BOYS & GIRLS CLUBS OF MERCER COUNTY, INC. AND AFFILIATE (a nonprofit organization) COMBINED FINANCIAL STATEMENTS

Transcription

1 BOYS & GIRLS CLUBS OF MERCER COUNTY, INC. AND AFFILIATE (a nonprofit organization) COMBINED FINANCIAL STATEMENTS JUNE 30, 2016 AND 2015

2 CONTENTS TO COMBINED FINANCIAL STATEMENTS JUNE 30, 2016 AND 2015 Page Independent Auditor's Report 1 2 Combined Statements of Financial Position June 30, 2016 and Combined Statement of Activities For the Year Ended June 30, Statement of Activities For the Year Ended June 30, Combined Statement of Functional Expenses For the Year Ended June 30, Statement of Functional Expenses For the Year Ended June 30, Combined Statements of Cash Flows For the Years Ended June 30, 2016 and Notes to Combined Financial Statements 9 20 Independent Auditor's Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditor's Report on Compliance For Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance Schedule of Expenditures of Federal Awards 26 Notes to the Schedule of Expenditures of State and Federal Awards 27 Schedule of Findings and Responses 28 Schedule of Prior Year Findings and Responses 29 Independent Auditor's Report on Supplemental Information 30 Supplemental Information: Boys & Girls Clubs of Mercer County Foundation, Inc.: Supplemental Statement of Financial Position June 30, Supplemental Statement of Activities For the Year Ended June 30, Supplemental Statement of Cash Flows For the Year Ended June 30,

3

4

5 COMBINED STATEMENTS OF FINANCIAL POSITION JUNE 30, 2016 AND ASSETS Current Assets: Cash and cash equivalents $ 1,803,715 $ 1,478,423 Investments 391, ,523 Current portion of unconditional promises to give 585,478 1,074,956 Prepaid expenses 11,480 24,785 Security deposits 2,550 7,212 Construction bond 52, ,644 Total Current Assets 2,847,286 3,335,543 Property & Equipment, Net 5,877,546 4,257,648 Other Assets: Loan origination fees, net 17, Unconditional promises to give, net of current portion 140, ,500 Investments endowment funds 143, ,600 Total Other Assets 301, ,100 TOTAL ASSETS $ 9,026,051 $ 8,086,291 LIABILITIES AND NET ASSETS Current Liabilities: Accounts payable $ 55,462 $ 12,250 Accrued expenses 162, ,418 Deferred revenue 131,024 23,891 Total Current Liabilities 349, ,559 Loan Payable 1,250, ,362 Net Assets: Unrestricted net assets: Undesignated 6,960,553 4,833,538 Board designated 40,000 40,000 Temporarily restricted net assets 282,573 1,938,232 Permanently restricted net assets 143, ,600 Total Net Assets 7,426,726 6,955,370 TOTAL LIABILITIES AND NET ASSETS $ 9,026,051 $ 8,086,291 See Notes to Financial Statements 3

6 COMBINED STATEMENT OF ACTIVITIES Temporarily Restricted Permanently Restricted Unrestricted Total REVENUE, GAINS AND OTHER SUPPORT: Grants $ 1,578,492 $ 264,167 $ -- $ 1,842,659 Contributions 1,344, ,344,426 Program fees 1,205, ,205,189 Fundraising events 186, ,979 Bike sales 94, ,479 Rental income 68, ,513 Dues 59, ,459 Donated assets and services 39, ,360 New Markets Tax Credit income 32, ,320 Miscellaneous income 27, ,313 Investment income (loss) ( 731) ( 731) Subtotal 4,635, , ,899,966 Net Assets Released from Restrictions 1,919,826 ( 1,919,826) Total Revenue, Gains and Other Support 6,555,625 ( 1,655,659) -- 4,899,966 EXPENSES: Program services 3,864, ,864,849 Fundraising 371, ,485 Management and general 192, ,276 Total Expenses 4,428, ,428,610 CHANGE IN NET ASSETS 2,127,015 ( 1,655,659) ,356 NET ASSETS BEGINNING OF YEAR 4,873,538 1,938, ,600 6,955,370 NET ASSETS END OF YEAR $ 7,000,553 $ 282,573 $ 143,600 $ 7,426,726 See Notes to Financial Statements 4

7 STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2015 Temporarily Restricted Permanently Restricted Unrestricted Total REVENUE, GAINS AND OTHER SUPPORT: Grants $ 1,183,099 $ 297,985 $ -- $ 1,481,084 Program fees 903, ,458 Contributions 338, , ,959 Fundraising events 262, ,351 Bike sales 89, ,997 Donated assets and services 57, ,685 Investment income (loss) 33, ,048 Dues 17, ,334 Rental income 7, ,700 Miscellaneous income 3, ,085 Subtotal 2,896, , ,552,701 Net Assets Released from Restrictions 2,757,529 ( 2,757,529) Total Revenue, Gains and Other Support 5,653,847 ( 2,101,146) -- 3,552,701 EXPENSES: Program services 2,902, ,902,437 Fundraising 293, ,662 Management and general 158, ,274 Total Expenses 3,354, ,354,373 CHANGE IN NET ASSETS 2,299,474 ( 2,101,146) ,328 NET ASSETS BEGINNING OF YEAR 2,574,064 4,039, ,600 6,757,042 NET ASSETS END OF YEAR $ 4,873,538 $ 1,938,232 $ 143,600 $ 6,955,370 See Notes to Financial Statements 5

8 COMBINED STATEMENT OF FUNCTIONAL EXPENSES Program Services Fundraising Management and General Total Salaries $ 1,960,706 $ 153,555 $ 102,179 $ 2,216,440 Supplies 535, ,002 Outside contractors 235, , ,365 Depreciation 212, ,265 Payroll taxes 186,211 14,583 9, ,498 Transportation and travel 188, ,855 Utilities / repairs 165, ,570 Insurance 79, , ,905 Employee benefits 98,783 7,736 5, ,667 Pension expense 68,995 5,403 3,596 77,994 Interest expense 33, ,342 Telephones 7,474 5,247 19,081 31,802 Dues to affiliates 27, ,284 Property taxes 23, ,690 Rent 13, ,451 Conferences 13, ,269 Professional fees ,600 12,600 Staff development 5, ,420 Postage 4, ,996 Amortization 2, ,381 Miscellaneous expenses 1, ,051 Advertising Total Expenses $ 3,864,849 $ 371,485 $ 192,276 $ 4,428,610 See Notes to Financial Statements 6

9 STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED JUNE 30, 2015 Program Services Fundraising Management and General Total Salaries $ 1,580,378 $ 123,769 $ 82,359 $ 1,786,506 Supplies 478, ,921 Outside contractors 182, , ,528 Payroll taxes 138,942 10,881 7, ,064 Insurance 73, , ,822 Depreciation 97, ,446 Employee benefits 85,228 6,675 4,441 96,344 Pension expense 78,554 6,152 4,094 88,800 Utilities / repairs 71, ,987 Transportation and travel 55, ,055 Rent 19, ,025 Telephones 4,054 2,846 10,350 17,250 Dues to affiliates 14, ,749 Professional fees ,464 12,464 Conferences 12, ,241 Postage 4, ,145 Staff development 3, ,759 Advertising Miscellaneous expenses Print shop expense Total Expenses $ 2,902,437 $ 293,662 $ 158,274 $ 3,354,373 See Notes to Financial Statements 7

10 COMBINED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 2016 AND 2015 CASH FLOWS FROM OPERATING ACTIVITIES: Change in net assets $ 471,356 $ 198,328 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization 214,646 97,446 Unrealized (gain) loss on investments 25,036 ( 26,080) Changes in operating assets and liabilities: Unconditional promises to give 698,978 1,032,446 Prepaid expenses 13,305 ( 2,501) Security deposits 4,662 1,500 Accounts payable 43,212 ( 8,628) Accrued expenses 18,421 18,167 Deferred revenue 107, Net Cash Provided By Operating Activities 1,596,749 1,311,460 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of investments ( 16,129 ) ( 14,979) Acquisition of property and equipment ( 1,832,163 ) ( 2,702,607) Acquisition of intangible assets ( 20,000) -- Acquisition of construction bond ( 52,447 ) ( 349,644) Refund of construction bond 349, Net Cash Used In Investing Activities ( 1,571,095 ) ( 3,067,230) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from construction loan ,362 Proceeds from term note payable 1,250, Repayments on construction loan ( 950,362 ) ( 7,712) Net Cash Provided By Financing Activities 299, ,650 Change in Cash 325,292 ( 813,120) Cash at Beginning of Year 1,478,423 2,291,543 Cash at End of Year $ 1,803,715 $ 1,478,423 Supplemental Disclosure of Cash Flow Information Cash Paid for the Years for Interest $ 69,281 $ 3,947 See Notes to Financial Statements 8

11 NOTES TO COMBINED FINANCIAL STATEMENTS Note 1 Summary of Significant Accounting Policies: Significant accounting policies followed by Boys & Girls Clubs of Mercer County, Inc. ("The Organization") in the preparation of the accompanying financial statements are summarized below: General Boys & Girls Clubs of Mercer County, Inc. ( the Organization ) is based within the Trenton community. The Organization is committed to helping youth of all backgrounds to develop the qualities needed to become responsible citizens and leaders, through educational, physical, social, cultural, recreational and prevention programs. The Organization provides a center for children to come after school and over the summer to interact with other children in a constructive atmosphere and operates various after school programs at their Trenton site and at the schools themselves. Funds are provided from diversified sources. The State of New Jersey, the County of Mercer, and the City of Trenton all have contracts with the Organization to provide specific programs. Substantial grants and donations come from corporations, foundations, and individuals. Funds are also provided by several major fundraising events, service fees, investment income, rent from unused space and local bike and computer exchange programs. Change in Reporting Entity The accompanying combined financial statements include the accounts of the Organization and a related entity, the Boys & Girls Clubs of Mercer County Foundation, Inc. ("the Foundation"). Although maintaining separate accounts and a distinct Board of Trustees, the Organization and the Foundation operate under similar charitable purposes and have certain inter-company transactions throughout the year. The two entities file separate tax returns for Federal and New Jersey purposes. Combined Financial Statements The accompanying combined financial statements include the accounts of Boys & Girls Clubs of Mercer County, Inc. and Boys & Girls Clubs of Mercer County Foundation, Inc., a related entity formed on January 21, The new entity was created as part the New Markets Tax Credit grant received during the audit year. Although established with its own unique Board of Directors, the Foundation and the Organization had certain related transactions during the audit year and an overall reciprocal relationship that warranted a combined presentation for the financial statements. Activity for the Foundation is reported in the Supplemental Information section to these financial statements. 9

12 NOTES TO COMBINED FINANCIAL STATEMENTS Note 1 Summary of Significant Accounting Policies (continued): Basis of Presentation The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. Net Assets Net assets and revenues, expenses, gains, and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets of the Organization and changes therein are classified and reported as follows: Unrestricted Net Assets Net assets that are not subject to donor-imposed stipulations. Unrestricted net assets may be designated for specific purposes by action of the Board of Directors or limited by contractual agreements with outside parties. Temporarily Restricted Net Assets Net assets subject to donor-imposed stipulations that may or will be met, either by actions of the Organization and/or the passage of time. Contributions that are restricted by the donor are reported as increases in unrestricted net assets if the restrictions expire (that is, when a stipulated time restriction ends or purpose restriction is accomplished) in the reporting period in which the revenue is recognized. All other donor-restricted contributions are reported as increases in temporarily or permanently restricted net assets, depending on the nature of the restrictions. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the Statement of Activities as net assets released from restrictions. Permanently Restricted Net Assets Net assets subject to donor-imposed stipulations that require specific funds to be maintained permanently by the Organization. Cash and Cash Equivalents For purposes of the financial statements, the Organization considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Cash consists of various demand accounts and money market accounts. Cash equivalents consist of reloadable debit cards provided to staff members for the purchase of supplies, meals and other miscellaneous expenses to facilitate the operation of the Organization's programs. 10

13 NOTES TO COMBINED FINANCIAL STATEMENTS Note 1 Summary of Significant Accounting Policies (continued): Investments Investments with readily determinable fair values are measured at fair value based on quoted market prices in the Statement of Financial Position. Investment income or loss (including gains and losses in investments, interest, and dividends) is included in the Statement of Activities as increases or decreases in unrestricted net assets unless the income or loss is restricted by donor or law. Concentration of Credit and Market Risk Financial instruments that potentially expose the Organization to concentrations of credit and market risk consist primarily of cash, cash equivalents, and investments. Investments are maintained at high-quality financial institutions. The Organization s investments do not represent significant concentrations of market risk inasmuch as the Organization s investment portfolio is diversified and the dollar amount of those securities is modest in relation to the cash positions. The demand and money market accounts are insured by the FDIC and/or the National Credit Union Administration. The investment accounts are covered by SPIC insurance. Accounts and Grants Receivable Accounts receivable consists primarily of program fees and membership dues related to the fiscal year that have not been collected as of the Statement of Financial Position date. The Organization uses the direct write off method to record accounts receivable, and considers the amounts reported to be substantially collectible as of the statement of financial position date. Accordingly, bad debt expense amounted to $0 for the years ended June 30, 2016 and 2015, respectively. Property and Equipment Property and equipment are stated at cost. The Organization s policy is to capitalize and depreciate property and equipment expenditures if they are considered to be significant in nature and amount. Depreciation charges with respect to property and equipment have been made by the Organization utilizing the straight-line method over the estimated useful lives of the assets. Estimated useful lives are generally five to seven years for furniture and equipment, five to ten for transportation equipment and ten to thirty-nine for buildings and improvements. 11

14 NOTES TO COMBINED FINANCIAL STATEMENTS Note 1 Summary of Significant Accounting Policies (continued): Intangible Assets Intangible assets are amortized in accordance with generally accepted accounting principles. Those assets with an indeterminate life, such as goodwill, trade names and workforce in place, are not subject to amortization, but rather are tested annually for impairment based on the fair value of the asset. Assets with a limited life, such as customer relationships, are amortized over their estimated useful life, and are also subject to an annual impairment test to verify the fair value is equal to or greater than the amortized value. Asset values are reduced if impairment is determined to exist as of the balance sheet date. Compensated Absences Employees of the Organization are entitled to paid vacation, sick and other days off depending on job classification, length of service and other factors. It is the policy of the Organization that cash will not be paid for unused compensated absences and the time is not cumulative. Therefore, no liability has been recorded in the accompanying financial statements. Income Taxes The Organization was granted exemption under Section 501(c)(3) of the Internal Revenue Code ("The Code") in August of 1938, exempting its activities from federal income taxes under Section 501(a) of The Code. Accordingly, it does not record a provision for income taxes on its related earnings. The Organization regularly reviews and evaluates its tax positions taken in previously filed information returns and as reflected in its financial statements, with regard to issues affecting its tax exempt status, unrelated business income, and related matters. The Organization believes that in the event of an examination by taxing authorities, its positions would prevail based upon the technical merits of such positions. Therefore, the Organization has concluded that no tax benefits or liabilities are required to be recognized. 12

15 NOTES TO COMBINED FINANCIAL STATEMENTS Note 1 Summary of Significant Accounting Policies (continued): Revenue and Support Contract Revenue The Organization accounts for government grants and contract revenues, which are exchange transactions, in the Statements of Activities to the extent that expenses have been incurred for the purpose specified by the grantor during the period. In applying this concept, the legal and contractual requirements of each individual program are used as guidance. Any excess or deficiency of cash receipts over expenditures incurred is reported as deferred revenue or accounts receivable respectively. Upon termination, unexpended cash funds received under the terms of grant provisions revert to the grantor. Grants are subject to audits by the grantor. Contributed Services Contributed services consist of professional services provided to the Organization at no charge. These may include legal, advisory or other professional areas. The value of services provided was $39,360 and $57,685 for the years ended June 30, 2016 and 2015, respectively. In addition, many individuals volunteer their time and perform a variety of tasks that assist the Organization, but these services do not meet the criteria for recognition as contributed services under generally accepted accounting principles. Contributions and Revenue Recognition All contributions are considered available for the Organization s general programs, unless specifically restricted by the donor. Amounts received that are designated for future periods or restricted by the donor are reported as temporarily or permanently restricted support, and increase the respective class of net assets. Contributions received with temporary restrictions that are met in the same reporting period are reported as unrestricted support and increase unrestricted net assets. Investment income that is limited to specific uses by donor restrictions is reported as increases in unrestricted net assets if the restrictions are met in the same reporting period as the income is recognized. Use of Estimates Management uses estimates and assumptions in preparing its financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were used. Reclassifications Certain amounts previously reported in the financial statements for the year ended June 30, 2015 have been reclassified to conform to the June 30, 2016 classifications. 13

16 NOTES TO COMBINED FINANCIAL STATEMENTS Note 2 Prior Period Adjustment: The accompanying combined financial statements for June 30, 2015 have been restated to correct an error made in years prior to June 30, 2015, resulting from pledges to the Organization s capital campaign being recorded when collected instead of being recorded when pledged, as required under accounting principles generally accepted in the United States. The effect of the restatement was to increase grants receivable by $1,231,000 and decrease contribution income by $1,107,500. Temporarily restricted net assets as the beginning of the year ended June 30, 2015 has been increased by $2,338,500 for the effect of the restatement. The accompanying combined financial statements for June 30, 2015 have also been restated to correct a classification error between unrestricted net assets and temporarily restricted net assets made at June 30, Temporarily restricted net assets were understated by $96,019 and unrestricted net assets were overstated by $96,019. The correction of this error had no effect on the change in total net assets for the year ended June 30, Note 3 Investments: Investments consist of diversified mutual funds held at major brokerage houses and investments managed by the Princeton Area Community Foundation ("PACF"). Under the fair value hierarchy within the Financial Standards Accounting Codification, investments categorized as Level 1 establish their fair market value(s) using quoted prices for identical assets or liabilities in active markets. The following tables set forth, by level within the fair value hierarchy, the Organization's investments at fair value as of June 30, 2016 and 2015: 2016 Level 1 Level 2 Level 3 Total Fixed Income / Mutual Funds $ 251,977 $ -- $ -- $ 251,977 Alternative Investments / Mutual Funds 193, ,748 Equity Securities / Mutual Funds 89, ,491 Total Investments $ 535,216 $ -- $ -- $ 535, Level 1 Level 2 Level 3 Total Equity Securities / Mutual Funds $ 254,484 $ -- $ -- $ 254,484 Alternative Investments / Mutual Funds 147, ,481 Fixed Income / Mutual Funds 138, ,744 Real Estate Securities / Mutual Funds 3, ,414 Total Investments $ 544,123 $ -- $ -- $ 544,123 14

17 NOTES TO COMBINED FINANCIAL STATEMENTS Note 3 Investments (continued): Investment income is comprised of interest and dividends earned from cash and investment accounts. Unrealized gain (loss) is the change in the value of the remaining investments in the accounts at June 30, 2016 and 2015, respectively. Total investment income for the years ended June 30, 2016 and 2015 is summarized as follows: Interest and dividends $ 12,574 $ 6,968 Unrealized gain (loss) on investments ( 13,305) 26,080 Total Investment Income (Loss) $( 731 ) $ 33,048 Community Foundation Investment The Organization invested in an agency endowment fund at the Princeton Area Community Foundation ( PACF ). Agency endowment funds are a liability of PACF. They represent an interest in a pool of investments designed and managed by PACF for long-term charitable purposes. PACF values that interest in monthly statements. The Organization records changes in that value as unrealized gain or loss and does not segregate those changes into separate components of interest, dividends, realized gains, unrealized gains, and management fees. Note 4 Unconditional Promises to Give: Unconditional promises to give at June 30, 2016 and 2015 were as follows: Receivable in less than one year $ 585,478 $ 1,074,956 Receivable in one to five years 140, ,500 Net unconditional promises to give $ 725,478 $ 1,424,456 The Organization reflects multi-year pledges at face value, as the difference between recorded amounts and their present values was not considered significant at June 30, 2016 and

18 NOTES TO COMBINED FINANCIAL STATEMENTS Note 5 Property and Equipment: The following is a summary of property and equipment at June 30: Building and improvements $ 5,674,815 $ 4,077,757 Furniture and equipment 497, ,799 Transportation equipment 319, ,398 Land 963, ,066 Total Property & Equipment 7,455,183 5,623,020 Accumulated depreciation ( 1,577,637 ) ( 1,365,372) Property & Equipment, Net $ 5,877,546 $ 4,257,648 Depreciation expense for the years ended June 30, 2016 and 2015 totaled $212,265 and $97,446, respectively. Note 6 Loan Origination Fees: The costs and accumulated amortization of loan origination fees are summarized at June 30 as follows: Loan origination fees $ 20,000 $ -- Accumulated amortization ( 2,381) -- Loan Origination Fees, Net $ 17,619 $ -- Loan origination fees are amortized over the period of the associated loan. The costs reflected above are being amortized over a seven year period, in accordance with the loan agreement. Amortization expense included as a charge to income amounted to $2,381 and $0 for the years ended June 30, 2016 and 2015, respectively. Note 7 Construction Bond: Pursuant to their contract for the new facility, the Organization was required to fund a surety bond with the Township of Lawrence which was paid at the start of the construction period and has been reflected on the Statement of Financial Position in the amount of $349,644 as of June 30, Upon completion of the construction project and securing a use and occupancy permit from the Township of Lawrence, the bond was refunded back to the Organization on May 6, Note 8 Deferred Revenue: Deferred revenue reflects fees received for the Sports Camp, Teen Travel Program, and Adventure Camp. The programs began after the end of the fiscal year, but fees were received in advance. The balances of deferred revenue were $131,024 and $23,891 as of June 30, 2016 and 2015, respectively. 16

19 NOTES TO COMBINED FINANCIAL STATEMENTS Note 9 Loans Payable: On March 11, 2015, the Organization closed on a construction loan agreement and mortgage ( the agreement ) with Investors Bank, NA whereas the borrower was extended credit under the terms of a construction loan for a total amount of credit availability of $2,500,000 with a construction loan maturity date of March 11, 2017, or as of the date of the completion of improvements. The agreement collateralized all fixed assets located at 1040 Spruce Street, as well as the fixed assets located at Centre Street and 23 Turpin Street. The agreement provided for any and all outstanding principal of the construction loan to be converted as part of a permanent loan with a twenty year amortization period that will mature April 1, The loan was paid off in full as part of the New Markets Tax Credit transaction that occurred during the audit year (see Note 8 New Markets Tax Credit for details). The outstanding balance as of June 30, 2016 and 2015 was $0 and $950,362, respectively. On December 23, 2015, the Organization closed on a term loan agreement ( the agreement ) with Community Loan Fund of New Jersey, Inc. whereas the borrower was extended credit under the terms of a term loan for a total amount of credit availability of $1,250,000 with a loan maturity date of October 6, The agreement collateralizes all fixed assets located at 1040 Spruce Street, as well as certain fixed assets located at 212 Centre Street. See Note 8 New Markets Tax Credit for further details on this transaction. The outstanding balance as of June 30, 2016 and 2015 was $1,250,000 and $0, respectively. Under the terms of the loan agreement with Community Loan Fund of New Jersey, the Organization must maintain loan covenants for debt service coverage of 1.20 to 1.00, a days cash on hand of no less than 30 calendar days, a current ratio of 3.00 to 1.00 and a positive cash flow, all of which are tested annually as of the last day of each fiscal year. As of June 30, 2016, the Organization had met all covenants. Interest expense for the years ended June 30, 2016 and 2015 was $69,281 and $3,947, respectively. Note 10 New Markets Tax Credit: In December 2015, the Organization entered into a debt transaction to access additional funding through the New Markets Tax Credit (NMTC) program. These funds were used towards the construction of the Organization s new facility on Spruce Street in Lawrence Township, New Jersey and certain leasehold improvements at the facility on Centre Street in Trenton, New Jersey. The NMTC program allows taxpayers to claim Federal tax credit for qualified equity investments in designated Community Development Entities (CDE). The CDE must use substantially all of the proceeds to make Qualified Low-Income Community Investments (QLICIs). The tax credits are then claimed over a seven year period and equate to 39% of the QLICIs. The Organization has partnered with an investor, Community Loan Fund of New Jersey, to utilize the NMTC program. 17

20 NOTES TO COMBINED FINANCIAL STATEMENTS Note 10 New Markets Tax Credit (continued): Community Loan Fund of New Jersey established a special purpose entity, the BGC Mercer Investment Fund, LLC ( Investment Fund ), to raise the capital for the transaction. The Investment Fund was funded with a $3,689,500 loan (QLICI Loan A) from the Wells Fargo Community Development Enterprise Round 12 Subsidiary 3, LLC (CDE) and a $1,250,000 term note from Community Loan Fund of New Jersey. The note agreement states that the Investment Fund will make quarterly interest-only payments of $17,969 at 5.75% to the holder of the note for one year (four total payments), with quarterly principal and interest payments commencing after the first anniversary of the note agreement date. Quarterly principal and interest payments of $26,395 will continue until the maturity date in October 2022, at which point a final payment of principal and interest will be due. The note is secured by the physical assets at the Spruce Street and Centre Street locations. The seven year compliance period for the NMTC will end in October 2022, at which time Community Loan Fund of New Jersey may exit the transaction through the exercise of a put/call agreement which it has entered into with the Organization. Under the agreement, Community Loan Fund of New Jersey may "put" its interest in the Investment Fund to the Organization for a purchase price of $1,000. In the event that Community Loan Fund of New Jersey has not exercised this put option, the Organization has 90 days to exercise its call option to purchase Community Loan Fund of New Jersey's entire interest in the Investment Fund for a purchase price equal to the appraised value of Community Loan Fund of New Jersey's interest. To exercise the call option, the Organization must be current on all payments under the term note and must not owe any additional amounts to the Investment Fund or Community Loan Fund of New Jersey. The Organization will realize its savings through the exercise of this put or call option, at which time it will control the Investment Fund. No amounts have been recorded in the accompanying combined financial statements related to these put and call options. Note 11 Scholarship and Endowment Funds: Interpretation of Relevant Law The Board of Trustees has designated that long-term assets be held in a manner consistent with the standard of prudence prescribed by state law. The Organization considers the following factors in making a determination to appropriate or accumulate donor-restricted funds: 1) The duration and preservation of the fund 2) The purposes of the organization and the donor-restricted scholarship fund 3) General economic conditions 4) The possible effect of inflation and deflation 18

21 NOTES TO COMBINED FINANCIAL STATEMENTS Note 11 Scholarship and Endowment Funds (continued): Interpretation of Relevant Law (continued) 5) The expected total return from income and the appreciation of investments 6) Other resources of the organization 7) The investment policies of the organization Funds with Deficiencies The fair value of assets associated with individual scholarship funds may fall below the level of the fair value of the original, restricted gift. These deficiencies are reported in unrestricted net assets. Restricted net assets continue to reflect the value of the original, restricted amount. Spending and Investment Policies The Organization has adopted investment and spending policies for scholarship assets that attempt to provide funding to programs supported by its endowment while seeking to maintain the fair value of the original gift as of the gift date. The endowment assets are invested with the advice of consultants at Merrill Lynch, MorganStanley SmithBarney, and at the Princeton Area Community Foundation in funds at those organizations in a manner that is intended to produce favorable results while assuming a reasonable level of investment risk. Note 12 Restrictions on Net Assets: Restrictions on net assets (both internally generated by the Board and externally by donor stipulations) for the years ended June 30, 2016 and 2015 were as follows: Board Designated Net Assets Board designated PACF $ 40,000 $ 40,000 Total Board Designated Net Assets $ 40,000 $ 40,000 Temporarily Restricted Net Assets After School program $ 226,888 $ 364,830 Job Ready Career Launch 32, Capital improvements -- 1,573,402 Fund A Dream / Scholarships 16, Summer camp 6, Total Temporarily Restricted Net Assets $ 282,573 $ 1,938,232 Permanently Restricted Net Assets Scholarship at Merrill Lynch $ 43,600 $ 43,600 Charles Evans Foundation Scholarships 100, ,000 Total Permanently Restricted Net Assets $ 143,600 $ 143,600 19

22 NOTES TO COMBINED FINANCIAL STATEMENTS Note 12 Restrictions on Net Assets (continued): Net assets were released from donor restrictions by incurring expenses satisfying the restricted purposes or by occurrence of other events specified by donors during the years ended June 30, 2016 and 2015 as follows: After School program $ 346,424 $ 176,766 Capital improvements 1,573,402 2,580,763 Total Released $ 1,919,826 $ 2,757,529 Note 13 Rental Income: The Organization rents its facilities to various local unrelated organizations on a short-term basis. Rental income for the years ended June 30, 2016 and 2015 totaled $68,513 and $7,700, respectively. Note 14 Operating Lease: There are no minimum future rental payments under non-cancelable operating leases as of June 30, Note 15 Pension Plan: The Organization has a defined contribution retirement plan for full time employees with one continuous year of employment and who have reached 21 years of age with vesting over six years. Employer contributions to the plan are discretionary. The Organization also maintains a contributory pension plan whereby employees covered by the plan may, at their discretion, contribute up to the current 401(k) retirement plan limits. Pension contributions for the years ended June 30, 2016 and 2015 amounted to $77,994 and $88,800, respectively. Note 16 Advertising Costs: The Organization expenses the cost of advertising and promotion as incurred. Advertising expenses amounted to $763 and $877 for the years ended June 30, 2016 and Note 17 Related Entity: As part of the New Markets Tax Credit grant that was received during the audit year (see details in Note 1 Summary of Significant Accounting Policies), certain new entities were required to be formed for the Federal funds to be distributed. One of these new entities is the Boys & Girls Clubs of Mercer County Foundation, Inc., which is included in the accompanying combined financial statements. Note 18 Subsequent Events: The Organization has evaluated subsequent events through December 16, 2016, which is the date the financial statements were available to be issued. No significant events were noted. 20

23

24

25

26

27

28 BOYS & GIRLS CLUBS OF MERCER COUNTY, INC. SCHEDULE OF EXPENDITURES OF STATE AND FEDERAL AWARDS Federal Grantor / Pass-Through Grantor Federal CFDA Number Contract Period Contract Award Federal Expenditures State Expenditures NJ Department of Education 21st Century Community /1/2014 to 8/31/2015 $ 500,000 $ 146,810 $ -- Learning Centers Program NJ Department of Education 21st Century Community /1/2015 to 8/31/2016 $ 500,000 $ 412,730 $ -- Learning Centers Program Corporation for National and Community Service, Social /1/2014 to 6/30/2016 $ 270,000 $ 137,560 $ -- Innovation Fund (passed through US Soccer Foundation) NJ Department of Children and Families /1/2015 to 6/30/2016 $ 100,000 $ 50,000 $ 50,000 NJ Department of Agriculture Division of Food & /1/2014 to 9/30/2015 $ 45,400 $ 1,270 $ -- Nutrition Child and Adult Food Program NJ Department of Agriculture Division of Food & /1/2015 to 9/30/2016 $ 45,400 $ 70,648 $ -- Nutrition Child and Adult Food Program NJ Department of Education (passed through Boys & Girls 5/1/2015 to 8/31/2016 $ 20,826 $ -- $ 20,826 Club of New Jersey) Office of Juvenile Prevention (passed through Boys & Girls /13/2015 to 12/31/2015 $ 9,500 $ 5,541 $ -- Clubs of America) Office of Juvenile Prevention (passed through Boys & Girls /13/2015 to 12/31/2015 $ 20,000 $ 9,387 $ -- Clubs of America) Office of Juvenile Prevention (passed through Boys & Girls /1/2016 to 12/31/2016 $ 30,000 $ 13,093 $ -- Clubs of America) Department of Community Affairs (passed through NJ /9/2015 to 9/10/2015 $ 6,000 $ 6,000 $ -- Alliance of Boys & Girls Clubs) City of Trenton Community Development Block Grant /1/2015 to 6/30/2016 $ 25,500 $ 25,189 $ -- City of Trenton Community Development Block Grant /1/2015 to 6/30/2016 $ 25,500 $ 25,500 $ -- Mercer County Juvenile Justice Commission /1/2015 to 12/31/2015 $ 47,500 $ 26,908 $ -- Mercer County Juvenile Justice Commission /1/2016 to 12/31/2016 $ 47,500 $ 14,574 $ -- Total State and Federal Awards $ 1,693,126 $ 945,210 $ 70,826 See Notes to Schedule of Expenditures of State and Federal Awards 26

29 BOYS & GIRLS CLUBS OF MERCER COUNTY, INC. NOTES TO SCHEDULE OF EXPENDITURES OF STATE AND FEDERAL AWARDS Note 1 Basis of Presentation: The accompanying Schedule of Expenditures of State and Federal Awards presents the activities of state and Federal grant award programs of Boys & Girls Clubs of Mercer County, Inc. ( the Organization ). The nature of the Organization is described in Note 1 of the general financial statements. All Federal awards included on the Schedule of Expenditures of State and Federal Awards are passed through from state agencies and other not-for-profit organizations. Note 2 Basis of Accounting: The accompanying Schedule of Expenditures of State and Federal Awards is presented using the accrual basis of accounting. This basis of accounting is described in Note 1 to the Organization s general financial statements. See Independent Auditor's Report 27

30 BOYS & GIRLS CLUBS OF MERCER COUNTY, INC. SCHEDULE OF FINDINGS AND RESPONSES Section I Summary of Auditor's Results: Financial Statements: Type of auditor's report issued: Internal control over financial reporting: Material weakness(es) identified? Significant deficiencies identified that are not considered to be material weakness(es)? Noncompliance material to financial statements noted? Federal Awards: Internal control over major programs: Material weakness(es) identified? Significant deficiencies identified? Type of auditor's report issued on compliance for major programs Any audit findings disclosed that are required to be reported under Title 2 US Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) Unmodified No None reported No No None reported Unmodified No Identification of Major Programs: CFDA Number Name of Federal or State Program st Century Community Learning Centers Program Dollar threshold used to distinguish between type A and type B programs: Auditee qualified as low-risk auditee? $750,000 Yes Section II Financial Statement Findings: There are no financial statement findings reported. Section III Federal Awards Findings and Responses: There are no Federal award findings and responses reported. See Independent Auditor's Report 28

31 BOYS & GIRLS CLUBS OF MERCER COUNTY, INC. SCHEDULE OF PRIOR YEAR FINDINGS AND RESPONSES FOR THE YEAR ENDED JUNE 30, 2015 Status of Prior Year Findings: There were no audit findings or responses for the year ended June 30, See Independent Auditor's Report 29

32 SUPPLEMENTAL INFORMATION

33

34 BOYS & GIRLS CLUBS OF MERCER COUNTY FOUNDATION, INC. SUPPLEMENTAL STATEMENT OF FINANCIAL POSITION JUNE 30, 2016 ASSETS Current Assets: Cash and cash equivalents $ 6,251 Total Current Assets 6,251 TOTAL ASSETS $ 6,251 LIABILITIES AND NET ASSETS Current Liabilities: Accounts payables $ 1,000 Advances from Boys & Girls Clubs of Mercer County 250,000 Total Current Liabilities 251,000 Net Assets: Unrestricted net assets ( 244,749) Temporarily restricted net assets -- Permanently restricted net assets -- Total Net Assets ( 244,749) TOTAL LIABILITIES AND NET ASSETS $ 6,251 See Notes to Financial Statements 31

35 BOYS & GIRLS CLUBS OF MERCER COUNTY FOUNDATION, INC. SUPPLEMENTAL STATEMENT OF ACTIVITIES Temporarily Restricted Permanently Restricted Unrestricted Total REVENUE, GAINS AND OTHER SUPPORT: Rental income $ 84,972 $ -- $ -- $ 84,972 Total Revenue, Gains and Other Support 84, ,972 EXPENSES: Gifts to Boys & Girls Clubs of Mercer County: Property, plant and equipment 247, ,081 Grants 45, ,632 Interest expense 35, ,939 Professional fees 1, ,000 Office supplies Total Expenses 329, ,721 CHANGE IN NET ASSETS ( 244,749) ( 244,749) Net Assets Released from Restrictions NET ASSETS BEGINNING OF YEAR NET ASSETS END OF YEAR $( 244,749 ) $ -- $ -- $( 244,749) See Notes to Financial Statements 32

36 BOYS & GIRLS CLUBS OF MERCER COUNTY FOUNDATION, INC. SUPPLEMENTAL STATEMENT OF CASH FLOWS CASH FLOWS FROM OPERATING ACTIVITIES: Change in net assets $( 244,749) Adjustments to reconcile change in net assets to net cash provided by operating activities: Changes in operating assets and liabilities: Accounts payable 1,000 Advances from Boys & Girls Clubs of Mercer County 250,000 Net Cash Provided By Operating Activities 6,251 Change in Cash 6,251 Cash at Beginning of Year -- Cash at End of Year $ 6,251 Supplemental Disclosure of Cash Flow Information Cash Paid for the Years for Interest $ 35,939 See Notes to Financial Statements 33