certain contributed services that meet criteria established by accounting principles generally accepted in the United States of America for recognition as contributions. Such services, primarily legal services, are recorded as part of donated goods and services on the accompanying consolidated statement of operations and changes in net assets at fair value, which for fiscal 2014 and 2013 approximated $119,000 and $97,000, respectively. Food Stamps and Inventories Inventories consist of donated and purchased goods. Inventories are valued at the lower of cost or market. Donated goods are recorded as revenues and assets (at fair value when received) and expenses (when used) on the consolidated financial statements. Food stamps are recorded at face amount, which is the same as fair value, as revenues and assets and are charged to resident sustenance when expended. Conditional Asset Retirement Obligation Conditional Asset Retirement Obligations ( CARO ) are legal obligations associated with the retirement of long-lived assets. PHC&A s CAROs include costs associated with the eventual remediation and abatement of asbestos utilized within the construction of certain of its facilities and are initially recorded at fair value along with the related asset retirement costs which were capitalized by increasing the carrying amount of the related assets by the same amount as the liability. For the years ended June 30, 2014 and 2013, the accretion of interest associated with CAROs totaled approximately $7,000 and $6,000, respectively. At June 30, 2014 and 2013, property and equipment includes capitalized conditional asset retirement obligations at an approximate cost of $54,000 and accumulated depreciation of approximately $45,000 and $44,000, respectively. The total CARO liability at June 30, 2014 and 2013 totaled $162,000 and $155,000, respectively. Property and Equipment Property and equipment are stated at cost if purchased or at fair value at the date of gift if donated, less accumulated depreciation. PHC&A capitalizes assets acquired for greater than $1,000 and with useful lives greater than one year. Depreciation is computed on the straight-line basis over the estimated useful lives of the assets as follows: Buildings and improvements 10-30 years Vehicles 2-5 years Furniture, fixtures and equipment 4-10 years Computer equipment and software 3-7 years Costs incurred for repairs, maintenance and minor improvements that do not substantially extend an asset s useful life are charged to expense as incurred. Major improvements, which substantially extend the useful lives of assets, are capitalized. - 8 -
Notes to Consolidated Financial Statements June 30, 2014 and 2013 Revenues and Support Contributions (including unconditional promises to give) are recorded at fair value when received. Revenues and expenses relative to special events are recognized upon occurrence of the respective event. Contributions received with donor stipulations that limit the use of donated assets are reported as either temporarily or permanently restricted support. Unconditional promises to give, with payments due in future years, are reported as temporarily restricted or permanently restricted support, discounted to present value using credit adjusted discount rates which articulate with the collection period of the respective pledge. When a donor restriction expires, that is, when a time restriction ends or purpose restriction is fulfilled, temporarily restricted net assets are reclassified to unrestricted net assets and reported on the consolidated statement of operations and changes in net assets as net assets released from restrictions. Contributions restricted by donors for the acquisition of property and equipment are generally released from their restrictions when the respective assets are acquired or constructed and placed in service. Such net asset releases are reflected as part of other changes in net assets. PHC&A s contracts and other program funding arrangements with government agencies are classified as part of operating activities within unrestricted net asset activities. Client and third-party revenue (including Medi-Cal) is recognized as earned when services are provided. Special Events Revenue Special events revenue consists of proceeds from fundraising events, reported net of direct donor benefits. Revenue and related expenses are recognized upon occurrence of the respective events to which they pertain. For the years ended June 30, 2014 and 2013, direct benefits to donors of special events totaled approximately $60,000 and $59,000, respectively. Government Contract Revenue PHC&A operates under various contracts with government agencies which generally cover a one-year period, subject to annual renewal. The terms of these contracts allow the grantors the right to audit the costs incurred thereunder and adjust contract funding based upon, among other things, the amount of program income received. Any costs disallowed by the grantor would be absorbed by PHC&A and any adjustments by grantors would be recorded when amounts are known; however, it is the opinion of management that disallowances, if any, would not be material to the accompanying consolidated financial statements. Client and Third Party Revenue Inpatient and outpatient services rendered to Medicaid program beneficiaries are reimbursed based on predetermined rates. Medicaid and managed Medicaid approximated 23% and 24% of total client and third party revenue for the years ended June 30, 2014 and 2013, respectively. Contracts have been entered into with commercial insurance carriers and reimbursement is based on contracted rates. Laws and regulations governing healthcare programs are complex and subject to interpretation. As a result, there is at least a reasonable possibility that recorded estimates will change by a material amount in the near-term. Noncompliance with such laws and regulations could result in fines, penalties, and exclusion from such programs. The federal government and many states have aggressively increased enforcement under Medicaid antifraud and abuse legislation. PHC&A believes that it is in compliance, in all material respects, with all applicable laws and regulations and, is not aware of any pending or threatened - 9 -
Notes to Consolidated Financial Statements June 30, 2014 and 2013 investigations involving allegations of potential wrongdoing. While no such regulatory inquires have been made, compliance with such laws and regulations can be subject to future government review and interpretation. Noncompliance with such laws and regulations could result in repayments or amounts improperly reimbursed, substantial monetary fines, civil and criminal penalties and exclusion from the Medicaid program. Statement of Operations and Changes in Net Assets PHC&A s operating income includes all unrestricted revenues and expenses. Other items includes net realized and unrealized gains/losses on investments, accretion of interest on conditional asset retirement obligations and depreciation on capital assets funded by government grants. The statement of operations and changes in net assets also includes the caption Excess of (deficiency in) revenues over expenses, which is the performance indicator. Other changes in net assets which are excluded from the performance indicator, consistent with industry practice, include net assets released from restrictions for capital initiatives. Fair Value of Financial Instruments The carrying amounts of cash, prepaid expenses and other assets, amounts due to Parent, accounts payable and accrued expenses reported on the accompanying consolidated statements of financial position approximate fair value due to the short maturity of these financial instruments. The carrying values of amounts due from government agencies and other receivables approximate net realizable value, and have been reduced by an appropriate allowance for doubtful accounts based on historical collection experience. The carrying value of long-term debt approximates fair value. Fair Value Measurements PHC&A has adopted guidance that establishes a framework for measuring fair value and expanding disclosures about fair value measurements. The standard provides a consistent definition for fair value which focuses on an exit price between market participants in an orderly transaction. The standard also prioritizes, within the measurement of fair value, the use of market-based information over entity specific information and established a three-level hierarchy for fair value measurements based on the transparency of information used in the valuation of the respective asset or liability as of the reporting date. Assets and liabilities, subject to the standard, measured and reported at fair value are classified and disclosed in one of the following categories: Level 1 - Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. The type of investments in Level 1 include listed equities held in the name of the entity and exclude listed equities and other securities held indirectly through commingled funds. Level 2 - Pricing inputs, including broker quotes, are generally those other than exchange quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. - 10 -
Notes to Consolidated Financial Statements June 30, 2014 and 2013 Level 3 - Pricing inputs are unobservable for the asset or liability and include situations where there is little, if any, market activity for the respective asset or liability. The inputs into the determination of fair value require significant management judgment or estimation. Investments that are included in this category generally include privately held investments, partnership and similar interests. Under this hierarchy, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. PHC&A s investments are classified as follows at June 30, 2014 and 2013 within the fair value hierarchy using the market approach: 2014 2013 Fair Value Level 1 Level 2 Fair Value Level 1 Level 2 U.S. government obligations $ 534,000 $ 534,000 $ - $ 547,000 $ 547,000 $ - Money market funds 54,000 54,000-43,000 43,000 - Corporate debt securities 259,000-259,000 240,000-240,000 $ 847,000 $ 588,000 $ 259,000 $ 830,000 $ 590,000 $ 240,000 Management evaluated the level of trading volume associated with its debt securities and accordingly, has classified such instruments within Level 2 of the fair value hierarchy. In general, investments are exposed to various risks, such as interest rate, credit and overall market volatility. Due to the level of risk associated with certain investments, it is possible that changes in the values of investments could occur in the near term and such changes could materially affect the amounts reported on the accompanying consolidated financial statements. Concentration of Credit Risk PHC&A maintains its cash in various bank deposit accounts that, at times, may exceed federally insured limits. PHC&A maintains a diversified investment portfolio managed by an independent investment manager to minimize such risks. Due to inherent risks and potential volatility in investment valuations, the amounts reported on the accompanying consolidated financial statements can vary substantially from year to year. PHC&A regularly evaluates its investments including performance thereof. PHC&A s cash and investments were placed with high credit quality financial institutions at June 30, 2014 and 2013, and PHC&A believes the risk of nonperformance by these financial institutions is remote. PHC&A provides drug and alcohol rehabilitation services through its inpatient and outpatient care facilities. PHC&A grants credit without collateral to clients, however, it routinely obtains assignment of (or is otherwise entitled to receive) clients benefits payable under their health insurance programs, plans, or policies (e.g. Medicaid and commercial insurance providers). - 11 -
Notes to Consolidated Financial Statements June 30, 2014 and 2013 Other receivables, by financial class, as a percentage of total accounts receivable at June 30, 2014 and 2013, are as follows: 2014 2013 Medicaid 5 % 16 % Commercial insurance 7 5 Other third-party payors 85 77 Self-pay 3 2 100 % 100 % Income Taxes Guidance in the area of Accounting for Uncertainty in Income Taxes under the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return, including issues relating to financial statement recognition and measurement. This standard provides that the tax effects from an uncertain tax position can be recognized in the financial statements only if the position is more-likely-than-not to be sustained if the position were to be challenged by a taxing authority. The standard also provides guidance on measurement, classification, interest and penalties and disclosure. The adoption of this standard by PHC&A has not had an impact on the accompanying consolidated financial statements. The tax years ended 2011, 2012, 2013, and 2014 are still open to audit for both federal and state purposes. PHC&A has processes presently in place to ensure the maintenance of its tax-exempt status; to identify and report unrelated income; to determine its filing and tax obligations in jurisdictions for which it has nexus; and, to identify and evaluate other matters that may be considered tax positions. Subsequent Events PHC&A evaluated its June 30, 2014 consolidated financial statements for subsequent events through December 11, 2014, the date the consolidated financial statements were issued. 3. RELATED PARTY TRANSACTIONS PHC&A is charged for administrative services provided by the Parent based upon a cost allocation plan. The administrative expenses charged by the Parent approximate the federally approved indirect cost rate for the Parent and its affiliates on a consolidated basis, adjusted to reflect PHC&A s own administrative expenses. During the years ended June 30, 2014 and 2013, such allocated charges totaled $1,054,000 and $1,039,000, respectively. Amounts reflected as due to Parent on the accompanying statements of financial position as of June 30, 2014 and 2013, relate to operating costs incurred by PHC&A that were paid by the Parent. - 12 -
Notes to Consolidated Financial Statements June 30, 2014 and 2013 4. INVESTMENTS Investments, at fair value, at June 30, 2014 and 2013, consist of the following: 2014 2013 U.S. government obligations $ 534,000 $ 547,000 Money market funds 54,000 43,000 Corporate debt securities 259,000 240,000 $ 847,000 $ 830,000 Net investment income (loss) for the years ended June 30, 2014 and 2013, consists approximately of the following: 2014 2013 Net realized (losses) gains $ (2,000) $ 2,000 Net unrealized gains (losses) 6,000 (23,000) Interest and dividends 16,000 19,000 20,000 (2,000) Less: Investment advisory fees (4,000) (4,000) $ 16,000 $ (6,000) PHC&A s policy is to utilize interest and dividends, net of advisory fees, to support current operations. 5. PROPERTY AND EQUIPMENT, NET At June 30, 2014 and 2013, property and equipment, net, consists approximately of the following: 2014 2013 Land $ 3,008,000 $ 3,008,000 Buildings and improvements 14,515,000 13,954,000 Furniture, fixtures and equipment 1,132,000 1,058,000 Computer equipment and software 632,000 600,000 Vehicles 33,000 33,000 Construction-in-progress 271,000 101,000 19,591,000 18,754,000 Less: Accumulated depreciation (11,653,000) (11,108,000) $ 7,938,000 $ 7,646,000-13 -
Notes to Consolidated Financial Statements June 30, 2014 and 2013 Construction-in-progress at June 30, 2014, consists of costs incurred to upgrade cabins in Descanso, improvements to Lake View Terrace reception and client waiting areas and improvements to Orange County building security and fencing. The remaining costs to complete the projects are approximately $160,000 and are expected to be completed by December 2014. 6. LONG-TERM DEBT At June 30, 2014 and 2013, long-term debt consists of tax-exempt debt through the California Statewide Communities Development Authority ( CSCDA ) and Wells Fargo Bank, N.A. PHC&A s performance under the debt agreement is guaranteed by the Parent. As of June 30, 2014, the debt has a remaining term of 5-1/2 years to December 15, 2019, and is collateralized by a letter of credit that expires on July 1, 2015. Payments of principal and interest, which is based on 68% of the three-month LIBOR rate plus 1.25% (1.41% and 1.44% at June 30, 2014 and 2013, respectively), calculated on a 25-year basis, are due quarterly. During the years ended June 30, 2014 and 2013, these interest rates ranged from 1.41% to 1.68% and 1.40% to 1.78%, respectively. Approximately $1,583,000 and $1,898,000 is outstanding at June 30, 2014 and 2013, respectively. Annual principal payments due during the next five years and in total thereafter under this obligation are approximately as follows for the years ended June 30: 2015 $ 315,000 2016 315,000 2017 315,000 2018 315,000 2019 315,000 Thereafter $ 8,000 1,583,000 7. CLIENT AND THIRD-PARTY REVENUE For the years ended June 30, 2014 and 2013, client and third-party revenue consists approximately of the following: 2014 2013 Aid for Families with Dependent Children funding $ 7,561,000 $ 7,281,000 Private insurance and client payments 1,852,000 1,455,000 Healthcare services 2,942,000 2,919,000 Client fees and other 27,000 35,000 Lunch program 244,000 253,000 $ 12,626,000 $ 11,943,000-14 -
Notes to Consolidated Financial Statements June 30, 2014 and 2013 8. TEMPORARILY RESTRICTED NET ASSETS At June 30, 2014 and 2013, temporarily restricted net assets are restricted for the following purposes: 2014 2013 Specified program and capital initiatives $ 271,000 $ 860,000 Consistent with donor-specified use restrictions, temporarily restricted net assets totaling approximately $818,000 and $446,000 during fiscal years 2014 and 2013, respectively, were released from restrictions in support of program and capital initiatives. 9. TAX-DEFERRED ANNUITY PLAN PHC&A has a tax-deferred annuity plan, which is sponsored by the Parent, for all eligible employees under Section 403(b) of the IRC. PHC&A makes contributions equal to 3% to 10% of each active participant s compensation, based on years of service, as defined in the plan agreement. Total contributions to this plan by PHC&A during fiscal 2014 and 2013 totaled approximately $519,000 and $428,000, respectively, and are recorded to employee benefits and payroll taxes on the accompanying consolidated statements of operations and changes in net assets. 10. FUNCTIONAL EXPENSES PHC&A provides drug and alcohol rehabilitative healthcare services to clients and related support activities as described in Note 1. Expenses related to providing these services, included in the accompanying statements of operations and changes in net assets for the years ended June 30, 2014 and 2013, are as follows: 2014 2013 Program Services Residential treatment services $ 20,335,000 $ 19,244,000 Ambulatory treatment services 661,000 869,000 Prevention and education services 3,807,000 1,450,000 Supporting Services Adminstration and general 5,122,000 4,886,000 Fundraising 314,000 307,000 Total expenses $ 30,239,000 $ 26,756,000-15 -
Notes to Consolidated Financial Statements June 30, 2014 and 2013 11. COMMITMENTS AND CONTINGENCIES Lease Commitments PHC&A leases treatment facilities and vehicles under various non-cancelable operating leases expiring at various dates through fiscal 2016. Total expense under these leases approximated $272,000 and $336,000 for the years ended June 30, 2014 and 2013, respectively. Future minimum rental payments due under these leases are approximately as follows for the years ended June 30: 2015 $ 319,000 2016 176,000 2017 $ 29,000 524,000 In addition, PHC&A rents certain treatment facilities under operating leases on a month-to-month basis. Rent expense relating to these facilities totaled approximately $13,000 and $85,000 for the years ended June 30, 2014 and 2013, respectively. Litigation PHC&A is contingently liable under various claims which have arisen in the ordinary course of its business. In the opinion of management, the claims will be defended as appropriate and are adequately covered by insurance in certain cases. PHC&A believes that the resolution of these matters will not have a material effect on its consolidated financial statements. - 16 -
SUPPLEMENTARY INFORMATION
Supplemental Information - Consolidated Schedule of Functional Expenses For the year ended June 30, 2014 Program Services Supporting Services Residential Ambulatory Prevention Administrative Costs of Treatment Treatment and Education and Fund- Direct Benefits Services Services Services Total General raising to Donors Total Total Salaries $ 11,575,870 $ 374,546 $ 2,067,951 $ 14,018,367 $ 2,332,623 $ 154,245 $ - $ 2,486,868 $ 16,505,235 Employee benefits and payroll taxes 3,539,337 111,053 617,423 4,267,813 687,844 47,907-735,751 5,003,564 Consulting and contractual services 664,544 2,709 373,700 1,040,953 347,733 47,611-395,344 1,436,297 Resident sustenance 978,269 17,873 3,748 999,890 (1,725) - - (1,725) 998,165 Occupancy costs 875,545 101,283 211,637 1,188,465 149,750 203-149,953 1,338,418 Vehicle costs 115,370 5,921 121,291 22,805 - - 22,805 144,096 Communications 516,246 21,560 76,244 614,050 101,874 6,019-107,893 721,943 Supplies 533,535 10,604 305,134 849,273 65,524 17,471-82,995 932,268 Insurance 287,692 8,172 47,811 343,675 31,235 - - 31,235 374,910 Travel 149,779 1,238 67,048 218,065 137,237 1,463 58,414 197,114 415,179 Interest 25,296 - - 25,296 4,728 - - 4,728 30,024 Miscellaneous 183,691 23 23,451 207,165 128,413 38,795 1,501 168,709 375,874 Repairs and maintenance 396,184 8,822 6,063 411,069 14,226 - - 14,226 425,295 Administrative charges from Parent - - - - 1,054,200 - - 1,054,200 1,054,200 Depreciation 493,745 3,410 810 497,965 44,979 41-45,020 542,985 Total expenses 20,335,103 661,293 3,806,941 24,803,337 5,121,446 313,755 59,915 5,495,116 30,298,453 Less: Costs of direct benefits to donors for special events - - - - - - (59,915) (59,915) (59,915) Total $ 20,335,103 $ 661,293 $ 3,806,941 $ 24,803,337 $ 5,121,446 $ 313,755 $ - $ 5,435,201 $ 30,238,538 This schedule should be read in conjunction with the report of independent certified public accountants and the accompanying consolidated financial statements and notes thereto. - 18 -
Supplemental Information - Consolidated Schedule of Functional Expenses For the year ended June 30, 2013 Program Services Supporting Services Residential Ambulatory Prevention Administrative Costs of Treatment Treatment and Education and Fund- Direct Benefits Services Services Services Total General raising to Donors Total Total Salaries $ 10,445,921 $ 522,476 $ 875,985 $ 11,844,382 $ 2,226,060 $ 160,973 $ - $ 2,387,033 $ 14,231,415 Employee benefits and payroll taxes 3,062,783 150,728 255,141 3,468,652 651,841 46,658-698,499 4,167,151 Consulting and contractual services 781,152 12,460 121,059 914,671 210,420 63,166-273,586 1,188,257 Resident sustenance 1,233,360 9,145 2,170 1,244,675 3,352 200 43,682 47,234 1,291,909 Occupancy costs 701,649 88,909 111,529 902,087 129,022 188-129,210 1,031,297 Vehicle costs 134,406 - - 134,406 23,486 - - 23,486 157,892 Communications 569,064 25,685 16,584 611,333 81,888 8,238-90,126 701,459 Supplies 469,579 15,976 22,320 507,875 81,282 19,216 14,161 114,659 622,534 Insurance 314,191 15,373 19,700 349,264 46,862 - - 46,862 396,126 Travel 133,880 7,611 14,009 155,500 87,131 1,736-88,867 244,367 Interest 32,275 - - 32,275 294 - - 294 32,569 Miscellaneous 574,163 8,372 10,383 592,918 229,715 6,235 800 236,750 829,668 Repairs and maintenance 311,317 12,069 1,026 324,412 30,740 - - 30,740 355,152 Administrative charges from Parent - - - - 1,039,000 - - 1,039,000 1,039,000 Depreciation 480,533 787 128 481,448 44,692 - - 44,692 526,140 Total expenses 19,244,273 869,591 1,450,034 21,563,898 4,885,785 306,610 58,643 5,251,038 26,814,936 Less: Costs of direct benefits to donors for special events - - - - - - (58,643) (58,643) (58,643) Total $ 19,244,273 $ 869,591 $ 1,450,034 $ 21,563,898 $ 4,885,785 $ 306,610 $ - $ 5,192,395 $ 26,756,293 This schedule should be read in conjunction with the report of independent certified public accountants and the accompanying consolidated financial statements and notes thereto. - 19 -
Consolidating Schedule of Financial Position As of June 30, 2014 Phoenix Houses of California, Inc. Phoenix House Phoenix Houses (Parent Phoenix House Orange County, of Los Angeles, ASSETS Organization Only) San Diego, Inc. Inc. Inc. Total Cash $ 441,083 $ 1,000 $ 3,370 $ 2,272 $ 447,725 Due from government agencies, net 878,834 731,049 557,408 1,297,250 3,464,541 Other receivables, net 145,290 75,918 73,941 196,298 491,447 Prepaid expenses and other assets 638,720 25,508 5,789 27,314 697,331 Total current assets 2,103,927 833,475 640,508 1,523,134 5,101,044 Investments, at fair value 846,753 - - - 846,753 Property and equipment, net 5,839,775 329,125 468,612 1,300,443 7,937,955 Total assets $ 8,790,455 $ 1,162,600 $ 1,109,120 $ 2,823,577 $ 13,885,752 LIABILITIES AND NET ASSETS LIABILITIES Accounts payable and accrued expenses $ 1,010,829 $ 202,927 $ 262,168 $ 969,650 $ 2,445,574 Current portion of long-term debt 315,000 - - - 315,000 Total current liabilities 1,325,829 202,927 262,168 969,650 2,760,574 Conditional asset retirement obligations 161,968 - - - 161,968 Due to affiliates 2,358,650 765,240 820,964 (126,073) 3,818,781 Long-term debt, net of current portion 1,081,933 - - 185,567 1,267,500 Total liabilities 4,928,380 968,167 1,083,132 1,029,144 8,008,823 Commitments and contingencies NET ASSETS Unrestricted 3,862,075 37,594 25,990 1,680,482 5,606,141 Temporarily restricted - 156,839 (2) 113,951 270,788 Total net assets 3,862,075 194,433 25,988 1,794,433 5,876,929 Total liabilities and net assets $ 8,790,455 $ 1,162,600 $ 1,109,120 $ 2,823,577 $ 13,885,752 This schedule should be read in conjunction with the report of independent certified public accountants and the accompanying consolidated financial statements and notes thereto. - 20 -
Consolidating Schedule of Financial Position As of June 30, 2013 Phoenix Houses of California, Inc. Phoenix House Phoenix Houses (Parent Phoenix House Orange County, of Los Angeles, ASSETS Organization San Diego, Inc. Inc. Inc. Total Cash $ 58,634 $ 800 $ 21,793 $ 2,272 $ 83,499 Due from government agencies, net 358,265 1,024,037 467,578 1,634,915 3,484,795 Current portion of contributions receivable, net 42,744 15,000-7,500 65,244 Other receivables, net 56,783 36,311 127,292 77,734 298,120 Food stamps and inventories, net 37,603 - - - 37,603 Prepaid expenses and other assets 491,638 10,748 9,837 20,096 532,319 Total current assets 1,045,667 1,086,896 626,500 1,742,517 4,501,580 Investments, at fair value 830,275 - - - 830,275 Property and equipment, net 6,037,052 298,319 404,483 906,319 7,646,173 Total assets $ 7,912,994 $ 1,385,215 $ 1,030,983 $ 2,648,836 $ 12,978,028 LIABILITIES AND NET ASSETS LIABILITIES Accounts payable and accrued expenses $ 316,464 $ 97,171 $ 94,906 $ 640,261 $ 1,148,802 Current portion of long-term debt 315,000 - - - 315,000 Total current liabilities 631,464 97,171 94,906 640,261 1,463,802 Conditional asset retirement obligations 155,472 - - - 155,472 Due to affiliates 1,729,914 724,595 893,179 53,464 3,401,152 Long-term debt, net of current portion 1,359,999 - - 222,501 1,582,500 Total liabilities 3,876,849 821,766 988,085 916,226 6,602,926 Commitments and contingencies NET ASSETS Unrestricted 4,036,136 93,361 27,612 1,357,504 5,514,613 Temporarily restricted 9 470,088 15,286 375,106 860,489 Total net assets 4,036,145 563,449 42,898 1,732,610 6,375,102 Total liabilities and net assets $ 7,912,994 $ 1,385,215 $ 1,030,983 $ 2,648,836 $ 12,978,028 This schedule should be read in conjunction with the report of independent certified public accountants and the accompanying consolidated financial statements and notes thereto. - 21 -
Consolidating Schedule of Operations and Changes in Net Assets For the year ended June 30, 2014 Phoenix Houses of California, Inc. (Parent Organization Only) Phoenix House San Diego, Inc. Phoenix House Orange County, Inc. Phoenix Houses of Los Angeles, Inc. Consolidation Entries Phoenix Houses of California, Inc. and Affiliates Temporarily Temporarily Temporarily Temporarily Temporarily Unrestricted Restricted Unrestricted Restricted Unrestricted Restricted Unrestricted Restricted Unrestricted Unrestricted Restricted Total OPERATING REVENUES AND SUPPORT Government contract revenue $ 3,377,117 $ - $ 2,220,407 $ - $ 6,478,774 $ - $ 4,154,281 $ - $ - $ 16,230,579 $ - $ 16,230,579 Client and third-party revenue - - 2,424,405-901,255-9,300,721 - - 12,626,381-12,626,381 Donated goods and services 119,207 - - - - - 80,027 - - 199,234-199,234 Other revenue 5,777,919-1,475-983 - 492 - (5,655,637) 125,232-125,232 Special event revenue, net of costs of direct benefits - - - - - - - - - - - to donors of approximately $60,000 291,033 - - - - - - - - 291,033-291,033 Contributions 48,106 (9) 50,000 16,571 252,000 8,617-203,119 (302,000) 48,106 228,298 276,404 Change in beneficial interest in net assets of Parent - - - - - - - - - - - - Net investment income designated for operations 11,313 - - - - - - - - 11,313-11,313 Net assets released from restrictions - - 329,820 (329,820) 23,905 (23,905) 114,274 (114,274) - 467,999 (467,999) - Total operating revenues and support 9,624,695 (9) 5,026,107 (313,249) 7,656,917 (15,288) 13,649,795 88,845 (5,957,637) 29,999,877 (239,701) 29,760,176 OPERATING EXPENSES Salaries 4,934,742-2,129,447-3,551,704-5,889,342 - - 16,505,235-16,505,235 Employee benefits and payroll taxes 1,420,241-694,171-995,479-1,893,673 - - 5,003,564-5,003,564 Consulting and contractual services 712,863-377,919-354,321-846,670 - (855,476) 1,436,297-1,436,297 Resident sustenance (127) - 135,158-354,588-508,546 - - 998,165-998,165 Occupancy costs 195,735-412,174-430,827-958,962 - (659,280) 1,338,418-1,338,418 Vehicle costs 28,725-28,435-26,038-60,898 - - 144,096-144,096 Communications 130,263-105,342-204,312-282,026 - - 721,943-721,943 Supplies 182,831-148,430-331,457-269,550 - - 932,268-932,268 Insurance 63,721-51,759-89,698-169,732 - - 374,910-374,910 Travel 183,145-41,248-79,390-52,982 - - 356,765-356,765 Interest 27,094 - - - - - 2,930 - - 30,024-30,024 Miscellaneous 490,711-21,809-105,205-58,648 - (302,000) 374,373-374,373 Repairs and maintenance 15,023-73,467-117,713-219,092 - - 425,295-425,295 Administrative costs charged by Parent 1,054,200-823,950-963,332-2,353,599 - (4,140,881) 1,054,200-1,054,200 Depreciation 356,092-31,091-55,365-100,437 - - 542,985-542,985 Total operating expenses 9,795,259-5,074,400-7,659,429-13,667,087 - (5,957,637) 30,238,538-30,238,538 (Loss) income from operations (170,564) (9) (48,293) (313,249) (2,512) (15,288) (17,292) 88,845 - (238,661) (239,701) (478,362) OTHER ITEMS Net realized and unrealized (loss) gain in fair value of investments 3,000-19 - 890-499 - - 4,408-4,408 Depreciation on capital assets funded by government grants - - (7,493) - - - (10,229) - - (17,722) - (17,722) Accretion expense (6,497) - - - - - - - - (6,497) - (6,497) Total other items (3,497) - (7,474) - 890 - (9,730) - - (19,811) - (19,811) Excess of (deficiency in) revenues over expenses and changes in net assets (174,061) (9) (55,767) (313,249) (1,622) (15,288) (27,022) 88,845 - (258,472) (239,701) (498,173) OTHER CHANGES IN NET ASSETS Net assetes released from restriction for capital expenditures - - - - - - 350,000 (350,000) - 350,000 (350,000) - Changes in net assets (174,061) (9) (55,767) (313,249) (1,622) (15,288) 322,978 (261,155) - 91,528 (589,701) (498,173) Net assets, beginning of year 4,036,136 9 93,361 470,088 27,612 15,286 1,357,504 375,106-5,514,613 860,489 6,375,102 Net assets, end of year $ 3,862,075 $ - $ 37,594 $ 156,839 $ 25,990 $ (2) $ 1,680,482 $ 113,951 $ - $ 5,606,141 $ 270,788 $ 5,876,929 This schedule should be read in conjunction with the report of independent certified public accountants and the accompanying consolidated financial statements and notes thereto. - 22 -
Consolidating Schedule of Operations and Changes in Net Assets For the year ended June 30, 2013 Phoenix Houses of California, Inc. (Parent Organization Only) Phoenix House San Diego, Inc. Phoenix House Orange County, Inc. Phoenix Houses of Los Angeles, Inc. Consolidation Entries Phoenix Houses of California, Inc. and Affiliates Temporarily Temporarily Temporarily Temporarily Temporarily Unrestricted Restricted Unrestricted Restricted Unrestricted Restricted Unrestricted Restricted Unrestricted Unrestricted Restricted Total OPERATING REVENUES AND SUPPORT Government contract revenue $ 1,996,761 $ - $ 1,845,160 $ - $ 4,242,003 $ - $ 4,523,130 $ - $ - $ 12,607,054 $ - $ 12,607,054 Client and third-party revenue - - 2,444,579-1,169,491-8,329,255 - - 11,943,325-11,943,325 Donated goods and services 97,124 - - - 251,411 - - 348,535-348,535 Other revenue 5,266,493-1,468-235 - 6,548 - (5,162,631) 112,113-112,113 Special event revenue, net of costs of direct benefits to donors of approximately $59,000 384,288 - - - - - - - - 384,288-384,288 Contributions 106,330-200,011 88,416 50,000 45,690-641,992 (250,000) 106,341 776,098 882,439 Change in beneficial interest in net assets of Parent - (15,967) - - - - - 15,967 - - - - Net investment income designated for operations 14,645 - - - - - 454 - - 15,099-15,099 Net assets released from restrictions - - 25,504 (25,504) 45,691 (45,691) 268,347 (268,347) - 339,542 (339,542) - Total operating revenues and support 7,865,641 (15,967) 4,516,722 62,912 5,507,420 (1) 13,379,145 389,612 (5,412,631) 25,856,297 436,556 26,292,853 OPERATING EXPENSES Salaries 3,781,502-1,977,679-2,529,493-5,942,741 - - 14,231,415-14,231,415 Employee benefits and payroll taxes 1,111,822-578,314-740,915-1,736,100 - - 4,167,151-4,167,151 Consulting and contractual services 566,081-284,725-406,368-572,026 - (640,943) 1,188,257-1,188,257 Resident sustenance 6,028-142,128-408,162-691,909 - - 1,248,227-1,248,227 Occupancy costs 149,839-371,282-311,199-858,257 - (659,280) 1,031,297-1,031,297 Vehicle costs 30,415-22,803-33,731-70,943 - - 157,892-157,892 Communications 134,335-92,016-146,705-328,403 - - 701,459-701,459 Supplies 136,494-101,791-119,706-250,382 - - 608,373-608,373 Insurance 66,506-54,447-91,119-184,054 - - 396,126-396,126 Travel 117,504-29,906-44,619-52,338 - - 244,367-244,367 Interest 28,779 - - - - - 3,790 - - 32,569-32,569 Miscellaneous 494,206-18,297-99,403-466,962 - (250,000) 828,868-828,868 Repairs and maintenance 31,771-48,469-99,644-175,268 - - 355,152-355,152 Administrative costs charged by Parent 1,038,280-725,111-858,050-2,279,967 - (3,862,408) 1,039,000-1,039,000 Depreciation 356,018-28,555-45,709-95,858 - - 526,140-526,140 Total operating expenses 8,049,580-4,475,523-5,934,823-13,708,998 - (5,412,631) 26,756,293-26,756,293 (Loss) income from operations (183,939) (15,967) 41,199 62,912 (427,403) (1) (329,853) 389,612 - (899,996) 436,556 (463,440) OTHER ITEMS Net realized and unrealized (loss) gain in fair value of investments (21,374) - 56-130 - 72 - - (21,116) - (21,116) Depreciation on capital assets funded by government grants - - (4,371) - - - - - - (4,371) - (4,371) Accretion expense (6,485) - - - - - - - - (6,485) - (6,485) Total other items (27,859) - (4,315) - 130-72 - - (31,972) - (31,972) Excess of (deficiency in) revenues over expenses and changes in net assets (211,798) (15,967) 36,884 62,912 (427,273) (1) (329,781) 389,612 - (931,968) 436,556 (495,412) OTHER CHANGES IN NET ASSETS Net assetes released from restriction for capital expenditures - - 85,207 (85,207) - - 20,873 (20,873) - 106,080 (106,080) - Changes in net assets (211,798) (15,967) 122,091 (22,295) (427,273) (1) (308,908) 368,739 - (825,888) 330,476 (495,412) Net assets, beginning of year 4,247,934 15,976 (28,730) 492,383 454,885 15,287 1,666,412 6,367-6,340,501 530,013 6,870,514 Net assets, end of year $ 4,036,136 $ 9 $ 93,361 $ 470,088 $ 27,612 $ 15,286 $ 1,357,504 $ 375,106 $ - $ 5,514,613 $ 860,489 $ 6,375,102 This schedule should be read in conjunction with the report of independent certified public accountants and the accompanying consolidated financial statements and notes thereto. - 23 -