Project Hospitality, Inc. and Subsidiaries...Board of Directors Project Hospitality, Inc. and Subsidiaries Page 2 Opinion In our opinion, the consolidated financial statements referred

Project Hospitality, Inc. and Subsidiaries

Independent Auditor’s Report and Consolidated Financial Statements

June 30, 2018

Project Hospitality, Inc. and Subsidiaries June 30, 2018

Contents

Independent Auditor’s Report ............................................................................................. 1

Consolidated Financial Statements

Statement of Financial Position .......................................................................................................... 3

Statement of Activities ....................................................................................................................... 4

Statement of Functional Expenses ...................................................................................................... 5

Statement of Cash Flows .................................................................................................................... 7

Notes to Consolidated Financial Statements ...................................................................................... 8

Independent Auditor’s Report

Board of Directors


Staten Island, New York

We have audited the accompanying consolidated financial statements of Project Hospitality, Inc. and

Subsidiaries, which comprise the consolidated statement of financial position as of June 30, 2018, and

the related consolidated statements of activities, functional expenses and cash flows for the year then

ended, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial

statements in accordance with accounting principles generally accepted in the United States of

America; this includes the design, implementation and maintenance of internal control relevant to the

preparation and fair presentation of consolidated financial statements that are free from material

misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our

audit. We conducted our audit in accordance with auditing standards generally accepted in the United

States of America. Those standards require that we plan and perform the audit to obtain reasonable

assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures

in the consolidated financial statements. The procedures selected depend on the auditor’s judgment,

including the assessment of the risks of material misstatement of the consolidated financial

statements, whether due to fraud or error. In making those risk assessments, the auditor considers

internal control relevant to the entity’s preparation and fair presentation of the consolidated financial

statements in order to design audit procedures that are appropriate in the circumstances, but not for

the purpose of expressing an opinion on the effectiveness of the entity’s internal control.

Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of

accounting policies used and the reasonableness of significant accounting estimates made by

management, as well as evaluating the overall presentation of the consolidated financial statements.

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

for our audit opinion.

Board of Directors


Page 2

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material

respects, the consolidated financial position of Project Hospitality, Inc. and Subsidiaries as of

June 30, 2018, and the changes in their net assets and their cash flows for the year then ended in

accordance with accounting principles generally accepted in the United States of America.

Emphasis of Matter

The 2017 financial statements, before they were restated for the matter discussed in Note 15, were

audited by other auditors, and their report thereon, dated April 20, 2018, expressed an unmodified

opinion. Our opinion is not modified with respect to this matter.

New York, New York

May 15, 2019

See Notes to Consolidated Financial Statements 3

Project Hospitality, Inc. and Subsidiaries Consolidated Statement of Financial Position

June 30, 2018

Assets

Cash and cash equivalents 5,048,225$

Investments 2,029,670

Accounts receivable 110,067

Due from government agencies 7,015,252

Contributions receivable 505,600

Assets limited as to use 45,048

Prepaid expenses and other assets 121,609

Property and equipment, net 10,573,795

Total assets 25,449,266$

Liabilities and Net Assets

Liabilities

Accounts payable and accrued expenses 2,090,997$

Due to government agencies 43,293

Refundable advances 461,894

Long-term debt 1,773,083

Capital advance 3,160,653

Total liabilities 7,529,920

Net Assets

Unrestricted

Undesignated 14,915,638

Board designated 1,977,409

Total unrestricted 16,893,047

Temporarily restricted 1,026,299

Total net assets 17,919,346

Total liabilities and net assets 25,449,266$


Project Hospitality, Inc. and Subsidiaries Consolidated Statement of Activities

Year Ended June 30, 2018

Temporarily

Unrestricted Restricted Total

Revenues, Gains and Other Support

Government grants 26,608,713$ 26,000$ 26,634,713$

Medicaid and other program fees 5,045,640 - 5,045,640

Rental income 1,816,279 - 1,816,279

Contributions 316,130 781,034 1,097,164

Special events - net 280,460 - 280,460

Investment return 65,045 - 65,045

In-kind contributions 171,516 - 171,516

Other income 3,528 - 3,528

Net assets released from restrictions 1,488,611 (1,488,611) -

Total revenues, gains and other support 35,795,922 (681,577) 35,114,345

Expenses

Program services

Support and treatment services 8,621,920 - 8,621,920

Re-housing services 10,025,262 - 10,025,262

Homeless care and prevention services 12,481,495 - 12,481,495

Total program services 31,128,677 - 31,128,677

Supporting services

Management and general 4,833,245 - 4,833,245

Fund raising 352,167 - 352,167

Total supporting services 5,185,412 - 5,185,412

Total expenses 36,314,089 - 36,314,089

Change in Net Assets (518,167) (681,577) (1,199,744)

Net Assets, Beginning of Year, as Previously Stated 15,761,425 1,707,876 17,469,301

Restatement 1,649,789 - 1,649,789

Net Assets, Beginning of Year, as Restated 17,411,214 1,707,876 19,119,090

Net Assets, End of Year 16,893,047$ 1,026,299$ 17,919,346$


Project Hospitality, Inc. and Subsidiaries Consolidated Statement of Functional Expenses


Support and Homeless Care

Treatment Re-housing and Prevention

Services Services Services Total

Salaries 4,609,404$ 2,739,787$ 5,058,438$ 12,407,629$

Payroll taxes and employee benefits 1,369,167 801,030 1,448,601 3,618,798

Total salaries and

related expenses 5,978,571 3,540,817 6,507,039 16,026,427

Client expenses 322,540 4,874,092 2,254,520 7,451,152

Insurance 75,736 72,164 113,130 261,030

Rent 673,497 366,233 256,906 1,296,636

Auto 119,375 120,826 167,960 408,161

Equipment lease and purchase 54,144 91,878 121,035 267,057

Utilities 76,672 101,908 306,903 485,483

Repairs and maintenance 125,488 116,735 289,213 531,436

Telephone 172,173 93,603 128,242 394,018

Supplies 63,434 108,447 94,330 266,211

Contract services 115,949 144,449 1,688,171 1,948,569

Professional fees 379,270 15,090 115,669 510,029

Printing and postage 7,060 16,202 9,550 32,812

Community relations - - 3,076 3,076

Staff recruitment 5,136 3,796 5,396 14,328

Per diem contractors 153,489 79,800 94,545 327,834

Staff related expenses 21,426 39,007 44,653 105,086

Real estate taxes - 65,574 - 65,574

Food and entertainment - - - -

Investment fees - - - -

Depreciation and amortization 212,960 167,186 154,800 534,946

Interest expense - 7,455 121,282 128,737

Miscellaneous 65,000 - 5,075 70,075

Total expenses 8,621,920 10,025,262 12,481,495 31,128,677

Less:

Investment fees - - - -

Direct costs of special events - - - -

Total expenses reported

by function on the

statement of activities 8,621,920$ 10,025,262$ 12,481,495$ 31,128,677$

Program Services


Project Hospitality, Inc. and Subsidiaries Consolidated Statement of Functional Expenses (Continued)


Management Direct Costs

and Fund of Special

General Raising Total Events Total

2,564,967$ 219,755$ 2,784,722$ -$ 15,192,351$

826,442 70,322 896,764 - 4,515,562

3,391,409 290,077 3,681,486 - 19,707,913

- - - - 7,451,152

42,082 1,944 44,026 - 305,056

102,312 783 103,095 - 1,399,731

43,957 - 43,957 - 452,118

- 1,751 1,751 - 268,808

53,348 2,341 55,689 - 541,172

60,581 2,427 63,008 - 594,444

67,131 858 67,989 - 462,007

64,325 1,547 65,872 - 332,083

64,996 5,654 70,650 - 2,019,219

421,275 2,559 423,834 - 933,863

2,775 17,915 20,690 - 53,502

55,454 23,781 79,235 - 82,311

2,226 530 2,756 - 17,084

99,512 - 99,512 - 427,346

96,300 - 96,300 - 201,386

- - - - 65,574

- - - 11,420 11,420

16,309 16,309 - 16,309

209,162 - 209,162 - 744,108

- - - - 128,737

56,400 - 56,400 - 126,475

4,849,554 352,167 5,201,721 11,420 36,341,818

(16,309) - (16,309) - (16,309)

- - - (11,420) (11,420)

4,833,245$ 352,167$ 5,185,412$ -$ 36,314,089$

Supporting Services


Project Hospitality, Inc. and Subsidiaries Consolidated Statement of Cash Flows


Operating Activities

Change in net assets (1,199,744)$

Items not requiring (providing) operating activities cash flows

Depreciation and amortization 744,108

Net realized and unrealized gains on investments (24,899)

Noncash contributions, net of noncash expense (102,232)

Changes in

Accounts receivable (48,690)

Due from government agencies 1,405,761

Contributions receivable 173,400

Prepaid expenses and other assets 77,023

Accounts payable and accrued expenses (694,209)

Due to government agencies (247,413)

Refundable advances (10,155)

Net cash provided by operating activities 72,950

Investing Activities

Proceeds from sale of investments 3,014,793

Purchase of investments (3,048,712)

Increase in assets limited as to use (2,605)

Acquisitions of property and equipment (1,874,580)

Net cash used in investing activities (1,911,104)

Financing Activities

Principal payments on long-term debt (10,692)

Proceeds from capital advance 564,800

Net cash provided by financing activities 554,108

Decrease in Cash and Cash Equivalents (1,284,046)

Cash and Cash Equivalents, Beginning of Year, as Restated 6,332,271

Cash and Cash Equivalents, End of Year 5,048,225$

Supplemental Cash Flows Information

Interest paid 26,505$

Contributed principal and interest on loan 223,538$

Project Hospitality, Inc. and Subsidiaries Notes to Consolidated Financial Statements

June 30, 2018

8

Note 1: Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations

The consolidated financial statements of Project Hospitality, Inc. and Subsidiaries include Project

Hospitality, Inc. (PHI), Watershed Associates Inc. (Watershed), New Vision HDFC (New Vision),

and Project Hospitality 385 Housing Development Fund Corporation (PH 385 HDFC), collectively

referred to as the Organization. The Organization was organized to provide counseling, food and

shelter to homeless individuals.

PHI is a New York not-for-profit organization whose mission and principal activities are to reach

out to the community members who are hungry, homeless or otherwise in need in order to work

with them to achieve self-sufficiency. PHI advocates for those in need and establishes a

comprehensive continuum of care that begins with the provision of food, clothing, and shelter and

extends to other services which include health care, mental health services, alcohol and substance

abuse treatment, HIV care, education, vocational training, legal assistance and transitional and

permanent housing.

Watershed was incorporated under the Not-For-Profit-Corporation law of New York State in March

2003. Watershed’s main purpose is to provide counseling, food and shelter to homeless individuals

living on Staten Island, New York. In fulfilling this purpose and objective, Watershed holds title to

real and personal property, collects rental income, and remits the entire amount thereof, less

expenses, to PHI.

New Vision was incorporated under the Not-For-Profit-Corporation law of New York State in July

2010. New Vision’s main purpose is to acquire, develop and manage housing projects for persons

of low income.

PH 385 HDFC was incorporated under the Not-For-Profit-Corporation law of New York State in

September 2000. PH 385 HDFC’s main purpose is to develop a housing project for persons of low

income.

PHI is the sole member of Watershed, New Vision and PH 385 HDFC.

The Organization’s programmatic activities are funded primarily by grants, fee for service

arrangements, rental income from governmental agencies and contributions.

Principles of Consolidation

All material intercompany transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted

in the United States of America requires management to make estimates and assumptions that affect

the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the

date of the consolidated financial statements and the reported amounts of revenues, expenses, gains,

losses and other changes in net assets during the reporting period. Actual results could differ from

those estimates.


June 30, 2018

9

Cash and Cash Equivalents

The Organization considers all liquid investments with original maturities of three months or less to

be cash equivalents. At June 30, 2018, cash equivalents consisted primarily of money market

accounts with a bank.

At June 30, 2018, the Organization’s cash accounts exceeded federally insured limits by

approximately $5 million.

Investments and Investment Return

Investments in equity securities, closed-end funds, and mutual funds having a readily determinable

fair value are carried at fair value. Investment return includes dividend and interest; realized and

unrealized gains, and investment fees.

Accounts Receivable, Due from Government Agencies, and Allowance for Doubtful Accounts

The Organization records receivables based on established rates or contracts for services provided.

Receivables are charged to bad debt expense when they are determined to be uncollectible based

upon a periodic review of the accounts by management. Factors used to determine whether an

allowance should be recorded include the age of the receivable and a review of payments

subsequent to year end. There was no allowance for doubtful accounts recorded as of June 30,

2018. Interest income is not accrued or recorded on outstanding accounts receivable.

Contributions Receivable and Allowance for Doubtful Accounts

Unconditional promises to give that are expected to be collected within one year are recorded at net

realizable value. Unconditional promises to give that are expected to be collected in future years are

recorded at the present value of their estimated future cash flows. The discounts on those amounts

are computed using risk-adjusted interest rates applicable to the years in which the promises are

received. Amortization of the discounts is included in contribution revenue. Conditional promises

to give are not included as support until the conditions are substantially met.

The Organization determines whether an allowance for uncollectibles should be provided for

contributions receivable. Such estimates are based on management’s assessment of the aged basis

of its receivables, subsequent collections, current economic conditions and historical information.

Contributions receivable are written off against the allowance for doubtful accounts when all

reasonable collection efforts have been exhausted and charged directly to bad debt expense when no

allowance is available. There was no allowance for doubtful accounts recorded as of June 30, 2018.

Assets Limited as to Use

Assets limited as to use are assets set aside under the terms of certain financing agreements to be

used for capital purposes or the pay down of the outstanding long-term debt.


June 30, 2018

10

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is charged to

expense using the straight-line method over the estimated useful life of each asset. Leasehold

improvements are amortized over the shorter of the lease term or their respective estimated useful

lives.

The estimated useful lives for each major depreciable classification of property and equipment are

as follows:

Buildings and improvements 5 - 40 years

Leasehold improvements 2 - 11 years

Furniture and equipment 3 - 7 years

Motor vehicles 4 - 5 years

Long-Lived Asset Impairment

The Organization evaluates the recoverability of the carrying value of long-lived assets whenever

events or circumstances indicate the carrying amount may not be recoverable. If a long-lived asset

is tested for recoverability and the undiscounted estimated future cash flows expected to result from

the use and eventual disposition of the asset is less than the carrying amount of the asset, the asset

cost is adjusted to fair value and an impairment loss is recognized as the amount by which the

carrying amount of a long-lived asset exceeds its fair value. No asset impairment was recognized

during the year ended June 30, 2018.

Refundable Advances

Revenues from fees for programs are deferred and recognized over the periods to which the fees

relate.

Unrestricted Net Assets

Unrestricted net assets include funds having no restriction as to use or purpose imposed by donors.

In addition, resources which are set aside for board-designated purposes are unrestricted.

Temporarily Restricted Net Assets

Temporarily restricted net assets are those whose use by the Organization has been limited by

donors to a specific time period or purpose.

Contributions

Gifts of cash and other assets received without donor stipulations are reported as unrestricted

revenue and net assets. Gifts received with a donor stipulation that limits their use are reported as

temporarily or permanently restricted revenue and net assets. When a donor stipulated time

restriction ends or purpose restriction is accomplished, temporarily restricted net assets are

reclassified to unrestricted net assets and reported in the consolidated statement of activities as net

assets released from restrictions. Gifts that are originally restricted by the donor and for which the

restriction is met in the same time period are recorded as temporarily restricted and then released

from restriction.


June 30, 2018

11

In-kind Contributions

In addition to receiving cash contributions, the Organization receives in-kind contributions of

donated food from the Food Bank of New York City. The Organization records the estimated fair

value of certain in-kind donations as an expense in the consolidated financial statements, and

similarly increase contribution revenue. For the year ended June 30, 2018, $171,516 was received

in in-kind contributions.

Government Grants

Support funded by grants is recognized as the Organization performs the contracted services or

incurs outlays eligible for reimbursement under the grant agreements. Grant activities and outlays

are subject to audit and acceptance by the granting agency and, as a result of such audit, adjustments

could be required.

Revenue Recognition

Revenues are reported at the estimated net realizable amounts from residents, participants, third-

party payors and others for services rendered, including estimated retroactive adjustments under

reimbursement agreements with third-party payors. Retroactive adjustments are accrued on an

estimated basis in the period the related services are rendered and adjusted in future periods as final

settlements are determined. Laws and regulations governing mental health programs are extremely

complex and subject to interpretation. As a result, there is at least a reasonable possibility that

recorded estimates will change by a material amount in the near term. Additionally, noncompliance

with such laws and regulations could result in fines, penalties and exclusion from Medicaid and

other programs.

Income Taxes

PHI and PH 385 HDFC are exempt from income taxes under Section 501(c)(3) of the Internal

Revenue Code and a similar provision of state law. Watershed is exempt from income taxes under

Section 501(c)(2) of the Internal Revenue Code and a similar provision of state law. New Vision

was incorporated to operate as a non-profit, exempt from income taxes under section 501 of the

Internal Revenue Code, and similar provisions of state law. As of June 30, 2018, a determination of

the exempt status of New Vision has not been provided by the IRS. The Organization is subject to

federal income tax on any unrelated business taxable income.

The Organization files tax returns in the U.S. federal jurisdiction.

Operating Leases

Rent expense has been recorded on the straight-line basis over the life of the lease. Deferred rent is

recorded when there are material differences between the fixed payments and the rent expense.

Functional Allocation of Expenses

The costs of supporting the various programs and other activities have been summarized on a

functional basis in the consolidated statement of functional expenses. Certain costs have been

allocated among the program, management and general and fundraising categories based on the

programmatic square footage, time studies, and other methods.


June 30, 2018

12

Note 2: Investments and Investment Return

Investments at June 30, 2018 consisted of the following:

Cash equivalents 95,167$

Equity securities

Energy 24,482

Materials 22,404

Industrials 70,545

Consumer discretionary 56,059

Consumer staples 17,471

Health care 52,688

Financials 48,617

Information technology 93,169

Telecommunication services 32,806

Utilities 2,286

Real estate 3,738

Closed-end funds 128,737

Mutual funds

Bond funds 944,518

Equity funds 436,983

Total 2,029,670$

Total investment return is comprised of the following:

Dividends and interest 56,455$

Net realized and unrealized gains 24,899

Investment fees (16,309)

Total 65,045$

Note 3: Contributions Receivable

Contributions receivable of $505,600 at June 30, 2018 are all due within one year and are restricted

for specific purposes.


June 30, 2018

13

Note 4: Property and Equipment

Property and equipment at June 30, 2018 consists of:

Land 1,625,987$

Buildings and improvements 10,538,103

Leasehold improvements 1,301,529

Furniture and fixtures 2,354,481

Motor vehicles 63,146

15,883,246

Less accumulated depreciation and amortization (5,309,451)

10,573,795$

PH 385 HDFC received funding from the NYC Department of Homeless Services (NYC DHS) and

the U.S. Department of Housing and Urban Development (HUD), and Federal Home Loan Bank of

New York (FHLB) for rehabilitation of the building located at 385 Jersey St., Staten Island, NY.

The property is authorized to be used for housing needs, to promote the development of independent

living and includes innovative approaches to assist homeless persons in their transition from

homelessness. Construction was completed and the program began service operations in fiscal year

end June 30, 2008. PH 385 HDFC was also awarded the Affordable Housing Program Direct

subsidy from the FHLB in the amount of $543,501. The subsidy is for fifteen years at no interest,

with no schedule of payments, and will be forgiven at the end of the term which began on March 10,

2008 (date of occupancy). Under the term of the agreement, the property must be used to provide

housing for income eligible households for fifteen years and may not be sold or transferred without

prior notification to FHLB. If the project does not comply with the terms of the agreement, the

amount provided will be considered to be in default and the amount of subsidy provided plus

interest will be recovered.

PH 385 HDFC has a contract with the NYC DHS and is required to operate the facility in

accordance with the terms of the agreement for a period of 20 years and nine months. The residence

was established to provide housing for 30 homeless adults and ancillary services. NYC DHS makes

the monthly mortgage payments directly to the Low Income Investment Fund (LIIF) (Note 6), as

reflected in the debt service line of the contract. For June 30, 2018, total payments made by NYC

DHS amounted to $223,538 and that amount is recorded as part of the government contract revenue.

Note 5: Assets Limited as to Use

In accordance with the mortgage loan agreement, mortgage and maintenance reserve accounts are

required to be maintained by PH 385 HDFC. Deposits to the funds are held by LIIF (Lender).

PH 385 HDFC is required to make quarterly deposits into the maintenance reserve account in the

amount of $625. Deposits can be used upon approval from NYC DHS and the Lender, for major

and “non-ordinary” repairs of the premises. As of June 30, 2018, the balance was $45,048.


June 30, 2018

14

Note 6: Long-Term Debt

(A) Northfield Bank 117,469$

(B) Deutsche Bank 120,000

(C) LIIF 1,535,614

1,773,083$

(A) In July 2012, Watershed obtained a loan from Northfield Bank to finance a facility on

Castleton Avenue in Staten Island, NY. The mortgage is repaid in monthly installments of

$1,396. Interest is charged and withheld at a rate of 5.5% annually. The mortgage matures

on June 1, 2027, and is secured by the property. Subsequent to year end, the loan was paid

off.

(B) In December 2016, PHI received a grant from Deutsche Bank with a recoverable portion of

$120,000. The recoverable portion bears no interest, and is to be paid in annual installments

of $40,000 on November 30th 2019, 2020 and 2021.

(C) LIIF provided the Organization a twenty-year mortgage loan of $2,291,190 with an annual

interest of 7.62%. The loan requires monthly interest and principal payment of $18,626. The

loan payments commenced on April 1, 2008 and mature on March 1, 2028. The loan

payments are made by NYC DHS directly to LIIF (Note 3), and are secured by the fixed

assets of the property.

Future principal payments are as follows:

2018 - 2019 120,717$

2019 - 2020 170,002

2020 - 2021 180,039

2021 - 2022 190,837

2022 - 2023 162,475

Thereafter 949,013

Total 1,773,083$

Note 7: Capital Advance

In September 2016, New Vision entered into an agreement with New York State Housing and

Assistance Corporation Homeless Housing and Assistance Program (HHAP), with PHI as the

sponsor, to operate a project to provide housing for homeless people at a building located at 411

Vanderbilt Avenue, Staten Island, NY. The first phase of this project included a capital advance of

up to $3,292,123 to renovate and rehabilitate the property for occupancy. HHAP may recover the

funds in the event the project ceases to be used as a shelter for the homeless within 25 years.

Provided the project continues to operate in this capacity for 25 years, the capital advance balance

will be forgiven. The capital advance does not bear interest, and has no required payments. At

June 30, 2018, $3,160,653 had been drawn on the capital advance.


June 30, 2018

15

Note 8: Operating Leases

PHI has several noncancelable operating leases for residential and administrative space, which

expire through July 31, 2025.

Future minimum lease payments under operating lease are:

2018 - 2019 944,876$

2019 - 2020 687,819

2020 - 2021 632,819

2021 - 2022 320,707

2022 - 2023 286,071

Thereafter 623,497

Total minimum lease

payments 3,495,789$

Note 9: Pension Plan and Deferred Compensation Plan

The Organization has a 403(b) defined contribution pension plan covering substantially all

employees who have completed two years of service as of December 31 of the plan year. The

Board of Directors annually determines the amount, if any, of the Organization’s discretionary

contributions to the plan. Pension expense was $159,412 for the year ended June 30, 2018.

Note 10: Disclosures About Fair Value of Assets

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an

orderly transaction between market participants at the measurement date. Fair value measurements

must maximize the use of observable inputs and minimize the use of unobservable inputs. There is

a hierarchy of three levels of inputs that may be used to measure fair value:

Level 1 Quoted prices in active markets for identical assets or liabilities

Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets

or liabilities; quoted prices in markets that are not active; or other inputs that are

observable or can be corroborated by observable market data for substantially the full

term of the assets or liabilities

Level 3 Unobservable inputs supported by little or no market activity and are significant to

the fair value of the assets or liabilities


June 30, 2018

16

Recurring Measurements

The following table presents the fair value measurements of assets recognized in the accompanying

statement of financial position measured at fair value on a recurring basis and the level within the

fair value hierarchy in which the fair value measurements fall at June 30, 2018:

Fair Value

Measurements

Using

Quoted Prices in

Active Markets

for Identical

Total Assets (Level 1)

Cash equivalents 95,167$ -$

Equity securities

Energy 24,482 24,482

Materials 22,404 22,404

Industrials 70,545 70,545

Consumer discretionary 56,059 56,059

Consumer staples 17,471 17,471

Health care 52,688 52,688

Financials 48,617 48,617

Information technology 93,169 93,169

Telecommunication services 32,806 32,806

Utilities 2,286 2,286

Real estate 3,738 3,738

Closed-end funds 128,737 128,737

Mutual funds

Bond funds 944,518 944,518

Equity funds 436,983 436,983

Total 2,029,670$ 1,934,503$

Investments

Where quoted market prices are available in an active market, securities are classified within

Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are

estimated by using quoted prices of securities with similar characteristics or independent asset

pricing services and pricing models, the inputs of which are market-based or independently sourced

market parameters, including, but not limited to, yield curves, interest rates, volatilities,

prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in

Level 2 of the valuation hierarchy. In certain cases where Level 1 or Level 2 inputs are not

available, securities are classified within Level 3 of the hierarchy.


June 30, 2018

17

Following is a description of the valuation methodologies and inputs used for assets measured at fair

value on a recurring basis and recognized in the accompanying statement of financial position, as

well as the general classification of such assets pursuant to the valuation hierarchy. There have been

no significant changes in the valuation techniques during the year ended June 30, 2018.

Equity securities and closed-end funds: Valued at the closing price reported on the active market

on which the individual securities and obligations are traded.

Mutual funds: Valued at the net asset value (NAV) of shares held at year end. Mutual funds

held by the Organization are deemed to be actively traded.

Note 11: Temporarily Restricted Net Assets

Temporarily restricted net assets at June 30, 2018 are available for the following purposes:

Housing, food and legal 663,249$

Hurricane Sandy relief 355,630

IT and capacity building 7,420

1,026,299$

Net Assets Released from Restrictions

Net assets were released from donor restrictions by incurring expenses satisfying the restricted

purposes or by occurrence of other events specified by donors.

Housing, food and legal 899,918$

Hurricane Sandy relief 126,116

IT and capacity building 462,577

1,488,611$

Note 12: Significant Estimates and Concentrations

Accounting principles generally accepted in the United States of America require disclosure of

certain significant estimates and current vulnerabilities due to certain concentrations. Those matters

include the following:

As of June 30, 2018, 41% of receivables was due from Public Health Solutions, NYC DHS and

NYC Department of Health and Mental Hygiene (NYC DOHMH). In 2018, 50% of revenue was

due from HUD and NYC DHS. This represents a concentration of credit risk to the Organization.


June 30, 2018

18

Investments

The Organization invests in various investment securities. Investment securities are exposed to

various risks such as interest rate, market and credit risks. Due to the level of risk associated with

certain investment securities, it is at least reasonably possible that changes in the values of

investment securities will occur in the near term and that such change could materially affect the

amounts reported in the accompanying statement of financial position.

Note 13: Commitments and Contingencies

The Organization receives substantially all its revenues for services provided for approved

participants from third-party reimbursement agencies, including Medicaid. These revenues are

based on predetermined rates based on cost reimbursement principles and are subject to audit and

retroactive adjustment by the respective third-party fiscal intermediary. As of June 30, 2018

management has estimated no need for a reserve for potential rate adjustments.

The Organization is responsible for reporting to various third parties. These agencies, as well as the

New York State Office of the Attorney General, the Internal Revenue Service, the New York State

Office of the Medicaid Inspector General, the New York State Department of Health, the New York

State Charities Bureau, and others have the right to audit the Organization.

Litigation

The Organization is subject to claims and lawsuits that arose primarily in the ordinary course of its

activities. It is the opinion of management that the disposition or ultimate resolution of such claims

and lawsuits will not have a material adverse effect on the financial position, change in net assets

and cash flows of the Organization. Events could occur that would change this estimate materially

in the near term.

Note 14: Subsequent Events

In November 2018, Castleton Housing Development Fund Corporation (Castleton) was formed as

an exempt organization under New York not-for-profit law. In December 2018, Watershed sold its

property located in Staten Island to Castleton and 1546 Castleton Managing Member LLC, a New

York limited liability company, in the amount of $2,000,000. As part of this transaction, 1546

Castleton Managing Member LLC paid $1,200,260 at the time of closing and established a note in

the amount of $799,740 payable to Watershed. The interest is being charged at a rate of 6% per

annum. The principal amount is payable on December 31, 2058. This note is secured by a

mortgage on the property.


June 30, 2018

19

Additionally, in September 2018, PH Castleton, Inc., a New York corporation was formed and sold

$100 shares of stock to Castleton. In December 2018, Hudson Castleton LLC, a New York limited

liability company, and PH Castleton, Inc. entered into an operating agreement of 1546 Castleton

Managing Member LLC pursuant to which the Organization agreed to jointly develop a multifamily

affordable housing project on certain real property owned by Castleton. 1546 Castleton Managing

Member LLC and Castleton entered into a predevelopment loan in the amount of $2,540,000 with

Corporation for Supportive Housing to finance the acquisition and predevelopment costs of the

multifamily affordable housing project.

Subsequent events have been evaluated through May 15, 2019, which is the date the consolidated

financial statements were available to be issued.

Note 15: Restatement of Prior Year’s Financial Statements

In prior years, Project Hospitality, Inc. and Subsidiaries did not include Project Hospitality 385

Housing Development Fund Corporation as part of consolidated entities. As a result, net assets as

of beginning of the year have been restated by $1,649,789. Cash and cash equivalents as of the

beginning of the year were restated by $282,144.

Note 16: Future Changes in Accounting Principles

NFP Accounting Standard for Financial Reporting

Accounting Standards Update (ASU) 2016-14 changes requirements for financial statements and

notes of all not-for-profit (NFP) entities and is effective for fiscal years beginning after

December 15, 2017. Adoption should be applied on a retrospective basis; however, NFPs have the

option in the year adopted to omit certain disclosures shown in comparative financials.

A summary of the changes by financial statement area is as follows:

Statement of financial position:

The NFP statement of financial position will distinguish between two new classes of net

assets those with donor-imposed restrictions and those without. The ASU retains the

current requirements to provide information on the nature and amount of different types of

donor restrictions in the notes to the financial statements.

Statement of activities:

The standard requires NFPs to report expenses by both nature and function, either on the

face of the statement of activities, as a separate statement or within the notes.

Investment income will be shown net of external and direct internal investment expenses.

There is no longer a requirement to include a disclosure of those netted expenses.


June 30, 2018

20

Notes to the financial statements:

The standard requires enhanced quantitative and qualitative disclosures to provide

additional information useful in assessing liquidity and cash flows.

Provide disclosures on amounts and purposes of governing board or self-imposed

designations and appropriations as of the end of the period.

For many NFPs, adoption of the ASU will result in significant changes to financial

reporting and disclosures which likely will require significant hours to implement correctly.

Management is in the process of examining its current reporting system to identify what

changes are necessary to comply with the new standard for both its internal and external

reporting requirements.

Revenue from Contracts with Customers

The Financial Accounting Standards Board amended its standards related to revenue recognition.

This amendment replaces all existing revenue recognition guidance and provides a single,

comprehensive revenue recognition model for all contracts with customers. The guidance provides

a five-step analysis of transactions to determine when and how revenue is recognized. Other major

provisions include capitalization of certain contract costs, consideration of the time value of money

in the transaction price and allowing estimates of variable consideration to be recognized before

contingencies are resolved in certain circumstances. The amendment also requires additional

disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from

customer contracts, including significant judgments and changes in those judgments and assets

recognized from costs incurred to fulfill a contract. The standard allows either full or modified

retrospective adoption effective for annual periods beginning after December 15, 2018, for

nonpublic entities, and any interim periods within annual reporting periods that begin after

December 15, 2019, for nonpublic entities. The Organization is in the process of evaluating the

impact the amendment will have on the consolidated financial statements.

Accounting for Leases

The Financial Accounting Standards Board amended its standard related to the accounting for

leases. Under the new standard, lessees will now be required to recognize substantially all leases on

the balance sheet as both a right-of-use asset and a liability. The standard has two types of leases

for income statement recognition purposes: operating leases and finance leases. Operating leases

will result in the recognition of a single lease expense on a straight-line basis over the lease term

similar to the treatment for operating leases under existing standards. Finance leases will result in

an accelerated expense similar to the accounting for capital leases under existing standards. The

determination of lease classification as operating or finance will be done in a manner similar to

existing standards. The new standard also contains amended guidance regarding the identification

of embedded leases in service contracts and the identification of lease and nonlease components in

an arrangement. The new standard is effective for annual periods beginning after December 15,

2019, and any interim periods within annual reporting periods that begin after December 15, 2020.

The Organization is evaluating the impact the standard will have on the consolidated financial

statements; however, the standard is expected to have a material impact on the consolidated

financial statements due to the recognition of additional assets and liabilities for operating leases.


June 30, 2018

21

ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash

The new accounting guidance in ASU 2016-18 requires balances generally described as restricted

cash or restricted cash equivalents to be included with cash and cash equivalents when reconciling

beginning and end-of-period balances on the statement of cash flows. The amendments are

effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years

beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim

period.

ASU 2018-08 Grants and Contributions

On June 21, 2018, the Financial Accounting Standards Board issued Accounting Standards Update

(ASU) 2018-08. This standard clarifies existing guidance on determining whether a transaction

with a resource provider, e.g., the receipt of funds under a government grant or contract, is a

contribution or an exchange transaction. The guidance requires all organizations to evaluate

whether the resource provider is receiving commensurate value in a transfer of assets transaction,

and whether contributions are conditional or unconditional.

If commensurate value is received by the resource provider, the transaction would be accounted for

as an exchange transaction by applying Topic 606, Revenue from Contracts with Customers, or

other topics. The standard clarifies that a resource provider is not synonymous with the general

public. Indirect benefit received by the public as a result of the assets transferred is not equivalent

to commensurate value received by the resource provider. If commensurate value is not received by

the resource provider, i.e., the transaction is nonexchange, the recipient organization would record

the transaction as a contribution under Topic 958 and determine whether the contribution is

conditional or unconditional.

FASB expects that the new standard could result in more grants and contracts being accounted for

as contributions (often conditional contributions) than under current generally accepted accounting

principles. Because of this, it believes the clarifying guidance about whether a contribution is

conditional or unconditional, which affects the timing of revenue recognition, is important. Both the

recipient and resource provider would equally apply the guidance.

For public entities, the standard will be effective for annual reporting periods beginning on or after

June 15, 2018. For all other entities, the standard will be effective for reporting periods beginning

on or after December 15, 2018.

Project Hospitality, Inc. and Subsidiaries...Board of Directors Project Hospitality, Inc. and Subsidiaries Page 2 Opinion In our opinion, the consolidated financial statements referred

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