PUBLIC HEALTH FOUNDATION ENTERPRISES, INC. FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS REPORTS SINGLE AUDIT YEARS ENDED JUNE 30, 2015 AND 2014

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1 PUBLIC HEALTH FOUNDATION ENTERPRISES, INC. FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS REPORTS SINGLE AUDIT YEARS ENDED JUNE 30, 2015 AND 2014

2 (A California Non-Profit Corporation) TABLE OF CONTENTS Page FINANCIAL SECTION Independent Auditors Report Financial Statements: Statements of Financial Position June 30, 2015 and Statement of Activities for the year ended June 30, Statement of Activities for the year ended June 30, Statement of Functional Expenses for the year ended June 30, Statement of Functional Expenses for the year ended June 30, Statements of Cash Flows for the years ended June 30, 2015 and Notes to Financial Statements 1-9 GOVERNMENT AUDIT INFORMATION SECTION Independent Auditors Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 2-1 Independent Auditors Report on Compliance for Each Major Program and on Internal Control over Compliance Required By OMB Circular A Schedule of Expenditures of Federal Awards 2-6 Notes to Schedule of Expenditures of Federal Awards 2-23 AUDITORS RESULTS Schedule of Findings and Questioned Costs 3-1 Summary Schedule of Prior Audit Findings 3-2

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5 (A California Non-Profit Corporation) Statements of Financial Position June 30, 2015 and Assets Cash and cash equivalents $ 5,401,430 $ 4,822,594 Contracts receivable, net of allowance for doubtful accounts of $141,972 and $79,808, respectively 13,625,121 13,725,999 Deposits and prepaid expenses 1,035,860 1,209,768 Property and equipment, net (Note 4) 2,527,325 1,559,241 Total assets $ 22,589,736 $ 21,317,602 Liabilities Accounts payable and accrued expenses $ 4,769,881 $ 5,355,132 Accrued payroll and related liabilities (Note 5) 5,157,957 4,531,136 Agency and other funds payable (Note 6) 2,121,543 1,852,517 Advance on grantor payments 2,047,035 1,995,237 Accountability for program assets 1,508, ,715 Deferred rent 323, ,656 Capital leases obligations (Note 7) 174, ,399 Deferred revenue 83, ,100 Total liabilities 16,187,090 15,479,892 Commitments and contingencies (Notes 8,9,10 and 11) Net assets Unrestricted 6,402,646 5,392,016 Board designated - operating reserve - 445,694 Total net assets 6,402,646 5,837,710 Total liabilities and net assets $ 22,589,736 $ 21,317,602 See accompanying auditors report and notes to financial statements. 1-3

6 (A California Non-Profit Corporation) Statement of Activities For the Year Ended June 30, 2015 Temporarily Unrestricted Restricted Total Revenues and support Governmental service contracts $ 87,289,147 $ - $ 87,289,147 Private contracts 2,268,822-2,268,822 Management fees 8,610,357-8,610,357 Other income 19,849-19,849 Total revenues and support 98,188,175-98,188,175 Expenses Program services 89,172,381-89,172,381 Support services 8,450,858-8,450,858 Total expenses 97,623,239-97,623,239 Change in net assets 564, ,936 Net assets, beginning of the year 5,837,710-5,837,710 Net assets, end of year $ 6,402,646 $ - $ 6,402,646 See accompanying auditors report and notes to financial statements. 1-4

7 (A California Non-Profit Corporation) Statement of Activities For the Year Ended June 30, 2014 Temporarily Unrestricted Restricted Total Revenues and support Governmental service contracts $ 87,955,298 $ - $ 87,955,298 Private contracts 1,725,021-1,725,021 Management fees 7,831,504-7,831,504 Other income 45,042-45,042 Contributions 5,685-5,685 Restrictions released 156,693 (156,693) - Total revenues, support and restrictions released 97,719,243 (156,693) 97,562,550 Expenses Program services 88,832,677-88,832,677 Support services 8,035,626-8,035,626 Total expenses 96,868,303-96,868,303 Change in net assets 850,940 (156,693) 694,247 Net assets, beginning of the year 4,986, ,693 5,143,463 Net assets, end of year $ 5,837,710 $ - $ 5,837,710 See accompanying auditors report and notes to financial statements. 1-5

8 (A California Non-Profit Corporation) Statement of Functional Expenses For the Year Ended June 30, 2015 Program Support Services Services Total Salaries and related expenses: Salaries $ 48,142,754 $ 3,473,104 $ 51,615,858 Employee benefits 10,255, ,532 10,971,175 Payroll taxes 4,038, ,041 4,426,723 Other expenses: Advertising and promotion 1,324,013 2,936 1,326,949 Conference, conventions and meetings 610,198 79, ,916 Depreciation 345, , ,821 Equipment rental and maintenance 121,254 35, ,928 Information technology 728, ,933 1,392,744 Insurance 138, , ,936 Interest ,818 16,401 Memberships and subscriptions 59,873 55, ,712 Occupancy 4,926, ,720 5,547,243 Office expense 358, , ,468 Outside services 147,826 1,103,019 1,250,845 Professional fees 5,614, ,211 5,859,374 Subcontractors 3,061,757-3,061,757 Subrecipients 5,122,084-5,122,084 Supplies 3,039,194-3,039,194 Travel 1,135, ,184 1,283,111 $ 89,172,381 $ 8,450,858 $ 97,623,239 See accompanying auditors report and notes to financial statements. 1-6

9 (A California Non-Profit Corporation) Statement of Functional Expenses For the Year Ended June 30, 2014 Program Support Services Services Total Salaries and related expenses: Salaries $ 47,292,508 $ 3,823,202 $ 51,115,710 Employee benefits 9,336, ,171 10,004,603 Payroll taxes 3,732, ,345 3,888,553 Other expenses: Advertising and promotion 1,319,077 33,735 1,352,812 Conference, conventions and meetings 692,223 51, ,665 Depreciation 480, , ,909 Equipment rental and maintenance 193, , ,437 Information technology 1,129, ,788 1,258,979 Insurance 75, , ,245 Interest ,456 23,195 Memberships and subscriptions 78,151 63, ,424 Occupancy 5,260, ,262 6,014,828 Office expense 781, , ,930 Outside services 62, , ,349 Professional fees 5,168, ,839 5,419,312 Subcontractors 3,639,367-3,639,367 Subrecipients 5,032,093-5,032,093 Supplies 3,341,749-3,341,749 Travel 1,215, ,148 1,391,143 $ 88,832,677 $ 8,035,626 $ 96,868,303 See accompanying auditors report and notes to financial statements. 1-7

10 (A California Non-Profit Corporation) Statements of Cash Flows For the Years Ended June 30, 2015 and Cash flows from operating activities Change in net assets $ 564,936 $ 694,247 Adjustments to reconcile change in net assets to net cash provided by (used in) operating activities: Depreciation 721, ,909 Changes in operating assets & liabilities: Contracts receivable, net 100,878 (2,614,845) Deposits and prepaid expenses 173,908 (129,087) Accounts payable and accrued expenses (585,251) 648,500 Accrued payroll and related liabilities 626,821 (796,890) Agency and other funds payable 269,026 (247,499) Advance on grantor payments 51,798 (133,656) Accountability for program assets 510,031 70,925 Deferred rent (4,600) 31,764 Deferred revenue (35,160) 32,889 Net cash provided by (used in) operating activities 2,394,208 (1,763,743) Cash flows from investing activities Payments related to the acquisition of fixed assets (1,689,905) (1,047,603) Net cash used in investing activities (1,689,905) (1,047,603) Cash flows from financing activities Principal repayments related to capital leases (125,467) (136,993) Net cash used in financing activities (125,467) (136,993) Net increase (decrease) in cash and cash equivalents 578,836 (2,948,339) Cash and cash equivalents, beginning of year 4,822,594 7,770,933 Cash and cash equivalents, end of year $ 5,401,430 $ 4,822,594 See accompanying auditors report and notes to financial statements. 1-8

11 1. Organization PUBLIC HEALTH FOUNDATION ENTERPRISES, INC. (A California Non-Profit Corporation) Notes to Financial Statements For the Years Ended June 30, 2015 and 2014 Public Foundation Enterprises, Inc. ( PHFE or the Organization ) is a California non-profit corporation established on August 6, PHFE s mission is to enable population health incentives to improve the health and well-being of the communities. The Organization provides programs and support services to optimize population health. Substantially all of PHFE s revenue is received from annually renewable governmental service contracts, private grantors and foundations located in California. 2. Summary of Significant Accounting Policies PHFE prepares its financial statements using the accrual basis of accounting, in accordance with accounting principles generally accepted ( GAAP ) in the United States of America for not-for-profit entities. Financial Statement Presentation The financial statements report net assets and changes in net assets in three classes that are based upon the existence or absence of restrictions on uses that are placed by its donors, as follows: Unrestricted Net Assets Unrestricted net assets are resources available to support operations. The only limits on the use of unrestricted net assets are the broad limits resulting from the nature of the Organization, the environment in which it operates, the purposes specified in its corporate documents, its application for tax-exempt status and any limits resulting from contractual agreements with creditors and others that are entered into in the course of its operations. Board-designated accounts are unrestricted, but are set aside by the board for certain purposes. During the year ended June 30, 2015, the remaining balance of $445,694 was released from board designation. 1-9

12 (A California Non-Profit Corporation) Notes to Financial Statements (continued) For the Years Ended June 30, 2015 and Summary of Significant Accounting Policies (continued) Financial Statement Presentation (continued) Temporarily Restricted Net Assets Net assets subject to restrictions by a donor or by law for use for a particular purpose or in a particular future period. When a donor s restriction is satisfied, either by using the resources in the manner specified by the donor or by the passage of time, the expiration of the restriction is reported in the financial statements by reclassifying the net assets from temporarily restricted to unrestricted net assets. Net assets restricted for acquisition or contribution of buildings or equipment are reported as temporarily restricted until the specified asset is placed in service by PHFE, unless the donor provides more specific directions about the period or purpose of its use. Donor-restricted contributions received and expended in the same reporting period are recorded as unrestricted support. During the year ended June 30, 2014, all temporarily restricted net assets were released. No restricted funds were received in the years ended June 30, 2015 and Permanently Restricted Net Assets Net assets whose use by PHFE are limited by donor-imposed restrictions that neither expire by being used in accordance with a donor s restriction nor by the passage of time. The Organization has no permanently restricted net assets. All revenues and net gains are reported as increases in unrestricted net assets in the statements of activities unless the use of the related resources is subject to temporary or permanent donor restrictions. All uses of restricted net assets are reported as restrictions released in the total revenue, support and restrictions released, and as decreases in temporarily restricted net assets on the statements of activities. Cash and Cash Equivalents Cash and cash equivalents include all cash balances and highly liquid investments with an initial maturity of three months or less. The Company places its temporary cash investments with high credit quality financial institutions. At times such cash and cash equivalents may be in excess of the Federal Deposit Insurance Corporation ( FDIC ) insurance limit of $250,

13 (A California Non-Profit Corporation) Notes to Financial Statements (continued) For the Years Ended June 30, 2015 and Summary of Significant Accounting Policies (continued) Contracts Receivable Contracts receivable consist of expenses incurred by the Organization in connection with the federal, state and local governments and unconditional private enterprise awards for which individual applicable award agreements stipulate payment to the Organization on a reimbursement basis. The payment of such receivables generally occurs within one year from which expenses are incurred. The allowance for doubtful accounts is an estimate calculated by management based on grant and contract specific reserves, if any, and the age of overall grants and contracts receivable. Once a grant or contract receivable is deemed uncollectible, it is expensed as bad debt against the allowance for doubtful accounts. Property and Equipment Property and equipment are reported in the statements of financial position at cost, if purchased, and at fair value at the date of donation, if donated. Property and equipment is capitalized if it has a cost of $5,000 or more and a useful life when acquired of more than one year. Repairs and maintenance that do not significantly increase the useful life of the asset are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows: Automobile Furniture and equipment Leasehold improvements Computer equipment and software 5 years 5 years 5 years 3 years Capital leases are recorded at the lesser of the minimum lease payments or the fair market value of the equipment at the inception of the lease agreement. Depreciation expense includes the depreciation of assets recorded as capital leases. Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Recoverability is measured by a comparison of the carrying amount of the asset to future net cash flows, undiscounted and without interest, expected to be generated by the asset. If an asset is determined to be impaired, impairment expense to be recognized is measured as the amount by which the carrying value of the asset exceeds its fair value. No impairment losses were recognized in the financial statements for the years ended June 30, 2015 and

14 (A California Non-Profit Corporation) Notes to Financial Statements (continued) For the Years Ended June 30, 2015 and Summary of Significant Accounting Policies (continued) Program Assets PHFE acquires equipment and other capitalized assets that are necessary to support program initiatives. These program assets are generally returned to the grantor once a program is complete; however, during the term of the program, PHFE has the ability to decide on vendors and use of the assets are not restricted in anyway, except as required by the grant agreement. Generally, the grantors retain legal title of certain program equipment acquired by PHFE during the contract period and it is not probable that PHFE will be permitted to keep the assets when the contract terminates. However, PHFE has the right to use the property during the contract period. When program equipment is acquired, the Organization records the fixed asset at cost and a corresponding liability equal to the cost of the acquired asset. The asset and liability are amortized into depreciation expense and grant revenue, respectively, on a straight-line basis over the term of the contract. Accountability for program assets, net of accumulated amortization at June 30, 2015 and 2014 was $1,508,746 and $998,715, respectively. The Organization capitalizes program leasehold improvements when the costs are incurred and records corresponding deferred revenue. The asset and deferred revenue are amortized into depreciation expense and grant revenue on a straight-line basis over the shorter of the term of the lease or the estimated period in which it will provide benefit. Program leasehold improvements, net of depreciation at June 30, 2015 and 2014, were $34,919 and $42,774, respectively, and are included in property and equipment in the accompanying statements of financial position. At times, the Organization enters into facility lease agreements on behalf of the grantor, where the Organization has the ability to negotiate all terms of the contract. When the lease agreement requires a security deposit, these deposits are paid by PHFE and billed to the grantor. At the time of payment the Organization records operating lease deposits as an asset and a corresponding liability due to the grantor, as these amounts will be refunded to the grantor at the end of the lease when they are returned to PHFE from the lessor. Total program lease deposits and payables at June 30, 2015 and 2014 were $330,594 and $339,385, respectively, and are included in accountability for program assets on the accompanying statements of financial position. 1-12

15 (A California Non-Profit Corporation) Notes to Financial Statements (continued) For the Years Ended June 30, 2015 and Summary of Significant Accounting Policies (continued) Advance on Grantor Payments Advance on grantor payments consists of federal, state and local governments and conditional private enterprise award amounts received in advance of the incurrence of corresponding program expenses, in accordance with applicable award agreements. Such liabilities are generally short-term in nature, whereby advanced funds are most commonly not received more than one year ahead of the incurrence of related expenses. Accrued Vacation Prior to December 1, 2013, there was no limit on vacation that could be accrued for headquarter s employees. Effective December 1, 2013, headquarter s employees can accrue up to a maximum of two years of vacation. All program employees may accrue up to a maximum of 1.75 years of vacation. Total accrued vacation at June 30, 2015 and 2014 was $1,437,039 and $1,498,638, respectively, and is included in accrued payroll and related liabilities on the accompanying statements of financial position. If accrued vacation is not used, such benefits are paid at the time that employment is terminated. Government and Private Contract Revenue Government and private contract revenue is recognized as costs are incurred for grants or contracts. Government revenue from federal agencies is subject to independent audit under the Office of Management and Budget Circular A-133 and review by grantor agencies. The review could result in the disallowance of expenditures under the terms of the grant or reductions of future grant funds. Based on prior experience, management believes that costs ultimately disallowed, if any, would not materially affect the financial position of PHFE. Expense Recognition and Allocation The cost of providing programs and other activities are summarized on a functional basis in the statements of activities and statements of functional expenses. Expenses that can be identified with a specific program or support service are charged directly to that program or support service. Costs common to multiple functions have been allocated among the functions benefited based on estimates made by management. 1-13

16 (A California Non-Profit Corporation) Notes to Financial Statements (continued) For the Years Ended June 30, 2015 and Summary of Significant Accounting Policies (continued) Income Taxes PHFE is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code and California income taxes under section 23701(d) of the California Revenue and Taxation Code. PHFE is required to pay an annual filing fee to the State of California and other states in which it operates. Management evaluates uncertainty in income taxes for tax positions taken or expected to be taken in the course of preparing the Organization s tax returns to determine whether the tax positions are more-likely-than-not of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are required to be recorded as a tax benefit or expense in the current year. Additionally, this interpretation provides guidance on de-recognition, classification, interest and penalties, disclosure and transition. There were no uncertain tax positions that were not considered more-likely-than-not of being sustained by applicable tax authorities at June 30, Tax years that are open for examination by tax authorities are 2012 through 2014 for federal purposes and 2011 through 2014 for California purposes. Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period and the reported amounts of assets and liabilities at the date of the financial statements. On an ongoing basis, management evaluates the estimates and assumptions based upon historical experience and various other facts and circumstances. Management believes that the estimates and assumptions are reasonable; however, the actual results could differ from those estimates. New Accounting Pronouncements Management has reviewed the relevant new accounting pronouncements and determined that they have no material effect on the financial statements for the year ended June 30, Subsequent Events Management evaluated subsequent events through November 13, 2015, the date the financial statements were issued, and noted no material events which required additional disclosure in the financial statements. 1-14

17 3. Fair Value Measurements PUBLIC HEALTH FOUNDATION ENTERPRISES, INC. (A California Non-Profit Corporation) Notes to Financial Statements (continued) For the Years Ended June 30, 2015 and 2014 PHFE reports its fair value measurements using a three-level hierarchy that prioritizes the inputs used to measure fair value. This hierarchy, established by GAAP, requires that entities maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs used to measure fair value are as follows: Level 1 Quoted prices for identical assets or liabilities in active markets to which the Organization has access at the measurement date. Level 2 Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include: - quoted prices for similar assets or liabilities in active markets; - quoted prices for identical or similar assets in markets that are not active; - observable inputs other than quoted prices for the asset or liability (for example, interest rates and yield curves); and - inputs derived principally from, or corroborated by, observable market data by correlation or by other means. Level 3 Unobservable inputs for the asset or liability. Unobservable inputs should be used to measure the fair value to the extent that observable inputs are not available. At June 30, 2015 and 2014, the Organization held no investments that were required to be valued using the above fair value measurements. The carrying amounts of cash and cash equivalents, accounts receivable and liabilities approximate fair value because of the terms and relatively short maturity of these financial instruments. 1-15

18 4. Property and Equipment PUBLIC HEALTH FOUNDATION ENTERPRISES, INC. (A California Non-Profit Corporation) Notes to Financial Statements (continued) For the Years Ended June 30, 2015 and 2014 The balances at June 30, 2015 and 2014, respectively, consist of the following: Headquarter s software and equipment $ 1,769,921 $ 853,740 Program equipment 3,292,434 2,558,986 Leasehold improvements 374, ,028 Leased equipment 487, ,059 5,924,718 4,234,813 Less: accumulated depreciation (3,397,393) (2,675,572) Property and equipment, net $ 2,527,325 $ 1,559,241 Depreciation expense for the years ended June 30, 2015 and 2014 was $721,821 and $679,909, respectively. 5. Payroll Related Liabilities The balances of payroll related liabilities at June 30, 2015 and 2014 consist of accrued salaries and wages, voluntary and employer fringe benefits, including retirement plan contributions, accrued compensated absences, accrued workers compensation expense and accrued unemployment benefits. The balances at June 30, 2015 and 2014, respectively, consist of the following: Salaries and wages $ 1,766,812 $ 1,504,983 Accrued taxes and other fringe benefits 1,661, ,096 Accrued compensated balances 1,437,039 1,498,638 Unemployment and workers' compensation liabilities 292, ,419 $ 5,157,957 $ 4,531,

19 (A California Non-Profit Corporation) 5. Payroll Related Liabilities (continued) Notes to Financial Statements (continued) For the Years Ended June 30, 2015 and 2014 PHFE holds a retroactive insurance policy for workers compensation claims for the years 2005 through Under this policy, the Organization accrues costs based on the value of current claims relating to these years and an estimate of the claims incurred but not reported. At June 30, 2015 and 2014 management has estimated this liability to be $272,632 and $376,289, respectively. All claims related to years 2011 and subsequent are insured under a traditional policy in which the Organization pays annual premiums for full coverage of all claims. On April 1, 1977, PHFE elected the reimbursable method of financing under the California Unemployment Insurance Code. Under this method, the liability for unemployment insurance premiums are paid to the state of California (the State ) based on actual payments made by the State to former employees of PHFE. Accordingly, PHFE retains a liability for unemployment insurance benefits of terminated employees. The estimated liability balances at June 30, 2015 and 2014 were $19,537 and $111,727, respectively. Effective January 1, 2014, PHFE elected to opt-out of the reimbursement program and transition to the traditional contribution program. Under this methodology, the expense is calculated based on the fixed percentage issued by the State on the first $7,000 of wages for each employee and is expensed as incurred. 6. Agency and Other Funds Payable At times, PHFE collects contributions on behalf of its programs. In these circumstances, PHFE acts as an agent. Cash collected for such programs is recorded as an increase in the agency and other funds payable liability on the accompanying statements of financial position. As such funds are expended, the liability is decreased by an equivalent amount. PHFE also provides management services for fee for service programs. Cash collected on behalf of these programs in excess of program expenditures is classified as a liability. Agency and other funds payable balances at June 30, 2015 and 2014 were $2,121,543 and $1,852,517, respectively. 1-17

20 7. Capital Lease Obligations PUBLIC HEALTH FOUNDATION ENTERPRISES, INC. (A California Non-Profit Corporation) Notes to Financial Statements (continued) For the Years Ended June 30, 2015 and 2014 PHFE is a party to multiple capital lease agreements to purchase computer hardware and software. The future minimum lease payments under these capital leases at June 30, 2015 are as follows: Year End Amount 2016 $ 93, , , ,422 Less: portion attributed to interest (15,490) Net capital leases obligations $ 174, Commitments and Contingencies The Organization receives funds from government grants and contracts that are subject to review and audit by the grantor agencies. These programs are subject to program compliance audits by the grantor or their representatives and such audits could result in disallowed costs. PHFE s management believes that any such disallowed costs would not have a material effect on the financial position of the Organization. On July 23, 2004, PHFE entered a workers compensation claim reinsurance agreement which is partially collateralized by a $686,440 Standby Letter of Credit. Through various amendments, PHFE held a Letter of Credit for $819,761 and $861,761 at June 30, 2015 and 2014, respectively. Each succeeding year this Standby Letter of Credit has been reissued on the same terms and conditions as the one issued on July 23, In April 2014, PHFE secured a $4,000,000 line of credit which expired April 16, Advances were collateralized by personal property of the Organization and bore interest at the Wall Street Journal Prime rate plus 1% with a floor rate of 4.00%. In May 2015, PHFE entered into a new banking relationship and secured a $4,500,000 line of credit which expires on May 6, Advances are collateralized by personal property of the Organization and bear interest at the LIBOR floating daily rate plus 1.41%. There were no line of credit amounts outstanding at June 30, 2015 and

21 (A California Non-Profit Corporation) Notes to Financial Statements (continued) For the Years Ended June 30, 2015 and Commitments and Contingencies (continued) Legal Matters PHFE is subject to various litigation claims that arise in the ordinary course of business. It is the opinion of management, after consultation with its legal counsel, that the ultimate disposition of these matters will not have a material adverse effect on the Organization s statements of financial position and that no accrual for any matters are necessary at June 30, 2015 and Operating Lease Commitments Facilities Leases PHFE has an operating lease agreement, which expires in June 2019, to lease its headquarters at Crossroads Parkway South, Suite 200, City of Industry, California, at a current monthly base rent payment of $48,349. Facilities are also leased for various program operations. The Organization recorded rent expense on a straight-line basis, where lease commitments require escalating rent payments over the life of the lease. Total rent expense related to facility leases was $4,285,324 and $4,545,090 for the years ended June 30, 2015 and 2014, respectively, and is included in Occupancy in the accompanying statements of functional expenses. The approximate minimum future annual rental payments under all facility leases at June 30, 2015 are: Year End Amount 2016 $ 3,936, ,179, ,743, ,670, ,748 Thereafter 354,210 $ 12,372,

22 (A California Non-Profit Corporation) Notes to Financial Statements (continued) For the Years Ended June 30, 2015 and Operating Lease Commitments (continued) Equipment Leases, Licensing and Maintenance Commitments PHFE leases office equipment and has maintenance contracts under several operating leases with terms expiring at various dates through Total rent expense related to equipment leases, licensing and maintenance commitments was $661,700 and $352,839 for the years ended June 30, 2015 and The approximate minimum future annual commitments, under all operating equipment leases, licensing agreements and maintenance contracts, at June 30, 2015 are as follows: Year End Amount 2016 $ 653, , , , ,847 Thereafter 91,047 $ 1,440, Retirement Plan PHFE has provided a contributory, qualified, pre-tax retirement plan covering exempt employees and hourly employees with extended benefits, working at least 20 hours per week. Employer contributions to the plan varied from 5% to 7% of applicable compensation, depending upon employee classification. Employer contributions totaled $3,079,127 and $2,975,172, respectively, for the years ended June 30, 2015 and Concentration Risk The majority of PHFE s grants and contracts are received from federal and state agencies, corporations, foundations and individuals located in the greater Los Angeles metropolitan area. As such, PHFE s ability to generate resources via contracts and grants is dependent upon the economic health of that area and of the State of California. An economic downturn could cause a decrease in contributions and grants that coincides with an increase in demand for PHFE s services. At June 30, 2015, 83% of revenue and 67% of contracts receivable were related to Federal Government contracts, while at June 30, 2014, 81% of revenue and 79% of contracts receivable were related to Federal Government contracts. 1-20

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29 (A California Not-for-Profit Corporation) Schedule of Expenditures of Federal Awards Year Ended June 30, 2015 CFDA Number Agency Contract Agency or Pass-Through Number Pass-Through Entity Program Name Amount Expended USAID Foreign Assistance for Programs Overseas Agency for International Development 1101 Management Sciences for, Inc. AIDSTAR-Two/MSH/Honduras 0101 $ 2,111 USAID Foreign Assistance for Programs Overseas Total 2,111 AmeriCorps Corporation for National and Community Service FCIA702 Children & Families Commission of Orange County AmeriCorp ,657 AmeriCorps (ARRA) Total 41,657 Volunteers in Service to America Corporation for National and Community Service FCIV404 Children & Families Commission of Orange County VISTA ,421 Volunteers in Service to America Total 179,421 Special Supplemental Nutrition Program for Women, Infants, and Children Department of Agriculture / Food and Nutrition Service State of California/Department of Public Women Infant & Children ,186, Department of Agriculture / Food and Nutrition Service State of California/Department of Public Women Infant & Children ,645, Department of Agriculture / Food and Nutrition Service State of California/Department of Public Women Infant & Children , Department of Agriculture / Food and Nutrition Service State of California/Department of Public Breastfeeding Peer Counse ,246, Department of Agriculture / Food and Nutrition Service State of California/Department of Public Women Infant & Children , Department of Agriculture / Food and Nutrition Service State of California/Department of Public AAV Project , Department of Agriculture / Food and Nutrition Service State of California/Department of Public Women Infant & Children , Department of Agriculture / Food and Nutrition Service State of California/Department of Public Agency Inventory System , Department of Agriculture / Food and Nutrition Service State of California/Department of Public Women Infant & Children , Department of Agriculture / Food and Nutrition Service State of California/Department of Public Farmers Market , Department of Agriculture / Food and Nutrition Service State of California/Department of Public Women Infant & Children , Department of Agriculture / Food and Nutrition Service State of California/Department of Public PC Database , Department of Agriculture / Food and Nutrition Service State of California/Department of Public Women Infant & Children , Department of Agriculture / Food and Nutrition Service State of California/Department of Public Task Force Committee , Department of Agriculture / Food and Nutrition Service State of California/Department of Public Women Infant & Children , Department of Agriculture / Food and Nutrition Service State of California/Department of Public Breast Pump Maintenance Department of Agriculture / Food and Nutrition Service State of California/Department of Public Women Infant & Children , Department of Agriculture / Food and Nutrition Service State of California/Department of Public Dietetic Internship , Department of Agriculture / Food and Nutrition Service State of California/Department of Public Women Infant & Children Department of Agriculture / Food and Nutrition Service State of California/Department of Public Training Committee , Department of Agriculture / Food and Nutrition Service State of California/Department of Public Women Infant & Children , Department of Agriculture / Food and Nutrition Service State of California/Department of Public Local Vendor Liaison LVL , Department of Agriculture / Food and Nutrition Service State of California/Department of Public Education Committee Department of Agriculture / Food and Nutrition Service State of California/Department of Public Women Infant & Children , Department of Agriculture / Food and Nutrition Service State of California/Department of Public Anemia Screening Pilot , Department of Agriculture / Food and Nutrition Service State of California/Department of Public Women Infant & Children , Department of Agriculture / Food and Nutrition Service State of California/Department of Public RBL - Regional BFD Liais , Department of Agriculture / Food and Nutrition Service State of California/Department of Public Women Infant & Children , Department of Agriculture / Food and Nutrition Service 156 Various Government and Private Entities PCDB - Federal , Department of Agriculture / Food and Nutrition Service None State of California/Camino Center CHC Network Program , Department of Agriculture / Food and Nutrition Service None State of California/Camino Center CHC Network Program , Department of Agriculture / Food and Nutrition Service None State of California/Various Govermental Agencies OPI Project - Federal , Department of Agriculture / Food and Nutrition Service None Various Government WIC Raptor System ,980 Special Supplemental Nutrition Program for Women, Infants, and Children Total 48,010,725 See accompanying notes to schedule of expenditures of federal awards and report on compliance for each major program and on internal control over compliance required by OMB Circular A

30 (A California Not-for-Profit Corporation) Schedule of Expenditures of Federal Awards (continued) Year Ended June 30, 2015 CFDA Number Agency Contract Agency or Pass-Through Number Pass-Through Entity Program Name Amount Expended Child and Adult Care Food Program Department of Agriculture / Food and Nutrition Service 0016 State of California Angels Childcare Food Program ,320, Department of Agriculture / Food and Nutrition Service 0016 State of California Angels Childcare Food Program ,413,167 Child and Adult Care Food Program Total 4,733,476 State Administrative Matching Grants for the Supplemental Nutrition Assistance Program Department of Agriculture / Food and Nutrition Service PH001416W9 State of California/County of Los Angeles Network Local Dept ,362 State Administrative Matching Grants for the Supplemental Nutrition Assistance Program Total 376,362 Special Supplemental Nutrition Program for Women, Infants and Children; Nutrition Education Innovations Department of Agriculture / Food and Nutrition Service 1920GQA126 Regents of the University of California-Los Angeles Periconceptional Nutritio , Department of Agriculture / Food and Nutrition Service 1920 G RA149 Regents of the University of California-Los Angeles UCLA Child Obesity , Department of Agriculture / Food and Nutrition Service Regents of the University of California-Berkeley WIC-Online Education , Department of Agriculture / Food and Nutrition Service Regents of the University of California-Berkeley WIC-Online Education ,022 Special Supplemental Nutrition Program for Women, Infants and Children; Nutrition Education Innovations Total 102,875 Fund for the Improvement of Education Department of Education / Office of Innovation and Improvemen None Youth Policy Institute Belmont Full Service Community 1, Department of Education / Office of Innovation and Improvemen U215J Bert Corona Charter School San Fernando Full Service Community 2,568 Fund for the Improvement of Education Total 4,288 Special Education-Grants for Infants and Families Department of Education / Office of Special Education and Rehabilitative Services Department of Education / Office of Special Education and Rehabilitative Services Department of Education / Office of Special Education and Rehabilitative Services Department of Education / Office of Special Education and Rehabilitative Services Head Start Department of and Human Services / Administration for Children and Families Department of and Human Services / Administration for Children and Families Special Programs for the Aging_Title III, Part C_Nutrition Services Department of and Human Services / Administration for Community Living HD State of California/Department of Developmental Services Family Resource Center 0102 HD State of California/Department of Developmental Services Family Resource Center 0103 HD State of California/Department of Developmental Services Carolyn Kordich FRC 0103 HD State of California/Support for Families of Children with Disabilities Special Education-Grants for Infants and Families Total Carolyn Kordich FRC/PRRS P Rancho Santiago Community College Early Head Start P Rancho Santiago Community College Early Head Start 0103 Head Start Total County of Contra Costa Senior Nutrition Program 0103 Special Programs for the Aging_Title III, Part C_Nutrition Services Total (216) 99,439 33,301 17, ,425 6,820 8,666 15, , ,371 See accompanying notes to schedule of expenditures of federal awards and report on compliance for each major program and on internal control over compliance required by OMB Circular A

31 (A California Not-for-Profit Corporation) Schedule of Expenditures of Federal Awards (continued) Year Ended June 30, 2015 CFDA Number Agency Contract Agency or Pass-Through Number Pass-Through Entity Program Name Amount Expended Contract with no CFDA # Department of and Human Services / Agency for care Research and Quality Heath Research and Educational Trust CUSP to Reduce CAUTI Department of and Human Services / National Institutes of 0130 N/A OCTAVE/YECI Department of and Human Services / Centers for Disease N/A Genotyping TB Isolates Department of and Human Services / Centers for Disease 0129 N/A So.Africa Prevention Curr Department of and Human Services / Centers for Disease 0129 N/A SME Pretoria So. Africa Department of and Human Services / Centers for Disease 0129 N/A SME Dar es Salaam 0401 Contract with no CFDA # Total Laboratory Leadership, Workforce Training and Management Dev., Improving Public Lab. Infrastructure Department of and Human Services / Centers for Disease Association Of Public Laboratories Virus Isolation Services Department of and Human Services / Centers for Disease Association Of Public Laboratories Virus Isolation Services Department of and Human Services / Centers for Disease Association Of Public Laboratories CaliciNet OSC Activities Department of and Human Services / Centers for Disease Association Of Public Laboratories CaliciNet OSC Department of and Human Services / Centers for Disease Association Of Public Laboratories Neuraminidase Inh. Serv Department of and Human Services / Centers for Disease Association Of Public Laboratories Influenza Neuraminidase Department of and Human Services / Centers for Disease Association Of Public Laboratories Influenza Neuraminidase Department of and Human Services / Centers for Disease Association Of Public Laboratories 2013 Influenza rrt-pcr Department of and Human Services / Centers for Disease Association Of Public Laboratories 2013 Influenza rrt-pcr Department of and Human Services / Centers for Disease Association Of Public Laboratories 2014 Influenza rrt-pcr Department of and Human Services / Centers for Disease Association Of Public Laboratories PHL RT PCR Pooling Proto Department of and Human Services / Centers for Disease Association Of Public Laboratories VPDR Lab Department of and Human Services / Centers for Disease Association Of Public Laboratories VPDR Lab Department of and Human Services / Centers for Disease Association Of Public Laboratories VPDR Lab Department of and Human Services / Centers for Disease Association Of Public Laboratories Influenza Virologic Surv Department of and Human Services / Centers for Disease Association Of Public Laboratories CaliciNet Unexplained Vir ,679 48,702 25,046 23,208 10, ,290 34,413 92,226 2, ,045 56,100 6,250 1, ,843 1,670 7,113 58,491 21,269 9,994 5,173 See accompanying notes to schedule of expenditures of federal awards and report on compliance for each major program and on internal control over compliance required by OMB Circular A

32 (A California Not-for-Profit Corporation) Schedule of Expenditures of Federal Awards (continued) Year Ended June 30, 2015 CFDA Number Agency Contract Agency or Pass-Through Number Pass-Through Entity Program Name Amount Expended Laboratory Leadership, Workforce Training and Management Dev., Improving Public Lab. Infrastructure (continued) Department of and Human Services / Centers for Disease Association Of Public Laboratories Eval of Line Drug Test TB , Department of and Human Services / Centers for Disease Association Of Public Laboratories Assessing Diag Practices 4, Department of and Human Services / Centers for Disease Association Of Public Laboratories Mycobacterium Tuberculosis Complex Drug Susceptibiity Testing 0101 Laboratory Leadership, Workforce Training and Management Development, Improving Public Laboratory 60,541 Infrastructure Total 392,362 Global AIDS Department of and Human Services / Centers for Disease Public Emergency Preparedness Department of and Human Services / Centers for Disease Department of and Human Services / Centers for Disease Department of and Human Services / Centers for Disease Environmental Public and Emergency Response Department of and Human Services / Centers for Disease Department of and Human Services / Centers for Disease Department of and Human Services / Centers for Disease Department of and Human Services / Centers for Disease Department of and Human Services / Centers for Disease Department of and Human Services / Centers for Disease RTI International Research Assistant 0102 Global AIDS Total County of Contra Costa Contra Costa Co Hlth Svc 0103 PH001416W4 County of Los Angeles Project I - PHEP Base County of Contra Costa Contra Costa Behavioral 0101 Public Emergency Preparedness Total 5U01EH N/A EHS Network - Food U01EH N/A EHS Network - Food U01EH N/A EHS Network - Food U01EH N/A CA Environmental Hlth Wtr U01EH N/A EHS Network - Food U01EH N/A EHS Network - Food 0402 Environmental Public and Emergency Response Total Hospital Preparedness Program and Public Emergency Preparedness Aligned Cooperative Agreements Department of and Human Services / Centers for Disease 6976 San Francisco Department of Public Support to Public Emergency Preparedness Department of and Human Services / Centers for Disease 6976 San Francisco Department of Public Support to Public Emergency Preparedness , Department of and Human Services / Centers for Disease 6976 San Francisco Department of Public Support to Public Emergency Preparedness , Department of and Human Services / Centers for Disease 6976 San Francisco Department of Public Support to Hospital Preparedness , Department of and Human Services / Centers for Disease 6976 San Francisco Department of Public Support to Public Emergency Preparedness ,372 17,541 17,541 39,999 (5095) 261, ,606 1, ,522 (2317) 181, , ,634 See accompanying notes to schedule of expenditures of federal awards and report on compliance for each major program and on internal control over compliance required by OMB Circular A

33 (A California Not-for-Profit Corporation) Schedule of Expenditures of Federal Awards (continued) Year Ended June 30, 2015 CFDA Number Agency Contract Agency or Pass-Through Number Pass-Through Entity Program Name Amount Expended Hospital Preparedness Program and Public Emergency Preparedness Aligned Cooperative Agreements (continued) Department of and Human Services / Centers for Disease 6976 San Francisco Department of Public Support to Cities Readine Department of and Human Services / Centers for Disease PH W13 County of Los Angeles ACDC Program Department of and Human Services / Centers for Disease PH W21 County of Los Angeles Ebola Surveillance Project CI 0101 Hospital Preparedness Program (HPP) and Public Emergency Preparedness (PHEP) Aligned Cooperative Agreements Total 128,952 91,435 1, ,503 Adult Viral Hepatitis Prevention and Control Department of and Human Services / Centers for Disease Department of and Human Services / Centers for Disease 7307 San Francisco Department of Public Active Enhanced Surv San Francisco Department of Public Active Enhanced Surv Adult Viral Hepatitis Prevention and Control Total Centers for Disease _Investigations and Technical Assistance Department of and Human Services / Centers for Disease 5U50CK N/A CEIP-ABC Department of and Human Services / Centers for Disease 5U50CK N/A CEIP-ABC Department of and Human Services / Centers for Disease 5U50CK N/A FoodNet Department of and Human Services / Centers for Disease 5U50CK N/A FoodNet Department of and Human Services / Centers for Disease 5U50CK N/A CJD Department of and Human Services / Centers for Disease 5U50CK N/A CJD Department of and Human Services / Centers for Disease 5U50CK N/A Influenza Department of and Human Services / Centers for Disease 5U50CK N/A Influenza Department of and Human Services / Centers for Disease 5U50CK N/A Pertussis Department of and Human Services / Centers for Disease 5U50CK N/A Pertussis Department of and Human Services / Centers for Disease 5U50CK N/A MRSA-HACO Department of and Human Services / Centers for Disease 5U50CK N/A MRSA-HACO Department of and Human Services / Centers for Disease 5U50CK N/A Administration Department of and Human Services / Centers for Disease 5U50CK N/A Administration Department of and Human Services / Centers for Disease 5U50CK N/A Clostridium Difficile , , ,435 69, ,930 49, ,562 11,118 26, , ,996 82, ,840 26,816 31, , ,297 36,065 See accompanying notes to schedule of expenditures of federal awards and report on compliance for each major program and on internal control over compliance required by OMB Circular A