PH FY2014 Audit

PROVIDENCE HOUSE, INC. and AFFILIATES

Consolidated Financial Statements

With Independent Auditors’ Report

June 30, 2014 and 2013

Providence House, Inc.

Table of Contents

Page

Independent Auditors' Report 1

Consolidated Financial Statements Consolidated Statements of Financial Position 2 Consolidated Statements of Activities 3 Consolidated Statements of Cash Flows 4 Consolidated Statements of Functional Expenses 5

Notes to Consolidated Financial Statements 6

Supplementary Data Independent Auditors' Report on Supplementary Data 24 Temporary Shelter and Feeding Programs Schedule of Activities 25 Providence House IV Compared to Approved County Funding 27

INDEPENDENT AUDITORS' REPORT

The Board of DirectorsProvidence House, Inc. and AffiliatesBrooklyn, New York

New York, New YorkDecember 16, 2014

We have audited the accompanying consolidated financial statements of Providence House, Inc. and Affiliates, whichcomprise the consolidated statements of financial position as of June 30, 2014 and June 30, 2013, and the relatedconsolidated statements of activities, cash flows and functional expenses for the years then ended, and the related notes tothe consolidated financial statements.

Management's Responsibility for the Consolidated Financial StatementsManagement is responsible for the preparation and fair presentation of these consolidated financial statements inaccordance 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 consolidatedfinancial statements that are free from material misstatement, whether due to fraud or error.

Auditors' ResponsibilityOur responsibility is to express an opinion on these consolidated financial statements based on our audits. We conductedour audits in accordance with auditing standards generally accepted in the United States of America. Those standardsrequire that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financialstatements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidatedfinancial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks ofmaterial misstatement of the consolidated financial statements, whether due to fraud or error. In making those riskassessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of theconsolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not forthe purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no suchopinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness ofsignificant accounting estimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the consolidated financial statements referred to above present fairly, in all material respects, theconsolidated financial position of Providence House, Inc. and Affiliates as of June 30, 2014 and 2013, and the changes inits consolidated net assets and cash flows for the years then ended in accordance with accounting principles generallyaccepted in the United States of America.

Providence House, Inc. and Affiliates

Consolidated Statements of Financial Position

June 30,2014 2013

ASSETS:Cash and cash equivalents 2,165,657$ 511,811$ Contributions and grants receivable - 241,624 Program revenue receivable 420,707 186,477 Prepaid expenses 1,584 7,056 Property held for sale - 1,819,030 Investments 1,601,910 559,622 Developer fees receivable 583,450 820,684 Reserve account 115,000 - Interest receivable from affiliates 66,939 - Notes receivable from affiliates 1,459,768 1,459,768 Property and equipment–net 2,346,030 2,413,465

Total Assets 8,761,045$ 8,019,537$

LIABILITIES AND NET ASSETS:Liabilities:

Accounts payable and accrued expenses 188,623$ 68,067$ Accrued payroll and related expenses 140,790 102,886 Mortgage payable 417,725 516,310 Deferred developer fees 203,670 407,341

Total liabilities 950,808 1,094,604

Net assets:Unrestricted:

Undesignated 5,084,842 4,386,024 Net investment in property and equipment 1,928,305 1,897,155

7,013,147 6,283,179 Temporarily restricted 797,090 641,754

Total net assets 7,810,237 6,924,933

Total Liabilities and Net Assets 8,761,045$ 8,019,537$

See notes to consolidated financial statements-2-


Consolidated Statements of Activities

Year Ended June 30,2014 2013

Temporarily TemporarilyUnrestricted Restricted Total Unrestricted Restricted Total

SUPPORT, REVENUE AND RELEASES:Donations and grants 638,752$ 564,500$ 1,203,252$ 513,268$ 250,020$ 763,288$ Religious donations and donated services 421,600 - 421,600 407,920 - 407,920 Contract revenue 2,251,003 - 2,251,003 1,808,894 - 1,808,894 CACFP and FEFP food grant 42,614 - 42,614 60,277 - 60,277 NYC Housing HRA payments 26,735 - 26,735 38,353 - 38,353 Rental income 73,949 - 73,949 56,821 - 56,821 Investment income 104,792 - 104,792 47,583 - 47,583 Developer fees 203,671 - 203,671 1,128,385 - 1,128,385 Interest income on notes receivable 66,939 - 66,939 - - - Donated services value 10,960 - 10,960 23,300 - 23,300 Fundraising event, net of direct benefit costs 456,443 - 456,443 226,559 241,624 468,183 Gain on sale of property 137,203 - 137,203 - - - Miscellaneous income 34,856 - 34,856 90,432 - 90,432 Satisfaction of purpose restrictions 409,164 (409,164) - 275,524 (275,524) -

Total Support, Revenue and Releases 4,878,681 155,336 5,034,017 4,677,316 216,120 4,893,436

EXPENSES:Temporary shelter program 2,195,534 - 2,195,534 2,410,569 - 2,410,569 Permanent housing program 55,573 - 55,573 59,976 - 59,976 DHS Consolidation 468,237 - 468,237 - - - Samaritan House - - - 69,639 - 69,639 Kosciusko Street project 476,217 - 476,217 277,121 - 277,121 Lincoln Road project 58,266 - 58,266 - - - Central - program support 894,886 - 894,886 759,837 - 759,837

Total Expenses 4,148,713 - 4,148,713 3,577,142 - 3,577,142

Change in Net Assets 729,968 155,336 885,304 1,100,174 216,120 1,316,294

Net Assets, Beginning of Year 6,283,179 641,754 6,924,933 5,183,005 425,634 5,608,639

Net Assets, End of Year 7,013,147$ 797,090$ 7,810,237$ 6,283,179$ 641,754$ 6,924,933$

See notes to consolidated inancial statements-3-


Consolidated Statements of Cash Flows


CASH FLOWS FROM OPERATING ACTIVITIES:Change in net assets 885,304$ 1,316,294$ Adjustments to reconcile change in net assets to net cash provided (used) by operating activities:

Depreciation expense 136,061 162,599 Net gain on sale of property (137,203) - Realized and unrealized gain (loss) on investments (140,280) 5,268 Changes in:

Contributions and grants receivable 241,624 (84,624) Program revenue receivable (234,230) (113,336) Prepaid expenses 5,472 9,230 Developer fees receivable 237,234 (16,642) Reserve account (115,000) - Interest receivable from affiliates (66,939) - Accounts payable and accrued expenses 120,589 4,659 Accrued payroll and related expenses 37,904 22,522 Due to affiliate - (11,646) Deferred developer fees (203,671) (1,007,427)

Net Cash Provided by Operating Activities 766,865 286,897

CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment (68,626) (109,275) Purchases of investments (1,536,077) (16,117) Proceeds from sale of property and equipment 1,956,233 - Proceeds from sale of investments 634,036 100,000

Net Cash Provided (Used) by Investing Activities 985,566 (25,392)

CASH FLOWS FROM FINANCING ACTIVITIES:Repayment of principal (98,585) (91,130)

Net Cash Used by Financing Activities (98,585) (91,130)

Change in Cash and Cash Equivalents 1,653,846 170,375

Cash and Cash Equivalents, Beginning of Year 511,811 341,436

Cash and Cash Equivalents, End of Year 2,165,657$ 511,811$

SUPPLEMENTAL INFORMATION:Cash paid for interest 37,527$ 47,724$

NON-CASH INVESTING AND FINANCING ACTIVITIES:Transfer of property and equipment to assets held for sale -$ 1,819,030$



Consolidated Statements of Functional Expenses


Development DevelopmentManagement and Public Management and Public

Program and General Relations Totals Program and General Relations TotalsSalaries and wages 1,607,207$ 224,053$ 160,761$ 1,992,021$ 1,291,431$ 199,626$ 109,318$ 1,600,375$ Payroll taxes 152,064 10,346 13,891 176,301 116,118 13,135 7,607 136,860 Employee benefits 320,298 21,088 26,293 367,679 242,729 20,436 14,885 278,050 Rent 154,500 - - 154,500 133,183 - - 133,183 Utilities 200,252 3,345 1,773 205,370 205,954 4,614 1,534 212,102 Telephone 33,435 920 1,104 35,459 36,936 3,699 1,229 41,864 Professional fees 16,613 23,157 44,400 84,170 18,291 74,709 40,700 133,700 Food 68,667 - 2,257 70,924 49,926 2,612 - 52,538 Scholarships 6,500 - - 6,500 8,000 - - 8,000 Client assistance and gifts 14,280 - - 14,280 9,300 - - 9,300 Other program expenses 113,137 1,905 - 115,042 37,993 1,774 - 39,767 Travel 17,742 6,145 64 23,951 12,760 3,678 - 16,438 Seminars and training 2,538 3,502 - 6,040 1,485 2,630 - 4,115 Dues and subscriptions 2,411 3,092 - 5,503 906 4,877 - 5,783 Insurance 62,709 2,258 1,197 66,164 107,050 1,886 627 109,563 Equipment repairs, rental

and maintenance 108,234 - - 108,234 71,451 7,454 - 78,905 Office expenses 21,769 2,283 808 24,860 60,319 3,192 1,062 64,573 Supplies 95,878 3,549 1,881 101,308 65,867 3,007 1,000 69,874 Printing 2,210 286 7,516 10,012 5,810 1,037 344 7,191 Postage and delivery 5,090 753 1,397 7,240 3,785 762 252 4,799 Interest expense 37,214 313 - 37,527 45,283 1,851 - 47,134 Depreciation 128,637 4,852 2,571 136,060 155,100 5,734 1,907 162,741 Other fundraising expenses - - 35,483 35,483 - - 21,961 21,961 Advertising 1,080 43,145 - 44,225 700 2,720 - 3,420 Miscellaneous 3,606 5,521 733 9,860 20,884 14,022 - 34,906 Donated services value 248,000 62,000 - 310,000 300,000 - - 300,000

Total expenses 3,424,071$ 422,513$ 302,129$ 4,148,713$ 3,001,261$ 373,455$ 202,426$ 3,577,142$


1. NATURE OF ORGANIZATION:


Notes to Consolidated Financial Statements

June 30, 2014 and 2013

Providence House, Inc. (“Providence”) is a not-for-profit organization as described in Section 501(c)(3) of theInternal Revenue Code and is exempt from federal and state income taxes. Providence is principally engaged inthe housing and feeding of homeless women and their children, and women leaving prison. These services areprovided in the City of New York and Westchester County, New York. Providence’s primary sources ofrevenue are grants and contributions.

Providence Kosciuszko Housing Development Fund Corporation (“PKHDFC”), a non-profit organization, wasincorporated on August 21, 2009, pursuant to Article XI of the New York Private Housing Finance Law andSection 402 of the Not-For-Profit Corporation Law. PKHDFC’s mission is to develop and operate the K StreetProject. Providence is the sole member of PKHDFC. The board of PKHDFC consists of members that are eitherboard members of Providence or members that are approved by the Providence board.

On April 15, 2010, Providence and Alembic Development Company, LLC (“ADC”) formed a joint venture toconstruct, develop and operate the K Street Project.

273-277 Kosciuszko, G.P., LLC (“273 GP LLC”) was established on November 22, 2010, as a limited liabilitycompany. 273 GP LLC consists of two members, PK LLC and ADC, with PK LLC owning the majority interest(51%). 273 GP LLC’s sole purpose is to allow PKHDFC, through PK LLC, to partner with ADC in theconstruction, development and operation of the K Street Project. On February 21, 2014, 273 GP LLC agreementwas modified with PK LLC having a 75% interest and an unrelated non-profit partner having a 25% interest.

Providence Kosciuszko LLC (“PK LLC”) was incorporated on May 17, 2011, as a limited liability company forthe purpose of acquiring a membership interest and a partnership interest, respectively, in 273 GP LLC and the273 Limited Partnership. PKHDFC is the sole member of PK LLC.

Providence I Housing Development Fund Corporation (“PIHDFC”), a non-profit organization, was incorporatedon June 2, 2008, pursuant to Article XI of the New York Private Housing Finance Law and Section 402 of theNot-For-Profit Corporation Law. PIHDFC’s mission is to develop and operate the Lincoln Road Project.Providence is the sole member of PIHDFC. The board of PIHDFC consists of members that are either boardmembers of Providence or members that are approved by the Providence board.

On January 30, 2012, Providence and ADC formed another joint venture to construct, develop and operate theLincoln Road Project.

329 Lincoln Road, G.P., LLC (“329 GP LLC”) was established on January 30, 2010, as a limited liabilitycompany. 329 GP LLC consists of two members, PI LLC and ADC, with PI LLC owning the majority interest(51%). 329 GP LLC’s sole purpose is to allow PIHDFC, through PI LLC, to partner with ADC in theconstruction, development and operation of the Lincoln Road Project.

Providence I LLC (“PI LLC”) was incorporated as a limited liability company for the purpose of acquiring amembership interest and a partnership interest, respectively, in 329 GP LLC and the 329 Limited Partnership.PIHDFC is the sole member of PI LLC.

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June 30, 2014 and 2013

2. SIGNIFICANT ACCOUNTING POLICIES:

PRINCIPLES OF CONSOLIDATION

CASH AND CASH EQUIVALENTS

CONTRIBUTIONS AND GRANTS RECEIVABLE

INVESTMENTS

PARTNERSHIP INTERESTS

The consolidated financial statements include the financial resources and activities of Providence, PKHDFC,273 GP LLC, PK LLC, PIHDFC, 329 GP LLC and PI LLC. All material transactions and balances between theorganizations have been eliminated in the consolidated financial statements. Providence House, Inc. andAffiliiates shall be referred to as "Providence" throughout these notes to the consolidated financial statements.

Cash and cash equivalents include all unrestricted cash on hand and in banks. Providence also considers allhighly liquid unrestricted investments with a maturity of three months or less when purchased to be cashequivalents. Providence’s cash accounts are located in one institution. From time to time, these balances mayexceed federal deposit insurance limits; however, Providence has not experienced any losses on these accountsand does not believe it is exposed to any significant risk.

Investments are reported at fair value based on quoted market prices. Investment income, including realized andunrealized gains and losses are reflected included in the consolidated statements of activities. Donatedinvestments are reflected as contributions at fair market value at date of receipt.

Unconditional promises to give are recognized as income when made and recorded at fair value based uponestimated future cash flows. Unconditional promises to give that are expected to be collected within one yearare recorded at net realizable value. Unconditional promises to give that are expected to be collected in futureyears are recorded at the present value of their estimated future cash flows.

Providence, indirectly through related entities described in Note 15, is a general partner in two permanentsupportive housing project partnerships, 273-277 Kosciusko, L.P. and 329 Lincoln Road, L.P. The limitedpartners have substantive participating rights; therefore, Providence does not consolidate these partnerships intoits consolidated financial statements but accounts for the partnerships using the equity method. Due toimmateriality, no amount has been included in these consolidated financial statements. These housing projectsare referred to throughout the consolidated financial statements as the K Street Project and the Lincoln RoadProject; see Notes 6, 7, 14 and 17 for further information.

The consolidated financial statements have been prepared on the accrual basis of accounting in conformity withaccounting principles generally accepted in the United States of America. The preparation of consolidatedfinancial statements in conformity with generally accepted accounting principles requires management to makeestimates and assumptions that affect the reported amounts and disclosures. Accordingly, actual results coulddiffer from those estimates. The significant accounting policies followed are described below to enhance theusefulness of the consolidated financial statements to the reader.

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June 30, 2014 and 2013

2. SIGNIFICANT ACCOUNTING POLICIES, continued:

PROPERTY HELD FOR SALE

PROPERTY, EQUIPMENT AND DEPRECIATION

Buildings and improvements 15 - 40 yearsLeasehold improvements Remaining life of the leaseFurniture, fixtures and equipment 5 - 10 years

DEFERRED DEVELOPMENT FEES

NET ASSETS

•

• Temporarily restricted net assets carry specific, donor-imposed restrictions on the expenditure or other useof contributed funds. Temporary restrictions may expire either because certain actions are taken byProvidence which fulfill the restrictions or because of the passage of time. Expirations of temporaryrestrictions on net assets are reported as reclassifications between the applicable classes of net assets.

Property held for sale is recorded at the lower of cost or estimated net realizable value, or if donated, at theestimated fair value at the date of the gift. All property for sale is actively marketed and is expected to be soldwithin one year. Subsequent gains from disposition of property held for sale are recorded as gain on sale ofproperty in the period realized. Subsequent losses are recorded in the period when it is probable and able to beestimated.

Deferred developer fees are recorded for certain unearned developer fees promised under secured notesreceivable, as specified in Note 6 herein. Since the developer fees relate to the completion of each project, therevenue is recognized on a percentage of completion method.

Property and equipment are stated at cost, or, if donated, at the estimated fair market value at the date ofdonation. Depreciation is recorded using the straight-line method at various rates calculated to allocate the costof the respective items over their estimated useful lives.

Estimated useful lives are:

Unrestricted net assets are those currently available for ministry purposes under the direction of the Board,those designated for specific use and those resources invested in property and equipment.

The consolidated financial statements report amounts separately by classes of net assets:

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June 30, 2014 and 2013


CONTRIBUTIONS

GRANTS

FUNDRAISING EVENT

2014 2013Contributions 420,493$ 425,783$ Other revenue 35,950 42,400

456,443$ 468,183$

DEVELOPER FEES

DONATED SERVICES

Providence hosts an annual fundraising event which is shown on the consolidated statements of activities net ofdirect benefit costs. Fundraising income consists of contributions from attendees and other revenue from theevent. The fundraising event income consists of the following:

Developer fees are earned for developer services provided in connection with the K Street Project and theLincoln Road Project, and are earned on a percentage of completion basis, as more specifically outlined in Note6.

Donated services are recognized as contributions if the services (a) create or enhance nonfinancial assets or (b)require specialized skills, are performed by individuals with those skills, and would otherwise be purchased byProvidence. These services are valued based on the estimated cost of services that would otherwise have had tobe purchased.

Grants are recorded as revenues to the extent that expenses have been incurred for the purposes specified by thegrantors.

Providence receives substantial support from the New York City Department of Homeless Services and the NewYork City Human Resources Administration. Providence is obligated under the terms of the contracts to complywith specified conditions and program requirements set forth by the grantor.

Contributions are recognized when a commitment is made, which may be when cash is received, anunconditional promise to give is made or when ownership of donated assets is transferred. Contributions areconsidered available for unrestricted use unless specifically restricted by the donor.

Contributions of property, buildings and equipment without donor stipulation concerning the use of such long-lived assets are reported as revenues of the unrestricted net assets. Contributions of cash or other assets to beused to acquire property, plant and equipment are reported as revenue of the temporarily restricted net assets;the restrictions are considered to be released at the time of acquisition of such long-lived assets.

Year Ended June 30,

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June 30, 2014 and 2013


ALLOCATION OF EXPENSES

2014 2013Program services 3,424,071$ 3,001,261$ Supporting services:

Management and general 422,513 373,455 Development and public relations 302,129 202,426

4,148,713$ 3,577,142$

UNCERTAIN TAX POSITIONSProvidence’s current accounting policy is to disclose liabilities for uncertain tax positions when a liability isprobable and estimable. Management is not aware of any violation of its tax status as an organization exemptfrom income taxes, nor is it aware of any exposure to unrelated business income tax.

Providence files information tax returns in the U.S. and New York. Providence is generally no longer subject toU.S. federal and state income tax examinations by tax authorities for years before 2009.

The costs of providing the various program services and supporting activities have been summarized below on afunctional basis. Certain costs have been allocated among program services and supporting activities as follows:

Year Ended June 30,

RECLASSIFICATIONSCertain amounts have been reclassified from the prior year to conform to current year presentation.

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June 30, 2014 and 2013

3. CASH AND CASH EQUIVALENTS:Cash and cash equivalents consist of:

2014 2013Investment money markets 1,053,547$ 35,488$ Central account savings 533,933 263,138 Central account checking 310,348 174,426 Kosciuszko Street checking 210,077 20,415 Payroll checking 34,219 4,173 Lincoln Road checking 12,318 5,084 PH III checking 6,146 6,029 Various petty cash accounts 5,069 3,058

2,165,657$ 511,811$

4. PROGRAM REVENUE RECEIVABLE:Program revenue receivable consists of the following agency grants receivable:

2014 2013PH I – DHS 14,427$ 2,766$ PH II – DHS 5,379 12,475 PH III – DHS - 8,122 PH IV – WDSS 92,680 71,458 PH VII – DHS 25,286 34,928 Kosciuszko Street – DHS - 29,750 Department of Health and Mental Hygiene 120,892 22,329 Other 162,043 4,649

420,707$ 186,477$

June 30,

June 30,

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June 30, 2014 and 2013

5. INVESTMENTS:Investments at fair value consist of the following:

2014 2013Mutual funds 889,001$ 534,449$ Common stock 712,909 - Certificate of deposit - 25,173

1,601,910$ 559,622$

Investment income is composed of the following:

Interest and dividends 13,670$ 17,363$ Realized and unrealized gain on investments 91,122 30,220

104,792$ 47,583$

6. DEVELOPER FEES RECEIVABLE AND RESERVE ACCOUNT:

Completion of plans and specifications 10%Obtaining all building permits 20%Achieving 25% completion 20%Achieving 50% completion 10%Achieving 75% completion 20%Achieving 100% completion and issuance

of final certificate of occupancy 20%

100%

June 30,

Providence, together with a third-party development company, Alembic Development Company, LLC (“ADC”),provides developer services in connection with the K Street and Lincoln Road projects. Pursuant todevelopment agreements signed in connection with both of the aforementioned housing projects, Providence isentitled to earn developer fees from 273-277 Kosciusko, L.P. and 329 Lincoln Road, L.P., respectively, whenvarious project milestones and conditions are met as follows:

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June 30, 2014 and 2013

6. DEVELOPER FEES RECEIVABLE AND RESERVE ACCOUNT, continued:Developer fees receivable consist of the following amounts:

2014 2013

460,000$ 690,000$

123,450 130,684

583,450$ 820,684$

The K Street Project development services agreement entitlesProvidence to earn $1,421,415 of a $1,651,415 total developmentfee over the life of the K Street Project. On the first $460,000 of thetotal developer fee received, Providence and ADC will be paid in a50/50 split. At June 30, 2014 and 2013, 100% of the total developerfees were earned based upon completion status of the K StreetProject. $616,415 of the development fees owed to Providence aresecured by a note receivable and are included in notes receivablefrom affiliates.

The Lincoln Road Project development services agreement entitlesProvidence to earn $941,353 of a $1,018,353 total development feeover the life of the Lincoln Road Project. On the first $220,000 ofthe total developer fee received, Providence and ADC will be paidin a 65/35 split, respectively. At June 30, 2014 and 2013, 80% and60%, respectively, of the total developer fees were earned basedupon completion status of the Lincoln Road Project. $798,353 ofthe development fees owed to Providence are secured by a notereceivable and are included in notes receivable from affiliates.

Actual payments of outstanding developer fees are expected to be received over several years as funds becomeavailable from capital contributions, loan proceeds or net cash flow of the projects.

In addition, Providence had a reserve account established from 273 Limited Partnership of $115,000 earneddeveloper fees placed in operating and social reserve accounts held by 273 Limited Partnership, as of June 30,2014.

June 30,

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June 30, 2014 and 2013

7. NOTES RECEIVABLE FROM AFFILIATES:

2014 2013

616,415$ 616,415$

523,353 523,353

June 30,

A $616,415 secured note receivable, from 273-277 Kosciusko, L.P.,with interest at a fixed rate of 7.5% per annum, compoundedannually. This note receivable represents deferred development feesin connection with the construction of the K Street Project. Thenote receivable is secured by a subordinate mortgage on the KStreet Project property and has a maturity date of January 30, 2026.Interest earned on the note was $66,939 during the year ended June30, 2014, and is included in interest receivable from affiliates.

Providence is the holder of multiple notes receivable from affiliated organizations. Payments on all notes areexpected to be received as funds become available from net cash flow earned from operation of the respectivehousing projects. Any and all payments received require deposit into reserve accounts held for the benefit ofeach project. Receipt of principal payments on all notes receivable is expected to begin in 2024 and thereafter.Notes receivable consist of the following:

$523,353 secured note receivable, from 329 Lincoln Road, L.P.,with interest at a fixed rate of 8.92% per annum, compoundedannually. This note receivable represents deferred development feesdue in connection with the construction of the Lincoln RoadProject. The note receivable is secured by a subordinate mortgageon the Lincoln Road Project property and has a maturity date not toexceed the 13th anniversary of the date the Lincoln Road Project isplaced in service. The portion of deferred development feesrepresented by this note is expected to be earned by June 30, 2015,upon substantial completion of the Lincoln Road Project.

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June 30, 2014 and 2013

7. NOTES RECEIVABLE FROM AFFILIATES, continued:

2014 2013

275,000 275,000

45,000 45,000

1,459,768$ 1,459,768$

8. PROPERTY AND EQUIPMENT:Property and equipment consists of the following:

2014 2013Land 344,865$ 344,865$ Buildings and improvements 3,516,867 3,463,241 Leasehold improvements 223,337 223,336 Furniture, fixtures and equipment 119,407 206,584

4,204,476 4,238,026 Less accumulated depreciation (1,858,446) (1,824,561)

2,346,030$ 2,413,465$

$275,000 secured note receivable, from 329 Lincoln Road, L.P.,with interest at a fixed rate of 8.92% per annum, compoundedannually. This note receivable represents permanent mortgagefinancing for the Lincoln Road Project paid from deferreddevelopment fees expected to be earned by Providence inconnection with the construction of the Lincoln Road Project.These funds are intended to fund certain required reserve accounts.The note receivable is secured by a subordinate mortgage on theLincoln Road Project property. The principal and all accrued,unpaid interest is due and payable in full on June 29, 2074.

June 30,

June 30,

$45,000 secured note receivable, with interest at a fixed rate of8.92% per annum, compounded annually. This note receivablerepresents permanent mortgage financing for the Lincoln RoadProject paid from New York State Energy Research andDevelopment Authority grant proceeds given to Providence inconnection with the construction of the Lincoln Road Project. Thenote receivable is secured by a subordinate mortgage on the LincolnRoad Project property. The principal and all accrued, unpaidinterest is due and payable in full on June 29, 2074.

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June 30, 2014 and 2013

9. MORTGAGE PAYABLE:

Estimated principal payments for the next five years ended June 30 and thereafter are as follows:

2015 107,930$ 2016 116,633 2017 126,037 2018 67,125

417,725$

10.TEMPORARILY RESTRICTED NET ASSETS:Temporarily restricted net assets are available for the following purposes:

2014 2013Annual scholarships 17,000$ 13,000$ NYS Homeless Housing (Restricted use building) 154,813 172,943 Operations 480,922 101,615 Fundraising event contributions receivable - 241,624 K Street housing support 38,671 20,000 Renovations, repairs and equipment 105,684 92,572

797,090$ 641,754$

11.CONTRIBUTED SERVICES:During the years ended June 30, 2014 and 2013, Providence received donated services valued at $10,960 and$23,300, respectively. These services were recorded as a contribution and expensed to professional fees in theaccompanying consolidated financial statements.

During the years ended June 30, 2014 and 2013, Providence received various volunteer program servicestotaling $310,000 during each year. Providence has implemented a method of determining the value of theseservices donated by accumulating the number of hours worked at an assumed rate of $14.50 per hour. Theseservices were recorded as a contribution and expensed to donated services in the accompanying consolidatedfinancial statements.

June 30,

Mortgage payable consists of a mortgage secured by property, payable to a bank, with an interest rate of 7.78%.The loan is payable in monthly installments of principal and interest of $11,316. The loan is due and payable infull in October 2017. The balance of the loan as of June 30, 2014 and 2013, respectively, was $417,725 and$516,310.

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June 30, 2014 and 2013

12.RETIREMENT PLAN:

13.OPERATING LEASES:

Location Lease Period Monthly Rent

PH I Through August 31, 2018 $ 2,750 PH III Through August 31, 2018 $ 4,083 PH V Through August 31, 2018 $ 4,167 PH VI Through August 31, 2018 $ 2,392

The future estimated minimum lease payments for each of the succeeding fiscal years are as follows:

2015 160,450$ 2016 161,950 2017 163,450 2018 164,950 2019 27,533

678,333$

Providence rents properties from several churches in the Diocese of Brooklyn and Queens as follows:

Providence is a participant in the noncontributory lay pension plan established by the Diocese of Brooklyn, NewYork, covering employees who meet certain minimum service requirements. Pension expense charged toProvidence was approximately $77,150 and $69,830, respectively, in the years ended June 30, 2014 and 2013.

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June 30, 2014 and 2013

14.RELATED PARTIES:In order to further its commitment to provide shelter and support to homeless, abused and formerly incarceratedwomen and their children in a hospitable, non-violent, compassionate atmosphere, Providence desired todevelop two new permanent supportive housing buildings. These housing projects would be used to address thescarcity of permanent supportive housing for low-income and special needs individuals and families. In order tohave these projects become a reality, Providence had to partner with the city, investors and developers.

K Street Project:The first permanent supportive housing project partnership that Providence entered into was to develop a 46-unit low-income residential rental apartment project at 273-277 Kosciuszko Street in Brooklyn, New York. Theunits are to be used and occupied in such a manner so as to fully utilize low-income housing tax credits inaccordance with Section 42 of the Internal Revenue Code.

273-277 Kosciuszko, L.P. (“273 Limited Partnership”) was established on November 22, 2010, as a limitedliability partnership, with 273 GP LLC as general partner and PKHDFC as limited partner. 273 LimitedPartnership was organized under the laws of the State of New York and was established to acquire, develop,finance and construct the K Street Project.

On June 13, 2011, the 273 Limited Partnership agreement was amended and restated to reflect, among otherchanges, the admittance of PK LLC as general partner, removal of PKHDFC as limited partner, admittance ofU.S.A. Institutional Tax Credit Fund LXXXIII, L.P. as the investing partner, and admittance of The RichmanGroup Capital Corporation as the special limited partner. The terms of the First Amended and RestatedPartnership Agreement provide that profits and losses be shared 99.99% by the investing partner and .01% bythe general partners (273 GP LLC and PK LLC), with no allocation to the special limited partner. Providence isthe holder of a note receivable from 273 Limited Partnership as outlined in Note 7.

In June 2011, PKHDFC and other related affiliated entities entered into multiple borrowing arrangements withdifferent lenders for the purpose of obtaining financing for the construction and completion of the K StreetProject. See Note 17 for loans that are guaranteed by Providence.

In June 2011, title to the K Street Project site was conveyed to PKHDFC by the City of New York forconsideration of $3 and PKHDFC's commitment to construct and provide housing for at least thirty yearsexclusively to persons of low income. Pursuant to the regulatory agreement with The New York CityDepartment of Housing Preservation and Development (“NYCHPD”), the K Street Project is to be occupied bypersons or families of low income, as such term is defined in the regulatory agreement. Simultaneously, thebeneficial and equitable interest in the property was conveyed to 273 Limited Partnership. Construction beganin June 2011 and was completed in March 2013.

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June 30, 2014 and 2013

14.RELATED PARTIES, continued:As outlined in Notes 2 and 6, Providence is to receive fees for the developer services it provides to the K StreetProject. Development fees of $660,566 were earned during the year ended June 30, 2013. Development feeswere fully earned as of June 30, 2013. Providence had a receivable from 273 Limited Partnership of $460,000and $690,000 for cumulative earned developer fees, as of June 30, 3014 and 2013, respectively. In addition,Providence had a receivable from 273 Limited Partnership of $115,000 earned developer fees placed inoperating and social reserve accounts held by 273 Limited Partnership, as of June 30, 3014.

Lincoln Road Project:The second permanent supportive housing project partnership that Providence entered into was to develop a 22-unit low-income residential rental apartment project at 329 Lincoln Road in Brooklyn, New York. The units areto be used and occupied in such a manner so as to fully utilize low-income housing tax credits in accordancewith Section 42 of the Internal Revenue Code.

329 Lincoln Road Associates, L.P. (“329 Limited Partnership”) was established on January 30, 2010, as alimited liability partnership, with 329 GP LLC as general partner and PIHDFC as limited partner. 329 LimitedPartnership was organized under the laws of the State of New York and was established to acquire the propertyand financing for the Lincoln Road Project.

On June 1, 2012, the 329 Limited Partnership agreement was amended and restated to reflect, among otherchanges, removal of PIHDFC as limited partner, the admittance of the U.S.A. Institutional Tax Credit FundLXXXVI, L.P. as the investing partner, and the admittance of The Richman Group Capital Corporation as thespecial limited partner. The terms of the First Amended and Restated Partnership Agreement provide thatprofits and losses be shared 99.99% by the investing partner and .01% by the general partner (329 GP LLC),with no allocation to the special limited partner. Providence is the holder of three notes receivable from 329Limited Partnership as outlined in Note 7 above.

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June 30, 2014 and 2013

14.RELATED PARTIES, continued:

As outlined in Notes 2 and 6, Providence is to receive fees for the developer services it provides to the LincolnRoad Project. $798,353 of these fees are secured by notes receivable as detailed in Note 7 and were initiallyincluded in deferred developer fees. A portion of these fees were earned during the years ended June 30, 2014and 2013; $203,670 and $407,341 remained unearned as of June 30, 2014 and 2013, respectively. Developmentfees of $203,671 and $467,819 were earned during the years ended June 30, 2014 and 2013, respectively.Providence had a receivable from 329 Limited Partnership of $123,450 and $130,684 for cumulative earneddeveloper fees, as of June 30, 2014 and 2013, respectively.

On August 30, 2013, Providence accepted forty-four shares (22%) in 291 Bainbridge GP Corp. 291 BainbridgeGP Corp is a housing project similar to the K Street Project and Lincoln Road Project. The project required anunrelated non-profit to become a general partner minority shareholder. The majority shareholder, 291Bainbridge Housing Development Fund Corporation, has signed an indemnity agreement to indemnify and holdProvidence against any and all cost, liability, loss, damage or expense incurred by Providence as a result ofProvidence owning the shares.

In June 2012, PIHDFC and other related affiliated entities entered into multiple borrowing arrangements withdifferent lenders for the purpose of obtaining financing for the construction and completion of the Lincoln RoadProject. See Note 17 for other loans that are guaranteed by Providence.

On June 29, 2012, title to the Lincoln Project site was conveyed to PIHDFC by the City of New York forconsideration of $1 and PIHDFC's commitment to construct and provide housing for at least thirty yearsexclusively to persons of low income. Pursuant to the regulatory agreement with NYCHPD, the Lincoln Projectis to be occupied by persons or families of low income, as such term is defined in the regulatory agreement.Simultaneously, the beneficial and equitable interest in the property was conveyed to 329 Limited Partnership.Construction began in July 2012 and is on-going as of June 30, 2014.

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June 30, 2014 and 2013

15.OPERATING AND REPLACEMENT RESERVES:

2014 2013

1,191,415$ 1,191,415$

594,682 391,012

1,786,097$ 1,582,427$

In connection with the K Street and Lincoln Road Projects, Providence has entered into various agreementsrequiring the establishment of restricted reserves accounts, including replacement, operating and social servicesreserves for each housing development. The reserves, when received, must be maintained in separate bankaccounts and are expected to be funded from developer fees received as follows:

June 30,

For the K Street Project, all development fees earned by Providenceas outlined in Note 6, except for the initial $230,000, shall requiredeposit into reserve accounts. Installment payments totaling$115,000 are to be deposited annually into multiple reserveaccounts beginning on or around April 2014. Additional depositstotaling $115,000 will continue annually thereafter on or aroundApril of each subsequent year, through and including April 2018.Thereafter, payments will be made as funds become available fromnet cash flow earned from operation of the K Street Project.Balance represents unfunded operating and replacement reservesexpected to be paid from earned development fees in connectionwith the K Street Project.

For the Lincoln Road Project, all development fees earned byProvidence as outlined in Note 6, except for the initial $143,000,shall require deposit into reserve accounts. Installment paymentstotaling $91,667 are to be deposited into multiple reserve accountsin connection with the Lincoln Road Project beginning on oraround February 2016. Additional annual deposits totaling $91,667will continue thereafter on or around February of each subsequentyear through and including February 2018. Thereafter, paymentswill be made as funds become available from net cash flow earnedfrom operation of the Lincoln Road Project. Balance representsunfunded operating and replacement reserves expected to be paidfrom earned development fees in connection with the Lincoln RoadProject.

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June 30, 2014 and 2013

16.FAIR VALUE MEASUREMENTS:

Quoted Prices Significantin Active Other Significant

Markets for Observable UnobservableIdentical Assets Inputs Inputs

Total (Level 1) (Level 2) (Level 3)June 30, 2014:

Mutual funds:Equity funds $ 623,973 623,973$ -$ -$ Bond funds 265,028 265,028 - -

889,001 889,001 - - Common stock 712,909 712,909 - -

1,601,910$ 1,601,910$ -$ -$

June 30, 2013:Mutual funds:

Equity funds $ 288,170 288,170$ -$ -$ Bond funds 246,279 246,279 - -

534,449 534,449 - - Certificates of deposit 25,173 - 25,173 -

559,622$ 534,449$ 25,173$ -$

Valuation techniques : The fair value of mutual funds and money market funds is based on quoted net assetvalues of the shares held by Providence at year-end. The fair values of the certificates of deposit are based onobservable inputs other than the quoted prices included in Level 1 and thus are based on yields for securities ofcomparable maturity, quality, and type as obtained from market makers.

Providence uses appropriate valuation techniques to determine fair value based on inputs available. Whenavailable, Providence measures fair value using Level 1 inputs because they generally provide the most reliableevidence of fair value. Level 3 inputs are only used when Level 1 or Level 2 inputs are not available.

The following table presents the fair value measurements of assets recognized in the accompanyingconsolidated statements of financial position measured at fair value on a recurring basis and the level within thefair value hierarchy in which the fair value measurements fall at June 30, 2014 and 2013:

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June 30, 2014 and 2013

17.CONTINGENCIES:

CONSTRUCTION FINANCING

LEGAL MATTERS

18.SUBSEQUENT EVENTS:

Providence has guaranteed payment jointly and severally for construction financing for the K Street Projectfrom NYCHPD, in the amount of $5,675,851. The maturity date of the note and mortgage is October 27, 2053.The balance of the loan as of both June 30, 2014 and 2013, was $5,675,851.

Providence also guaranteed payment jointly and severally for construction financing for the Lincoln RoadProject from NYCHPD, in the amount of $2,750,000. The maturity date of the note and mortgage is June 29,2014, but may be extended to sixty years upon substantial completion and conversion. The balance of the loanas of June 30, 2014 and 2013, was $2,750,000 and $2,590,260, respectively.

Providence House, Inc. and Affiliates is subject to claims, legal proceedings, and investigations of matters thatarise in the ordinary course of operations. In the opinion of management, all such matters are adequatelycovered by insurance or by accruals and, if not so covered, are without merit and will be vigorously contested orare of such kind or involve such amounts as would not have a significant effect on the financial position orresults of operations of Providence if disposed of unfavorably.

Subsequent events have been evaluated through the report date, which represents the date the consolidatedfinancial statements were available to be issued. Subsequent events after that date have not been evaluated.

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SUPPLEMENTARY DATA

INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTARY DATA

The Board of DirectorsProvidence House, Inc. and AffiliatesBrooklyn, New York

New York, New York

We have audited the consolidated financial statements of Providence House, Inc.and Affiliates, as of and for theyear ended June 30, 2014, and our report thereon dated December 16, 2014, which expressed an unmodifiedopinion on those consolidated financial statements, appears on page 1. Our audit was conducted for the purpose offorming an opinion on the consolidated financial statements as a whole. The supplemental schedules on pages 25-27 are presented for purposes of additional analysis of the consolidated financial statements rather than to presentthe consolidated financial position and results of operations of the individual sites, and it is not a required part ofthe consolidated financial statements. Such information is the responsibility of management and was derived fromand relates directly to the underlying accounting and other records used to prepare the consolidated financialstatements. The information has been subjected to the auditing procedures applied in the audit of the consolidatedfinancial statements and certain additional procedures, including comparing and reconciling such informationdirectly to the underlying accounting and other records used to prepare the consolidated financial statements or tothe consolidated financial statements themselves, and other additional procedures in accordance with auditingstandards generally accepted in the United States of America. In our opinion, the information is fairly stated in allmaterial respects in relation to the consolidated financial statements as a whole.

December 16, 2014

PH IXPermanentHousing DHS Lincoln Road D'Addario Central Grand

PH I PH II PH III PH IV PH V PH VI PH VII Totals Program Consolidated Project Residence Operations TotalRevenues and gains:Donations and grants -$ 19,000$ -$ 2,105$ 200,000$ -$ -$ 221,105$ -$ -$ -$ 40,000$ 377,647$ 638,752$ Religious donationsand donated services 80,000 94,250 77,370 - 87,100 20,880 - 359,600 - - - - 62,000 421,600

Contract revenue 64,701 109,384 56,968 331,758 - - 466,225 1,029,036 - 616,707 - 605,260 - 2,251,003 CACFP and FEFP food grant - - - 3,000 - - - 3,000 - - - - 39,614 42,614 NYC Housing HRA payments - - - - 26,735 - - 26,735 - - - - - 26,735 Rental income 4,575 - - - 3,440 1,505 - 9,520 64,429 - - - - 73,949 Investment income - - - - - - - - - - - 15 104,777 104,792 Developer fees - - - - - - - - - - 203,671 - - 203,671 Donated services value - - - - - - - - - - - - 10,960 10,960 Fundraising and special events - - - - - - - - - - - - 456,443 456,443 Interest income on notes receivable 66,939 66,939 Gain on sale of property 137,203 137,203 Miscellaneous income - - - - - - - - - - - - 34,856 34,856

Total unrestricted revenues 149,276 222,634 134,338 336,863 317,275 22,385 466,225 1,648,996 64,429 616,707 203,671 645,275 1,290,439 4,469,517

Providence House, Inc. and AffiliatesTemporary Shelter and Feeding Programs

Schedule of Activities by SiteFor the Year Ended June 30, 2014

(continued)


PH IXPermanent LincolnHousing DHS Road D'Addario Central Grand

PH I PH II PH III PH IV PH V PH VI PH VII Totals Program Consolidated Project Residence Operations TotalsExpenses and losses:Salaries and wages 92,496 77,295 106,648 199,102 186,359 - 217,046 878,946 12,377 361,329 - 325,849 413,520 1,992,021 Payroll taxes 9,167 7,467 10,628 19,010 18,097 - 21,715 86,084 1,180 33,204 - 31,576 24,256 176,300 Employee benefits 20,102 11,656 26,140 42,405 44,252 - 48,791 193,346 4,361 65,193 - 57,397 47,385 367,682 Rent 32,100 - 47,125 - 47,500 27,775 - 154,500 - - - - - 154,500 Utilities 14,375 16,077 13,071 29,621 25,345 17,770 42,700 158,959 5,730 - - 15,249 25,432 205,370 Telephone 1,977 4,503 4,237 3,529 3,334 - 2,991 20,571 287 419 - 6,684 7,497 35,458 Professional fees 2,545 2,282 530 - 2,250 - 4,700 12,307 - - - 4,306 67,557 84,170 Food 3,974 9,758 13,189 13,924 14,566 11,765 731 67,907 - - - 761 2,258 70,926 Scholarships - - - - - - - - - - - - 6,500 6,500 Client assistance and gifts 299 - 105 - 3,222 2,308 495 6,429 - 3,299 - 20 4,533 14,281 Other program expenses 4,699 16,873 5,578 17,556 17,307 - 6,438 68,451 2,151 3,233 36,984 1,316 2,907 115,042 Travel 591 409 711 1,168 10,731 - 3,545 17,155 432 - - 155 6,213 23,955 Seminars and training 25 - - - 398 - - 423 - 1,500 - 615 3,502 6,040 Dues and subscriptions - - - 547 314 - - 861 1,550 - - - 3,092 5,503 Insurance 3,422 2,496 3,721 7,172 3,560 4,777 12,274 37,422 4,298 - - 7,553 16,889 66,162 Equipment, purchase, rental and maintenance 411 18,298 5,102 12,043 16,422 - 7,680 59,956 2,466 - 20,970 1,431 23,415 108,238 Office expenses 45 2,431 133 564 10 - 961 4,144 1,981 - - 768 11,408 18,301 Supplies 5,247 8,068 10,696 9,957 14,175 3,530 12,132 63,805 591 56 312 15,804 27,288 107,856 Printing - - 30 4 - - 206 240 - - - 271 9,500 10,011 Postage and delivery 489 - - 46 78 - - 613 - - - - 6,627 7,240 Interest expense - - - - - - 37,214 37,214 - - - - 313 37,527 Depreciation 1,828 13,505 6,259 10,349 750 5,042 37,911 75,644 18,130 - - 5,995 36,292 136,061 Other fundraising expenses - - - - - - - - - - - - 35,483 35,483 Advertising 50 50 130 310 100 - 440 1,080 - - - - 43,145 44,225 Miscellaneous 341 138 107 374 346 158 13 1,477 39 4 - 467 7,874 9,861 Donated services value 62,000 62,000 62,000 - 62,000 - - 248,000 - - - - 62,000 310,000

Total expenses 256,183 253,306 316,140 367,681 471,116 73,125 457,983 2,195,534 55,573 468,237 58,266 476,217 894,886 4,148,713

Net change (106,907)$ (30,672)$ (181,802)$ (30,818)$ (153,841)$ (50,740)$ 8,242$ (546,538)$ 8,856$ 148,470$ 145,405$ 169,058$ 395,553$ 320,804$

(continued)

Schedule of Activities by SiteFor the Year Ended June 30, 2014

Providence House, Inc. and AffiliatesTemporary Shelter and Feeding Programs


ApprovedBudget Actual

2013-2014 2013-2014Revenues: *

CACFP and FEFP food grant 3,000$ 3,000$ Westchester DSS payments 355,426 331,758

Total revenues 358,426 334,758

Expenses:Salary expense 196,888 199,102 Payroll taxes and employee benefits 50,029 61,415 Utilities 29,270 29,621 Telephone 5,000 3,529 Food expense 10,000 13,924 Client assistance and gifts - - Other program expenses 18,000 17,556 Travel 2,000 1,168 Seminars and training - - Dues and subscriptions - 547 Insurance 9,100 7,172 Repairs and maintenance 10,000 12,043 Office expenses 3,277 564 Supplies 10,000 9,957 Occupancy - - Depreciation - 10,349 Postage and delivery 500 46 Miscellaneous - 374

Total expenses 344,064 367,367

Net change 14,362$ (32,609)$

* Revenues include only CACFP & DSS of Westchester funds.

Providence House, Inc. and AffiliatesProvidence House IV Compared to Approved County Funding

For the Year Ended June 30, 2014


PH FY2014 Audit

Documents

Transcript of PH FY2014 Audit